Speaker 1: Welcome to Stuff you should Know from how Stuff Works
Speaker 1: dot com. Hey, and welcome to the podcast. I'm Josh Clark.
Speaker 1: There's Charles W. Chuck Ban, there's Jerry. If you put
Speaker 1: us together in a room, get a little air conditioneder
Speaker 1: noise going black out the windows. It's stuff you should know.
Speaker 1: Hegg crates on the walls bringing a cup of water
Speaker 1: for me, and like, I got nothing whatever? Why don't
Speaker 1: you have four beverages? Like, I don't know, it's a
Speaker 1: weird day. What is that is so weird? They're out
Speaker 1: of Pellegrino. Yeah, I know. I'm sitting here like I've
Speaker 1: never seen you without a beverage within three ft of
Speaker 1: your body. And I also am really tired of the
Speaker 1: coffee here. It's not okay. Oh man, are you drinking
Speaker 1: it right now? No? Good for you, jack um Chuck.
Speaker 1: Oh yeah, that's right. Although it's funny over the years
Speaker 1: when I go into restaurants, usually like some sort of
Speaker 1: like an ethnic restaurant, and asked for my name and
Speaker 1: I say Chuck, they almost always say Jack, that was there, right,
Speaker 1: And I just go with it. Yeah, I mean yeah, Jack,
Speaker 1: because what kind of person is like, no, get my
Speaker 1: name right? On the little thing you write down to
Speaker 1: my ticket. You just grabbed the thin man lapels. Yeah,
Speaker 1: I didn't care. Uh well, it's the perfect segue into
Speaker 1: what we're talking about today, Chuck, Yeah, Jack, the death tax.
Speaker 1: That's right, one of our scintillating, uh internal revenue centered casts.
Speaker 1: I mean, we have done a bunch of like tax
Speaker 1: related episodes if you think about it. Yeah, this one.
Speaker 1: I'm surprised we haven't done this one. And actually I
Speaker 1: didn't check. We haven't, right, I checked, we have not, Um, yeah,
Speaker 1: but it did seem familiar here there, but I definitely
Speaker 1: double checked. Yeah, I thought it was pretty interesting, especially
Speaker 1: a lot of this will be the history of it,
Speaker 1: which basically is, we're going to war, let's get the
Speaker 1: death tax going, right exactly, the rich are getting too rich,
Speaker 1: Let's get the death tax going. So we should probably
Speaker 1: say what the death taxes, and actually death tax we
Speaker 1: should be saying death taxes because there's a couple of
Speaker 1: different kinds of death taxes, and that's basically the term
Speaker 1: that's used by people who aren't in favor of death taxes.
Speaker 1: The kind of make it seem like it's just a
Speaker 1: stupid idea, like you have to you have to pay
Speaker 1: a tax to die. Come on, people, snap out of it,
Speaker 1: you know. Um. So basically you have two types of
Speaker 1: death taxes as it stands right now here in two
Speaker 1: thousand seventeen, you've got, at least in the United States,
Speaker 1: you have the estate tax and you have the inheritance tax,
Speaker 1: and both of them are basically death taxes. The estate
Speaker 1: taxes where um you die, you have an estate in
Speaker 1: your state is the total of all of the stuff
Speaker 1: you own and all the debts you have. So the
Speaker 1: first thing that happens to your state, your debts get
Speaker 1: paid off, uh, and then your executor gets paid off
Speaker 1: for their troubles. Your funeral gets paid off. And then
Speaker 1: Uncle Sam's standing there with his hand out shot out
Speaker 1: of a cannon that costs take that off the top.
Speaker 1: So Uncle Sam's standing there and he says, hey, lay
Speaker 1: it on me, guys, I want that. That's your estate taxes.
Speaker 1: Then after that, in some states, the money goes to
Speaker 1: the heirs, and then the states come along and say
Speaker 1: it's archer now. And because you know, states rights aren't
Speaker 1: what they used to be, right, And then your city
Speaker 1: comes along and they want theirs. And then if the
Speaker 1: city then your next door neighbor comes along and say
Speaker 1: you didn't pay the neighborhood tax on that, right, Can
Speaker 1: I have my lawnmower back? Uh so? Yeah. Basically, if
Speaker 1: you die in a state that has inheritance text, you're
Speaker 1: going to pay in a state tax and an inheritance
Speaker 1: inheritance tax on your estate. After your death, you won't care,
Speaker 1: but your heirs well, and you make care every moment
Speaker 1: leading up to that last one. After that, you'll be fine.
