Stop calling the Estate Tax bill the Paris Hilton Tax Cut.

[Zynx]

Paris Hilton almost certainly has a network of (from a legal point of view) eternal trust funds where she gets her spending money from. All the other super-rich New American Aristocracy are the same - if there is a massive family fortune, the bulk of it will almost certainly be tied up in legal entities that DO NOT DIE.

The direct inheritence these people receive is damn small - their planning is so much more sophisticated than simply cutting a check in a normal administration of an estate.

Paris Hiltion Tax Break is a nice talking point, especially when the middle class is getting squeezed, but its just waiting to be proved factually inaccurate.

[Inland]

1. Truth is worse than the label, then.

So let them bring out the truth--that thanks to Bush, not just this Paris but *every* Paris for a hundred generations is going to be richer than you can ever dream, without any particular work, skills or character.

[whistle]

2. Can anyone provide a rational, logical explanation for why....

...eternal trust funds can be set up for the super-rich to shelter inheritance taxes and no such such equivalency is available to those of us with modest amounts of wealth or even just small savings accounts?

I would be interested in also seeing an explanation of how such trust funds work (the economic mechanics of setting these up) and compare that to anything that is available to the average working U.S. wage earner.

It is time to make class comparisons to see what the differences are between the privileged rich and the working middle class and poor people of this country. The IRS code doesn't have 60,000 pages of rules and exceptions just to stimulate the government printing industry.

[Democrat 4 Ever]

4. Would you prefer to call it the Bush Girls Free Ride? Or the Rich

Senators' Kids Anti-American Tax Avoidance Ploy? How about The Uber Rich Tax Giveaway? So many possibilities, so little effort. Technically correct or not, we have got to learn to play the game of political semantics.

[GumboYaYa]

12. Putting money into a trust does not exempt it from taxation.

The basic premise of the original post is wrong. There are a vast array of estate planning tools available for minimizing the amount of tax payable on an estate that the ealthiest Americans all use, but regardless of the number of tools you use on any given estate, there is a point where tax must be paid. That is why the wealthiest Americans are fighting to repeal the estate tax. Using just basic common sense, one must ask why they would invest so many resources and political capital in repealing a tax that "know one pays".

[whistle]

18. The IRS director was just on CNN Wolf Blitzer and claims....

....that Americans fail to pay more than $300 billion a years in taxes that they are supposed to pay. Of that amount only 10% or about $30 billion is due to failure to file an IRS return. That means that $290 billion and maybe much more is from loopholes and wealthy individuals and corporations filing returns and taking advantage of tax avoidance schemes that lawyers and tax accountants find for clients that they don't deserve and are not entitled to. That is outrageous, because that means to rest of us who pay our share must make up the difference.

These trust funds are a tax dodge, pure and simple.

[GumboYaYa]

19. No they are not. A Trust has to file its own income tax return.

When a person dies, generally the assets held in trust are included in the gross estate of that person for purposes of calculating estate tax. If it the trust is irrevocable, then the grantor may have paid gift tax on the assets contributed to the trust at the time of the contribution in lieu of estate taxes. If it is a trust set up to benefit grandchildren, then the grantor also had to pay generation skipping taxes. Setting up a trust does not avoid any taxes except in the case of a living trust set up to maintain the lifetime exemption from estate taxes for the surviving spouse or in the case of certain specific instances like grantor retained annuity trusts and charitable remainder trusts, but those benefits are specifically limited by law.

The $290 Billion is not attributable to loopholes. Using a loophole means that you found a way to use existing law to avoid paying tax legally. An example of a loophole is the foreign earned income tax credit which is used to offset fake income shifted from US Companies to foreign business entities. Those exist and are exploited daily. They should be closed, but that is a different discussion. The taxes avoided by using loopholes are not included on the $300 billion number.

The vast majority of the $290 Billion is a result of underreporting income and overreporting deductions on individual and corporate tax returns. That is something that people do across the entire spectrum of tax filers.

Having said all of that, I personally favor a 100% estate tax for all estates over $10 million. It's just that if we are going to argue these issues, we should do it based on facts and not wild-eyed ranting.

[whistle]

23. Thanks for clearing that up....

....so as far as what you pointed out then:

"...The vast majority of the $290 Billion is a result of underreporting income and over reporting deductions on individual and corporate tax returns. That is something that people do across the entire spectrum of tax filers."

Such abuses can only be exposed and uncovered through IRS audits, checks and accounting validations, correct? The IRS requested $535 million in it's oversight budget to nail these tax filer errors and abuses. Congress awarded them less than $5 million according to the IRS Director's interview. That is the equivalent of screaming for more law enforcement to rid our communities of crime, then firing 99% of the police and detective investigative force. What message does that send to tax filers?