Speaker 1: I think the Beatles had it right on the money
Speaker 1: there that song Come Together. You're like Lucy and the
Speaker 1: Sky with diamonds, no tax man. It's a great song.
Speaker 1: If you you know, if you drive a car, I'll
Speaker 1: Texas Street, if you take a walk, I'll text your feet.
Speaker 1: It's very ah, very libertarian. Yeah, come to think of it.
Speaker 1: In the background, if you play it backwards, it goes,
Speaker 1: who is John Goal? Do we do what? I'm backmasking?
Speaker 1: All right, We're gonna do that one day took all right,
Speaker 1: So you just describe the estate tax. I described both. Okay,
Speaker 1: you said the inheritance taxe. Okay, that's the one where
Speaker 1: the states like, can we have our cut to where
Speaker 1: they text your airs, not your state. Yeah, like after
Speaker 1: you get the dough in your text. Uh so, you're right,
Speaker 1: both of those together make up a death tax. And um. Well,
Speaker 1: over the years, it's been debated both economically and philosophically.
Speaker 1: And I guess we should go back in time and
Speaker 1: the way back machine to ancient Egypt if we fire
Speaker 1: it up. Did you put gasing? I did? Uh so
Speaker 1: if you if you go back to ancient Egypt, they
Speaker 1: actually have existing uh papyrus with that tells the story
Speaker 1: of men basically either trying to dodge paying a death
Speaker 1: tax or paying a death tax, two different versions of
Speaker 1: that story against depending on who the guy was, you
Speaker 1: could tell which one you're supposed to do, because the
Speaker 1: guy dodging it had he was in the middle of
Speaker 1: a circle with a slash there. That's right, don't be
Speaker 1: this guy. Uh. And of course in ancient Rome they
Speaker 1: were big on uh big on trying to modernize everything,
Speaker 1: and of course meant the tax code as well. And
Speaker 1: Caesar Augustus instituted something called the uh vis sina herad titadium.
Speaker 1: Is that right? I think so? My Romans not what
Speaker 1: it used to herititardium. Apparently that translation is twentieth penny
Speaker 1: of inheritances. Uh. And taxes, sex secessions, legacies and donations
Speaker 1: after death. They should have called it death tax. They
Speaker 1: should have whoever came up with that, I couldn't find
Speaker 1: who did, but it's pretty clever. Uh. And like I said,
Speaker 1: there's long been debate. Um. Even in ancient Rome there
Speaker 1: were exemptions for close family Back then you could give
Speaker 1: away some charitable donations, which is, you know, kind of
Speaker 1: similar to what you can do today. That's a that's
Speaker 1: a very long standing tradition, and it should be I mean,
Speaker 1: like if you want to give a bunch of money
Speaker 1: to a charity, man, there should you. That should be unfettered, yes, um.
Speaker 1: And in fact you should maybe even get a little
Speaker 1: text break for that sure as people do at least
Speaker 1: a pat on the back from everybody in your community. Uh.
Speaker 1: And then plenty the younger not the elder beer man,
Speaker 1: which one's the one that's so hard to get? I
Speaker 1: think plenty of the elder is the beer that's hard
Speaker 1: to get, right, I don't know. It might be the
Speaker 1: other way around. So there's a plenty of younger beer
Speaker 1: as well. Versions one you can get basically all the time.
Speaker 1: The other one like, you have to stand in line
Speaker 1: for a week and a half outside of the brewery
Speaker 1: to get it, and they give you a you have
Speaker 1: to bring your own like bucket and they fill it
Speaker 1: up and they make you chug it right there and
Speaker 1: then they kick you in the butt as you're walking away. Yeah,
Speaker 1: they're doing it right. Uh well, regardless of I'm not
Speaker 1: sure which one, plenty of the younger criticize this tax
Speaker 1: and he's like, you know what you're doing. You're taking
Speaker 1: advantage of people of these families that are distraught over
Speaker 1: the death of a loved one. Yeah, how unfair is that.
Speaker 1: I would guess that plenty the younger may have been
Speaker 1: rich from that quote. I bet you're right. Yeah. Uh
Speaker 1: where else? We can go to England and France. Yea
Speaker 1: we I mean we jumped over several centuries. I don't
Speaker 1: know though, if the Holy Roman Empire was into death texas,
Speaker 1: but by the time we arrive in uh well, feudal England,
Speaker 1: that still would have been the Holy Roman Empire. I
Speaker 1: think in the thirteenth century. In England, by the time
Speaker 1: they founded the Magna Carta, death texas were so unpopular
Speaker 1: that It's like one of the first clauses of the
Speaker 1: Magna Carta, like you gotta lay off on the death texas.
Speaker 1: You could do them, but not so much. I think
Speaker 1: that was the verbatim quote in the Magna Carta. Every
Speaker 1: time I hear Magna Carta, I think of Johnny Dangerously.
Speaker 1: Did you see that? I don't remember that. I think
Speaker 1: it's the end when they're taking like walking maybe Johnny
Speaker 1: too his execution and they have the fake priests and
Speaker 1: he's doing this fake Latin because Magna Carta, Master Charga.
Speaker 1: It's just so dumb. Whenever I hear Magna Carta, I
Speaker 1: think of that one Simpsons where Marge is training to
Speaker 1: be a realtor and Lisa's teaching her like that if
Speaker 1: you if you make a song out of what you're
Speaker 1: trying to memorize, remember She's like in twelve fifteen running
Speaker 1: Me do. It's funny. There's historians out there right now
Speaker 1: going when I hear of Magna Carta, I think of
Speaker 1: the Magna cartas. Uh. But moving on to the United
Speaker 1: States because that's mainly kind of what we're talking about
Speaker 1: here with the death tax um. It was debated in Scotland,
Speaker 1: which carried over eventually into our own founding fathers. But
Speaker 1: some notable philosophers and economists, and they used to be
Speaker 1: very heavily tied, which I think is interesting. Yeah, philosophy
Speaker 1: and economics. Yeah, I guess it still is in some circles. Yeah.
Speaker 1: I think economists like to pretend that's not the case,
Speaker 1: but I think you're right. I mean, there's a certain
Speaker 1: philosophy to it. But we talked about people like John
Speaker 1: Locke and Bentham and Adam Smith before and they've kind
Speaker 1: of remained lockstep with their principles on on the death tax. Right, So, uh,
Speaker 1: Smith and Locke, we're saying, no, no, no, that's not
Speaker 1: the government's role the tax of person airs after they die.
Speaker 1: Black Stone, uh, the very famous magician, said no, we uh,
Speaker 1: we absolutely should be taxing people's estates when they die,
Speaker 1: because we want to prevent dynasties. And finally somebody in
Speaker 1: history comes out and says it like that's basically the
Speaker 1: point of the estate tax. Yeah, and um, and then uh,
Speaker 1: I think Jeremy Bentham said basically the same thing, like, yeah,
Speaker 1: we we like like wells should not be able to
Speaker 1: grow exponentially in a single family that's not that's bad news. Yeah,
Speaker 1: and that's sort of, like you said, been the root
Speaker 1: of the philosophical debate from black Stone to Bernie Sanders saying, um,
Speaker 1: and we'll get into the what people commonly were called
Speaker 1: the pros and cons. But one of the cons is
Speaker 1: uh and whether or not it's I don't know if
Speaker 1: you can prove it's true. But one of the cons
Speaker 1: people point to is you leave these kids all these
Speaker 1: millions of dollars, and they're gonna end up on dope. Well,
Speaker 1: or they're less likely to be super product not much
Speaker 1: much ass likely necessarily, but they're not as incentivized to
Speaker 1: be constructive contributors to society. No, they're not. It's well put. Yes.
Speaker 1: Uh So, like I said, this kind of transferred over
Speaker 1: to the founding fathers of the United States. Yeah, because again,
Speaker 1: I mean, the US was founded very much on enlightenment, thinking. Yeah,
Speaker 1: so the guys who founded the US were looking over
Speaker 1: to Europe and saying, like, what are those guys saying
Speaker 1: right now? What do we think about that? How does
Speaker 1: that apply here? Let's like, what are they saying over there?
Speaker 1: I don't know. I'll let you know in six months.
Speaker 1: Send a message on a boat the stamp tax of
Speaker 1: seven and this kind of begins a long tradition of hey,
Speaker 1: we're going to war, we need to raise some dough
Speaker 1: because at first they resisted the UM death tax. Yeah,
Speaker 1: but they needed to protect the colonies and that's expensive.
Speaker 1: So UH to under war against France and naval war. Um,
Speaker 1: they said, how about a stamp tax, which when I
Speaker 1: was a little kid, you know, I heard of the
Speaker 1: stamp tax and I didn't get it um. But basically
Speaker 1: it was a tax on every piece of paper printed,
Speaker 1: like every kind of documenticial document and newspapers and stuff.