I do agree that tax loopholes should be closed, because quite frankly any tax code on the books which allows: "....An example of a loophole is the foreign earned income tax credit which is used to offset fake income shifted from US Companies to foreign business entities", I think was put there in the first place with the intent to defraud and skip paying taxes. It is just as wrong and even criminal as having a city ordinance in place which allows large store front display windows to be installed, then when a criminal walks by and cuts a fist sized hole in the glass with a glass cutter and steals the merchandise from behind the glass, but is not held liable for that abuse or the return of the merchandise.

The federal income tax code which applies to every tax filer, I heard is over 60,000 pages and contains over 1,000,000 words. There is no rational explanation which could possible justify such complexity of the documented tax requirements of our society. It is a 60,000 pound gorilla being fed by 120 pound corrupt politicians who are being influenced by fat, blotted Washington DC lobbyists and PACs for their own financial enrichment at the expense of the American taxpayer. Is that wild-eyed enough for you?
:rant:

[GumboYaYa]

24. I agree 100% with everything you wrote.

Most importantly, unearned wealth should not be received tax free. Why does someone who gets wealth for doing nothing other than being born have a right to claim that wealth tax free when the people who actually have to earn their money have to pay tax on every dime they make? If you invert the argument from the "death Tax" language the way the "Paris Hilton Tax Cut" image does, it is very powerful. I like that image as a political message.

[whistle]

31. Indeed, I have never understood why unearned income has....

...always be treated more favorably by the legislatures (IRS gets blamed, but they are not the people who make the tax code laws) then earned income.:wtf:

Then there is the category of Tax Exempt Interest :freak:

<snip>
Your Changing Tax Life: Investment Income

You call it making your money work for you. The IRS calls it unearned income. Regardless of the name, the earnings from your savings accounts, stocks and bonds, certificates of deposit or mutual funds have tax implications. Surprise, as your nest egg grows, so do your taxes.

Interest income
Most of us have had a savings account that earned interest. It's an easy and safe way to accumulate some money that you don't plan on using for a while, or that you're saving to buy that car or special gift. Your bank calculates the interest you earn regularly and lets you know how big your account is getting. But if you don't withdraw it, there shouldn't be any tax issue, right? Not according to the IRS. Any interest credited to a non retirement account and that you can withdraw is viewed by the tax-man as income to you, even if you leave it untouched. Each January, you should receive from your bank a form showing how much interest your account earned. A copy of this form, called a 1099-INT, also goes to the IRS to make sure that tax payments on it don't fall through the cracks.

All three individual tax forms, 1040EZ, 1040A and 1040, have specific places for reporting interest income -- on the line immediately following your wages entry. You can only use the 1040EZ if your interest income is less than $1,500. If it's more than that, and especially if it's from several different accounts, you'll need to use the 1040A or 1040 and their accompanying interest attachments. With the 1040A, you'll list all your accounts and the interest earned on Schedule 1; it's Schedule B for the longer standard 1040 form. Once you total all the interest on the proper schedule, then you transfer the amount to the main form to add it to your salary and other income.

Dividends and distributions
That passbook account was nice, but in your quest to maximize your investments you branched out into stocks and bonds or opened a mutual fund account. This also means that your tax filing on the income from these gets a bit more complicated. Companies periodically pay shareholders a portion of their earnings and profits, known as dividends. You cannot use Form 1040EZ if you receive any dividend income, so you'll need to report the income on either Form 1040A, Schedule 1, or Schedule B that accompanies the Form 1040.

Dividends are the most common type of distribution from a company's stock. Thanks to tax law changes, qualified dividends are now taxed at a lower rate. If you have mutual funds, you might also receive capital gains distributions. A capital gain is any profit on the sale of an asset, like stock or real estate. In the case of mutual funds, when the fund itself realizes a long-term capital gain, it pays out a portion of that to account holders as a long-term capital gains distribution, which also gets more favorable tax treatment than regular income. The annual tax statement (1099-DIV) you get from your account manager will tell you what amounts are eligible for this preferential tax treatment (and where to enter them on which form). In most cases, such earnings mean you must file a 1040 because the 1040A only allows you to report ordinary dividends. And depending on your overall portfolio and investment moves you made during the tax year, you might have to fill out some additional tax paperwork (Schedule D or a tax computation worksheet) at filing time.