Speaker 1: If you had a document that you needed to file, right, Yeah,
Speaker 1: for like the judge to release somebody's personal effects to
Speaker 1: you their air, you had to show them this document
Speaker 1: and for the judge to release it had to be stamped,
Speaker 1: and you had to pay for that stamp. So in effect,
Speaker 1: it was a government tax because this whole transaction couldn't
Speaker 1: happen until the government officially got its cut, and the
Speaker 1: stamp was proof that the government had gotten its cut
Speaker 1: and the transaction transaction could proceed. Yeah. So anything from
Speaker 1: UH an administrative letter to UH receipts for legacies, UH
Speaker 1: even the attorney's license. Like apparently attorneys had to pay
Speaker 1: like ten pounds powder for the wig just to get license,
Speaker 1: which is about a thous and bucks. Now, yeah, I'm
Speaker 1: sure they passed that. I'll bet that's about I'll bet
Speaker 1: you it costs about that much. These days, they probably
Speaker 1: ten grand for an attorney's license. I could see it.
Speaker 1: That sound about right. They make that up pretty quickly, though,
Speaker 1: I think so, you know, just a couple of hours,
Speaker 1: a couple of hours sitting at the desk watching the
Speaker 1: little bird dip its peak in the water, thinking about
Speaker 1: the summers. I'm just kidding, attorneys out there, we love you,
Speaker 1: everyone does. Um. They did have rules back then, though,
Speaker 1: even for the stamp tax, which we're kind of carried
Speaker 1: out throughout the years in one way or another. Estates
Speaker 1: under fifty bucks were exempt, and then anything above fifty
Speaker 1: had a graduated scale of tax, which is still kind
Speaker 1: of what we have today. I read this this post
Speaker 1: by this guy um on I believe Forbes, and he
Speaker 1: his name is Bob Rywick, and he wrote a book
Speaker 1: on tax pretty much literally um and he was saying
Speaker 1: that for most of history there, especially the history up
Speaker 1: leading up to America. There was not a question of
Speaker 1: whether there should be a death text or not. It
Speaker 1: was um, how much is the upper limit and what
Speaker 1: are the exemptions, you know, or what's the minimum and
Speaker 1: what are the exemptions. That's basically yeah, which is kind
Speaker 1: of where we ended up in the modern times, just
Speaker 1: sort of debating and going back and forth. Right, but
Speaker 1: even still, I mean, like right out of the gate,
Speaker 1: you know, back in Rome, we talked about how there
Speaker 1: were exceptions where if you donated to UM to like
Speaker 1: a charity or here, it's like if you of Rome,
Speaker 1: right or UM, if your state's fifty dollars worth fifty dollars,
Speaker 1: there's like no one wants that, and it's fine. Even
Speaker 1: back in the late eighteenth century that wasn't very much.
Speaker 1: It's like a hundred dollars today. Uh. So the stamp
Speaker 1: tax was repealed in eighteen o two because the war ended,
Speaker 1: or at least that particular war that they were funding ended. Yeah,
Speaker 1: and they thought about it again during the War of
Speaker 1: eighteen twelve, but that were ended before they had a
Speaker 1: chance to get it through. And maybe we should take
Speaker 1: a break here and pick up with more history. So
Speaker 1: chuck Naval War with France funded by the Staff Stamp Act.
Speaker 1: Death taxes go away for a while, and they came back.
Speaker 1: They actually stayed low in the United States until the
Speaker 1: Civil War. Yeah, and we should point out this, these
Speaker 1: death taxes didn't like fund entire wars. They you know,
Speaker 1: there were many other taxes involved for this stuff, right, Okay,
Speaker 1: So when and when I mean stay low, I mean
Speaker 1: like non existent, not that the rates were low. So, um,
Speaker 1: in the Civil War death text came about, and um
Speaker 1: it was it was different than what had been proposed
Speaker 1: with the Stamp Act. So the people who received the
Speaker 1: inheritance were the ones who were taxed. So it was
Speaker 1: an inheritance tax, not in the state tax, right. Yeah.
Speaker 1: And it wasn't like, hey, we're going to tax these stamps,
Speaker 1: which is really kind of a roundabout way of making
Speaker 1: a death tax estate tax, right exactly. This was actually
Speaker 1: your your uncle died, you got that money, give us
Speaker 1: some or we're going to break your legs all the
Speaker 1: civiphor Italians. Uh. After that, there was an amendment two
Speaker 1: years later where um, it wasn't just like person all
Speaker 1: effects or maybe stocks or cash or whatever, but real
Speaker 1: property came to be taxed as part of the estate
Speaker 1: as well. And then lastly, I think in eighteen seventy no,
Speaker 1: as part of that eighteen sixty four a moment, there's
Speaker 1: also a gift tax, and this is a big loophole
Speaker 1: that people would take advantage of. Yeah, it's funny, like
Speaker 1: early on even people were like figured out a way, like, oh, well,
Speaker 1: here's what I'll do. I'll just sell my assets and
Speaker 1: for even if it's for even less money, just to
Speaker 1: get it off the books, well to my kids or
Speaker 1: something like that. Yeah, Like here's like my dad sold
Speaker 1: me a car once for a dollar. Nice, that's a
Speaker 1: sweet deal. Yeah, yeah, it was all right. Did you
Speaker 1: pay him in like pennies? He actually wanted the dollar
Speaker 1: and it ended up costing me like a lot of
Speaker 1: money in repairs and it was sort of not a
Speaker 1: great deal in the end. Did he say buyer beware chump. No,
Speaker 1: And I don't want to be uh look a gift
Speaker 1: horse in the mouth. It was a nice gesture only, Yeah,
Speaker 1: very nice. So let's move on show. So the big
Speaker 1: loophole with that gift taxes. If you want your kids
Speaker 1: to have all of your stuff and you wait until
Speaker 1: you die to pass it on to him, Well, if
Speaker 1: there's an estate tax, the government's going to take a
Speaker 1: big chunk. But if you're alive and you say, hey, kids,
Speaker 1: i'm feeling a little, uh, a little over the hill,
Speaker 1: and uh, I think I'm gonna die soon, So I
Speaker 1: want you to have all of this stuff from my estate.
Speaker 1: You can have a tax free because there is no
Speaker 1: gift tax. The government finally said, and I think eighteen
Speaker 1: sixty four, wait a minute, there's a gift tax now,
Speaker 1: and uh, we see your loophole. But I think they
Speaker 1: even made it. The gift tax was still less than
Speaker 1: it was for an estate tax or an inheritance tax,
Speaker 1: so it was still advantageous if you're a very wealthy
Speaker 1: family to pass on your estate while you were living.
Speaker 1: Then it was to leave it after you died, but
Speaker 1: it would still be taxed. Actually equalized those right later on. Yeah,
Speaker 1: but not for a few decades. All right, So let's
Speaker 1: let's get into the twentieth century here. Industrialization. H One
Speaker 1: of the byproducts of that was it led to a
Speaker 1: concentration of wealth for a lot of families. So the
Speaker 1: government was like, alrighty see, all you wealthy families out there,
Speaker 1: thinking you can learn learn all that money and keep
Speaker 1: it and pass it to your kids, and they can
Speaker 1: pass it to their kids. We want our cut. And
Speaker 1: it wasn't just the government. As a matter of fact,
Speaker 1: I'm not sure how much the government had to do
Speaker 1: with it, but the there was a populist movement that
Speaker 1: arose that was basically like, we want our cut. And
Speaker 1: you know, Wizard of Oz was was written during that time.
Speaker 1: Frank really, Frank L. Bomb, the author of the Wizard
Speaker 1: of Oz was a populist. And there's apparently it's a
Speaker 1: very populist allegory. Yeah, lots of it, Like the Yellow
Speaker 1: Brick Road is some commentary on the gold standard, the
Speaker 1: fact that it's in can in this is um has
Speaker 1: to do with the agrarian roots of the popular The
Speaker 1: scarecrow is um, I don't know, Elvis, something weird like that, right,
Speaker 1: put on some pink Floyd, right. So um. There was
Speaker 1: this big movement, and part of this big populous movement was, Hey,
Speaker 1: there's a lot of really wealthy people here. Um, you
Speaker 1: guys should should stop this procession of wealth, you guys
Speaker 1: being in the government. And they started to get there.
Speaker 1: There was an income tax instituted in eighteen ninety four. Yeah,
Speaker 1: I didn't realize this. I thought the first income tax
Speaker 1: came later in nineteen sixteen. But they made they took
Speaker 1: a crack at it in four but it was ruled
Speaker 1: unconstitutional for reasons other than, um, the fact that it
Speaker 1: was an income tax. Right, But it was ruled unconstitutional,
Speaker 1: but not because of the death tax, for different reasons.
Speaker 1: So they said, we'll get that income tax, don't you worry, Right,
Speaker 1: that's plenty constitutions. Wait, just wait twenty years, twenty two years.