Dividends That Are Interest
Some institutions call their payments to you dividends, but the IRS classifies these distributions as interest. If you get a "dividend" statement from any of the institutions listed below, this money should be reported in the interest section of your tax form:

Cooperative banks
Credit unions
Domestic building and loan associations
Domestic savings and loan associations,
Federal savings and loan associations, and
Mutual savings banks.
However, money market fund payments are, for tax purposes, considered dividends.

Backup Withholding
Your interest and investment earnings are taxable, but generally no withholding tax is taken out of the accounts. However, in some cases the accounts may be subject to backup withholding. This usually happens if you don't give the bank your Social Security number. Backup withholding also can be triggered when the IRS notifies the bank that your tax identification number or is wrong that you underreported interest or dividends on your income tax return.

Deducting Investment Expenses
You may be able to deduct some of the money you spent to set up your investments. These include expenses for investment counseling and advice, legal and accounting fees, and investment newsletters. The only limit here is that your investment expenses are to be reported on your itemized deductions form (1040 Schedule A) as miscellaneous deductions. And miscellaneous deductions cannot be subtracted until they exceed 2 percent of your adjusted gross income.

<link> http://www.bankrate.com/brm/green/taxes/5d.asp

I think every tax payer should complete every form that the IRS makes, even if they don't apply, just to drive these pricks daffy.

[Dookus]

14. The same types of trusts

are available to you or anyone. It's not terribly hard to set up a family trust that holds the bulk of a family's assets.

[Toots]

22. If all you have is a modest amount of wealth the estate tax wouldn't effec

It is of very little relevance if you don't have assets of over three million dollars. That is the current cut-off. If your estate is valued at over three million then you would need to worry a bit and set up some accounts to cover it. Most of the rich don't pay this anyway but there are still a few that do. If Bush* and the republicans get their way wealth will always accumulate at the top and all those who fall for the Republican con-job will never ever ever be in the same legue as those filthy rich folks. Even if they pay all taxes due (which they never do) they would still have more money than they could ever spend in their lifetimes yet they object to paying their fair share to live in such a country as America. In my opinion they are slime....

[thinkingwoman]

25. any average worker

can set up a trust fund. It's having money to put into such a trust in the first place that's the problem.

My grandparents and parents both had/have living trusts. Both were/are middle to lower middle class people who did not want the government to be able to take one more penny from them or their heirs than absolutely necessary. It's not that hard and it's not that big of a deal.

[Cleita]

27. You can.

The big question is, "Is it worthwhile?"

Those who inherit less that $600,000 don't pay inheritance tax, so setting up a trust is a waste of money unless you have other reasons like keeping the money out of the hands of a prodigal son until he turns 35.

[ElaineinIN]

32. Well, here's a shot

1. Trusts in most jurisdictions can't go on forever, they are limited by something called the rule against perpetuities--I'll spare you the technicalities, its about 90 to 120 years in most cases. Most trusts that I deal with are really to hold assets while people are minors and young adults, so they don't mismanage their assets. I have one in my will for my daughter until age 25 and 30 to hold insurance proceeds, and trust me, I'm not Paris Hilton.

2 There are a few jurisidctions where the RaP has been repealed-Delaware, Alaska, to name a few. Most were done at the behest of banks and trust companies, as these jurisdictions always require a resident trustee.

3. Remember that the estate tax and the gift tax are really the same tax--they are taxes on wealth transfers, just one is at death and the other one is during lifetime. When you place money in trust, you usually have to pay a gift tax on the initial transfer of funds. Of course, all future income and appreciation can then escape tax.

4 There is an additional tax, called the generation skipping transfer tax, that comes into play when you place assets in trust for more than one generation. This tax is, very generally, equal to the top estate tax rate (around 50%) and is assessed in addition to the estate or gift tax. There are special rules to make sure you can't avoid the GST tax by use of a trust in a non RaP jurisdiction.

5. Anyone can set up a trust -- whether subject to or exempt from the RaP. Under current law, you can use up to $1.0 million of your $1.5 million estate tax exemption against life time transfers subject to gift tax. In addition, you have a $1.5 million exemption from the GST tax. After those limits, you'd pay gift tax going into the trust at roughly 50%.

6. It would cost you roughly $5000 to $10,000 in legal fees to create. In addition, for a corporate trustee, you'd pay roughly somewhere between 1.25% and .5% in fees annually, plus tax preparation.

7. It isn't so much that rich people can set up trusts and you can't -- its whether you have the disposable income and assets to make it worth your while. Most of us don't have over the exemption amount from the gift/estate tax, so why bother? (prior to the increases in the exemption amount, less than 2% of all taxpayers had to file and less than 1% had to pay--its probably around .5% of all decedents, if I had to guess). So, the fact of the matter is that most of us don't have a federal estate or gift tax problem to worry about, so the use of trusts isn't necessary. In fact, it can be counterproductive, in that the administrative costs of setting up a trust eat up all the income for no good reason.