Speaker 1: Then comes along another war, the Spanish American War, and
Speaker 1: they instituted the War Revenue Act of eight And this
Speaker 1: one looked a lot like the one that we have today. Right,
Speaker 1: while it was in a state tax rather than an
Speaker 1: inheritance tax. Yeah, and it had familiar exemptions. Uh. This
Speaker 1: time under ten thousand left to a spouse was fell
Speaker 1: under the exemption, and the rate of tax depended on,
Speaker 1: of course, how big your estate was and then who
Speaker 1: you were giving it to. Yeah, and those are still
Speaker 1: around today in a lot of places. Um, if you
Speaker 1: are somebody's nephew, you're probably gonna pay the full bracket
Speaker 1: of taxation very according to uh, according to who you
Speaker 1: are or if you like you're a drinking buddy, you're
Speaker 1: gonna pay the full the full amount. If you're a
Speaker 1: like a grandchild, you'd pay less than the drinking buddy,
Speaker 1: but more than the spouse. And then the spouse is
Speaker 1: usually and has been for a very long time, whenever
Speaker 1: there's an exemption within the state tax, the spouse is
Speaker 1: usually completely left alone. There's no tax if the entire
Speaker 1: state goes over to the spouse. So that's the current
Speaker 1: rules too. Yeah, boy, I get I need to look
Speaker 1: up drinking buddy, So I gotta take care of Clem right, Well,
Speaker 1: Clem is gonna pay through the notes, I'm afraid. Oh boy,
Speaker 1: he's not gonna like that. He's really counting on me
Speaker 1: dying leaving in my podcast fortune. Uh so with that one,
Speaker 1: the War Revenue Act of again War ends. In nineteen
Speaker 1: and one, Congress uh repealed the tax. Yeah, which is weird.
Speaker 1: I kept reading that, like, what do you mean repealed
Speaker 1: the text? When did they stop doing that? But apparently
Speaker 1: they used to institute new taxes get the money they needed,
Speaker 1: and then they would say we got enough, now they
Speaker 1: have and then just more new taxes. Yeah. Um, so
Speaker 1: this kind of marked a turn where people started to
Speaker 1: get who wrote this was this Jane Jane McGrath, remember Jane, uh.
Speaker 1: She calls it a growing distaste for inherited wealth. And
Speaker 1: it started to kind of pick up steam, most notably,
Speaker 1: UM in the form of President Teddy Roosevelt, who was
Speaker 1: not a fan. No, he actually around this time there
Speaker 1: was another there was another big push for the income text.
Speaker 1: Remember it had been repealed, and Um Roosevelt was like,
Speaker 1: I'm not sure about the income tax, but I'll tell
Speaker 1: you what is great idea, that estate tax. Let's get
Speaker 1: one of those in there. Um he said. Basically, our
Speaker 1: national legislators should enact a law providing for a graduated
Speaker 1: inheritance text. The prime objects should be to put a
Speaker 1: constantly increasing burden on the inheritance of those swollen fortunes,
Speaker 1: which it is certainly of no benefits to this country
Speaker 1: to perpetuate. I mean that kind of lays it down there,
Speaker 1: go out and make your own money essentially. Well, yeah,
Speaker 1: and I think part of the other point, um, is
Speaker 1: that really seems to apply today. If you've listened to
Speaker 1: our Dark Money episode two. Um money very easily translates
Speaker 1: into political power. Now it translates into political speech, but
Speaker 1: it's always translated into political power. And if you have
Speaker 1: more and more money just being passed along from one
Speaker 1: generation to the next, that that that family is not
Speaker 1: just amassing more and more money, they're amassing more and
Speaker 1: more power. And that's not good for democracies. It's good
Speaker 1: for monarchies, but not democracies. And that's what Roosevelt was saying.
Speaker 1: Uh so Roosevelt support it big time. It also was
Speaker 1: supported by Taft and Wilson, but it still took a
Speaker 1: little bit of time and another war before Congress would
Speaker 1: get back on board again with another death tax. World
Speaker 1: War One. Yes, world War One, the US lowered terror
Speaker 1: us on our allies and wanted to build up a
Speaker 1: stronger defense, and all of a sudden they said, wait
Speaker 1: a minute, we we need dough. Yeah, those new fangled
Speaker 1: tanks aren't cheap, they're not building themselves. So they went
Speaker 1: back and said, all right, maybe that income tax ideas
Speaker 1: pretty good one. So they came up with the Revenue
Speaker 1: Act of nineteen sixteen, and that's where the modern the
Speaker 1: modern income tax and the modern um the state tax
Speaker 1: were born. And there's been no going back. No, there
Speaker 1: really hasn't because they were initially Apparently initially they planned
Speaker 1: on repealing it after the war, and they're like, this
Speaker 1: feels pretty good. I like rolling in piles of money,
Speaker 1: so let's just keep it going. And at this point,
Speaker 1: the exemption was fifty thou dollars and had a graduated
Speaker 1: rate of one per cent on amounts under fifty grand,
Speaker 1: up to ten on amounts over five million dollars. Right,
Speaker 1: it's a lot of dough back in. Yeah, it also
Speaker 1: text um real land, personal property. Uh, if you transferred
Speaker 1: something at death or even in the two years before death,
Speaker 1: that loophole. Yep, it was taxed um and then the
Speaker 1: the gift tax, but there's still a loophole. See like
Speaker 1: if you did it three years, if you transferred all
Speaker 1: of it three years before your death, you're fine. Um,
Speaker 1: you just had to live in poverty for the last
Speaker 1: three years of your life and hope that you called
Speaker 1: it correctly and that it wasn't like seventeen years. Right.