[blindpig]

38. why, because they rule

with the help of a sophisticated cadre of technicians skilled at managing the behavior of human populations. I truly believe that all of the work done by Freud thru Skinner and beyond has been harnessed for the purpose of persuading the masses to approve policy against their best interest. I guess you could call it advertising but I think it goes beyond that.

Any time we play the class card we'll be called commies. The illusion of prosperity, the freedom to consume and spend masks class differences from people just trying to get through the day. That won't change until the illusion is stripped away, and they'll try to manage that too through misdirection but I don't think that will work for long.

Seems like FDR just pissed them off the last time, next time we need to neuter them, perhaps with a weighted wealth tax.

Phew, where did that come from? Your subject line just threw a switch. Sorry for the tangent.

[pscot]

3. Mere factual inaccurcy

has never hindered the GOP when they are ginning up some talking point to move public opinion. Why should we be required to stick to some earnest standard of truth while the bad guys are allowed to wing it. Strict adherence to rigid accuracy is so inhibiting; like bringing a sword to a gunfight. Think of it as poetic license.

[iconoclastNYC]

5. Double standard

Democrats get hammered by the corporate media when we give them the opportunity. Republicans do not get this attention by the corporate media for some odd reason.

[iconoclastNYC]

6. How about the "American Aristocracy Act" n/t

[Mr.Green93]

7. We need a wealth tax

for fairness and equality. Tax the Trusts.

[wakeme2008]

8. Sorry I like that title

play the game just like the Repugs with catchy titles.

[MadHound]

9. I think it is a great title for the bill, besides

If the 'Pugs are going to blow the matter out of proportion by labeling it the "Death Tax", then by all means it should be countered with like propaganda.

What's sad is that this bill, either way it goes, will only effect aprox. 160,000 people, and yet drive us another 290 billion into debt over the next ten years. Gee, says something about those people who are affected.

[dweller]

10. when the Repugs stop calling it the 'Death Tax'

maybe i will stop calling it the 'Paris Hilton and American Royalty scam' tax.

dp

[Patiod]

11. Me too! nt

[zbdent]

13. Well, how about

The LeBron James Tax Cut?

The A-Rod Tax Cut?

The Michael Jordan Tax Cut?

The Rockefeller Tax Cut? (Okay, that might not play for the younger crowd)

Just to name a few . . .

[CBHagman]

15. I'll only stop when Frank Luntz is tarred, feathered...

...and ridden out of town on a rail for having focus group-tested the term "death tax" in order to build up support for eliminating the inheritance tax.

Luntz is also the guy who got the GOP to use the phrase "It's better to fight the terrorists in Baghdad than in New York or Washington," which gives people a false sense that the bloodshed in Iraq is going to prevent another 9/11.

After all the "Al Gore is a liar" and "John Kerry didn't deserve his medals" shtick I got from the slimier members of the GOP and their allies in the media, and the Republican leadership is screwing over the average taxpayer, I'm not going to drop any and all references to idle, undeserving and useless members of the plutocracy.

[mitchum]

33. I'll bring the tar if you bring the feathers

I'm with you

[BillZBubb]

16. Your post is another example of why we always lose.

The enemy isn't fighting with the truth. They lie and exaggerate at every turn. And they win elections.

Meanwhile our side sits around moaning about how we need absolute factual accuracy. We are always right on the facts and lose the elections.

If we use hyperbole to sell the truth, that's a good thing. If the Repugs want to get into an argument about how their rich sponsors are able to avoid taxation and don't pay estate taxes, I say BRING IT ON! We'd win that issue in a heartbeat.

[kentuck]

17. I think we should call it the Rush Limbaugh taxcut...

More people would know what you were tlking about....maybe?

[derby378]

20. "Paris Hilton Tax Cut?" That's so hot.

Now if you'll excuse me, I gotta shoot another video with a night-vision camera...

[TreasonousBastard]

21. Why not call it what it is...

when "Paris Hilton Tax Cut" is not only basically true, but has a certain ring to it? Almost as good as "Death Tax."

Part of our problem is that we don't have the sound bites they do. They are perfectly happy to define a complicated issue into a short phrase that sticks and we go on and on with long boring explanations that no one cares about.

It's advertising, people. Jingles and catch phrases sell stuff no matter how much everyone says they hate them. And we have to to sell our ideas and candidates.