Speaker 1: So in Congress said, we see what you're doing. We're
Speaker 1: coming back with that gift tax again. That was a
Speaker 1: good idea. I don't know why we ever forgot it.
Speaker 1: We lost our institutional memory but we're putting it back in.
Speaker 1: So they put in this gift tax, and now all
Speaker 1: of a sudden it was um not smart too, it
Speaker 1: was not a loophole any longer. Yeah, and then the
Speaker 1: Great Depression had a lot to do with that, because
Speaker 1: obviously income tax went down during the Great Depression, and
Speaker 1: they said, our coffers are getting low, so we need
Speaker 1: to equalize this again. That's right. And I think the
Speaker 1: gift tax his state since then too, right, It never
Speaker 1: went away, Yeah, because I guess it was challenged in
Speaker 1: court and it was upheld by the Supreme Court to
Speaker 1: be constitutional. But Congress is like, ah, we'll repeal it,
Speaker 1: and then yeah, they brought it back and it's been
Speaker 1: there ever since. Yeah. And here's a staggering stat you know.
Speaker 1: We we've talked before about past income tax and uh,
Speaker 1: how even though it might not seem like it, we've
Speaker 1: got it pretty good today compared to certain years. But
Speaker 1: the estate tax from World War Two, when they raised rates,
Speaker 1: uh ninety one until nineteen seventy seven, the very top
Speaker 1: estate tax was seventy seven percent. Isn't that crazy? Wow,
Speaker 1: that's pretty high. Oh yeah, that's like Gerard Depardu fleeing
Speaker 1: for the borders high you know what I mean. Yeah,
Speaker 1: like you made all this stow in your life and
Speaker 1: you get to keep your family gets to keep it
Speaker 1: after you die. Yeah, and give us a smile. So
Speaker 1: the m they stayed that way actually for a really
Speaker 1: long time. It wasn't until yeah, it wasn't until nineteen
Speaker 1: seventy seven that Congress brought that highest rate down from
Speaker 1: seventy and they just brought it down to seventy then
Speaker 1: and then um, Reagan came in and started whittling it away, uh,
Speaker 1: little by little, um and it got as far down
Speaker 1: as I think. Yeah. That was the Tax Reformact of
Speaker 1: nineteen seventy six. And another thing came along with that.
Speaker 1: It was something called the g s T tax, the
Speaker 1: Generation skipping transfer tax, another loophole, yeah, which is like, oh, well,
Speaker 1: I'm not gonna give my fortune to my kids, I'll
Speaker 1: give it to my grandkids, wink wink. And then if
Speaker 1: you had a really good estate planner, they could teach
Speaker 1: you how to leave your assets to your grandkids, but
Speaker 1: make your kids the beneficiary of any interest in income
Speaker 1: arising from those assets. So both generations were taken care
Speaker 1: of text free so they in nineteen seventy six they
Speaker 1: closed that loophole with the generation skipping transfer tax, and
Speaker 1: grandchildren around the world cried and cried, cried, yeah, and
Speaker 1: that's when the um well, the exemption at that point
Speaker 1: in nineteen seventy six went from sixty grand to a
Speaker 1: hundred and twenty thousand dollars. And you know what, let's
Speaker 1: take a little break here. I'm gonna leave people in suspense,
Speaker 1: I think wed because I'm starting to get excited. All right, Chuck,
Speaker 1: you've left this in suspense long enough. What so that
Speaker 1: exemption rate, I said, in Uh, the Tax Reformact of
Speaker 1: nineteen seventy six went from sixty grand to one at seven.
Speaker 1: And we've explained what the exemption was, right like or
Speaker 1: did we not? Even? I feel like we did, But
Speaker 1: if not, just make it more clear. The exemption is where,
Speaker 1: if you're the value of your estate comes and that's
Speaker 1: part of the process is everybody goes in and says
Speaker 1: this is worth this much, No, it's not, YESI and
Speaker 1: then they come up with the value of your state.