[Cleita]

26. Depends on the state doesn't it?

I know here in California you are advised to set up living trusts for your heirs once the amount of your estate exceeds $600,000 or whatever the cap is today before inheritance tax kicks in.

It points to the greed of the upper classes that they don't even want to pay taxes for what they do inherit. Being that families with huge fortunes often don't even know what they are worth every day, an inheritance tax could sting them on a day the market is good.

Whew! so that's one less worry on their minds. :sarcasm:

The rest of us who have an estate that is less that $600,000 a year don't pay inheritance taxes, so I guess whatever the shortfall is because of this tax being dumped, will have to be picked up by the proletariat eventually.

[GumboYaYa]

28. It is federal law.

Under federal tax law, every person has what is called a "lifetime exemption" from inheritance tax and an "annual exemption". The lifetime exemption used to be $600,000 per person. Under Bush's tax laws the lifetime exemption increases every year (it is around $1.2 million now) and increases every year until the inheritance tax is wiped out completely (I think in 2010) for one year. Under the tax bill as passed, after 2010 te inheritance tax goes back to the pre bill rates (i.e. $600,000 lifetime exemption). The House of Reps just passed legislation that would eliminate the inheritance tax past 2010.

The dems proposed a lifetime exemption of $3.5 million per person thereby exempting virtually all but the very wealthiest Americans from estate tax. That is not good enough for the Repukes.

[ElaineinIN]

34. Living Trusts are different than other trusts

Living trusts, by there terms, are revocable or amendable by the person who creates it. Therefore, the IRS (rightly) treats it as if it doesn't exist, as the creator can change it at any time. So, for income, estate and gift tax purposes, a typical living trust makes NO tax difference. You can put provisions in a living trust that will be effective on death that can do some estate tax planning, but you can put those in a will as well. Its typical "misinformation" often cited by those in the business of cranking out living trusts.

The reason why living trusts are used in California and other jurisdictions is because, if funded, they are effective at going around the court administered probate administration process. Some jurisdictions are worse than others--but this is a who gets what and how quickly issues, and not a tax issue.

The current estate tax exemption is $1.5 million, of which $1.0 million can be used against life time gifts. It goes up to $2.0 million, then to $3.5 million per person in 2009; repeals in 2010, and then comes back in 2011.

[lavenderdiva]

37. A tardy welcome to DU, ElaineinIN!

:hi:

[ElaineinIN]

39. Thanks!

:hi:

[lavenderdiva]

42. check your PM...

[Cleita]

29. If you are interested in trusts, most banks with a Trust Department

have free phamplets that explain the system in layperson terms. I myself am planning on putting my meager assets in my stepdaughter's name with myself as trustee. This way I control the asset, but when I die she will inherit the money as it is her's already. This is to avoid probate in case I suddenly acquire some distant relative I don't know about and who could lay claim on these assets even with a will.

On edit: One more thing, it seems like this was another legal issue by the Bush administration that didn't need to be fixed.

[ElaineinIN]

35. Be very careful

It is not always that simple. Probate is not always that bad, and doing it incorrectly can cause more litigation that you can possibly believe. The messiest cases I've dealth with were with people who tried to do it themselves because there wasn't much there--and what was there gets eaten up by lawyers, like me.

And remember, banks have a vested interest in having you put money in trust, so that they will become trustee and manage the funds, eventually.

[Cleita]

40. Thanks for the warning.

I am wading into that pond very carefully. As far as the banks, yes they want you to name them as executor or trustee, but I find the phamplets helpful in explaining the basic concepts of different types of trusts more so than a professional sometimes who can leave you behind while he drones on.

[Eric J in MN]

30. If you prove me to that none of her relatives wiho have

her in their will have estates over $3.5 million, then I will stop using the term.

Until that day, I'm using it.

[yorgatron]

36. facts? who cares about facts?

"Paris Hiltion Tax Break is a nice talking point, especially when the middle class is getting squeezed, but its just waiting to be proved factually inaccurate."

the neocons figured out that if you get people EMOTIONALLY worked up enough,the facts don't matter.
we can spout facts until we're blue in the face,and in fact we HAVE been.but people don't like listening to facts.
they want emotions,gut feelings.
the gut response to "Paris Hilton tax cut" is "look at that shallow no-talent spoiled rotten slut getting even RICHER."

[Eric J in MN]

41. I truly belive that Paris Hilton has relatives whose estates

will be valued at over $3.5 million when they die and who will put her in their wills.

I wouldn't cite Paris Hilton if I thought that was bunk.

I cite her because I believe it.