Speaker 1: If that value was less than sixty grand at that point,
Speaker 1: then you're you could transfer it to any you could
Speaker 1: transfer it to claim text free. It's exempt below the
Speaker 1: level of sixty grands, okay, so super clear. So that
Speaker 1: rose to a hundred and twenty grand and change. Uh.
Speaker 1: And then in the nineteen nineties things kind of started
Speaker 1: rolling a little bit. We had this uh big budget surplus.
Speaker 1: I remember that, Yeah, the good old days. And then
Speaker 1: George W. Came along and said, you know we're gonna
Speaker 1: do we got this big surplus, we're gonna start giving
Speaker 1: it back to the American people, um, and especially the
Speaker 1: wealthy American people. And um, the the threshold really started climbing. Yeah,
Speaker 1: Like it went from in two thousand nine, it had
Speaker 1: climbed to six hundred and seventy five thousand dollars not bad.
Speaker 1: And it jumped from six d seventy five thousand to
Speaker 1: three point five million dollars, yeah, in two thousand nine.
Speaker 1: So it went from from the eighties and of or
Speaker 1: no I'm sorry, the seventies a hundred and twenty thousand
Speaker 1: to thirty years later three and a half million dollars.
Speaker 1: The exemption was. Yes, that that is quite a climb,
Speaker 1: but it had an even more astronomical climb from two
Speaker 1: thousand nine to uh two thousand thirteen because it went
Speaker 1: chuck in the Taxpayer Relief Acts. So remember George W.
Speaker 1: Came in and said, hey, it's not government's role to
Speaker 1: have a bunch of taxpayers money and you don't know
Speaker 1: what you're gonna do with it. Give it back. I'm
Speaker 1: the man who's gonna get it back. And like you said,
Speaker 1: and certain people got it back, some other people got
Speaker 1: it back. But it was a transfer of wealth, right. Um.
Speaker 1: Barack Obama came in and said, you know what, that
Speaker 1: was screwed up. I'm gonna get some of that money
Speaker 1: back for everybody. I'm gonna tax the wealthy. I'm gonna
Speaker 1: get rid of these so called Bush tax cuts, which
Speaker 1: is what they were called. And um, he didn't at all.
Speaker 1: As a matter of fact, he signed into law in
Speaker 1: two thousand twelve, the Taxpayer Relief Act of two thousand
Speaker 1: and twelve, which took the Bush tax cuts which were
Speaker 1: which had expired already, um, but then had been extended
Speaker 1: temporarily for two years. He took those Bush tax cuts
Speaker 1: he campaigned on getting rid of, and actually enshrined them
Speaker 1: in law. And now for the indefinite future. They the
Speaker 1: um the exemption is up to five million dollars for
Speaker 1: in a state more than that now actually, so it
Speaker 1: must have been at least five Well it's index for inflation. Yes,
Speaker 1: And now for two thou and sixteen it was four
Speaker 1: five point four five million um for a single individual,
Speaker 1: ten point nine for a couple for a couple yeah. Uh.
Speaker 1: And then um, the tax rates were set at fort maximum, right,
Speaker 1: and that's after it had gone down to thirty five
Speaker 1: under Busch. So I think that was part of the compromise,
Speaker 1: and let's bring it up, but let's let's basically make
Speaker 1: it permanent at five mill Yeah. And there was even
Speaker 1: a year in there. This is crazy. Do you remember this,
Speaker 1: this whole back and forth, like getting rid of the
Speaker 1: bush tax? What's gonna happen? Yeah? And um, in two
Speaker 1: thousand and ten there was I guess they didn't sign
Speaker 1: a paper fast enough for something. But there was no
Speaker 1: death tax in that year. So if you're wealthy and
Speaker 1: Gladys died in two thousand and ten, you were you
Speaker 1: you lucked out because the very next year, those uh,
Speaker 1: those cuts got restored, or those those gifts taxes or
Speaker 1: estate taxes out of store. And don't think that there
Speaker 1: weren't some people in two thousand ten that were peeking
Speaker 1: in on Aunt Gladys holding a pillow in their hands. Us. Yeah,
Speaker 1: that's not funny at all. Killing a relative for their
Speaker 1: inheritance is not funny. No, it's not certainly not in practice.
Speaker 1: So here's the deal, and we're going to get to
Speaker 1: the pros and cons in a second. But like I said,
Speaker 1: for because of inflation, five five point four or five
Speaker 1: million dollars is the lifetime exclusion amount. They have this
Speaker 1: chart you can basically throw out the window that says like,
Speaker 1: if you have a taxable state of four grand, you'll
Speaker 1: low seventy thousand dollars plus thirty of a hundred and
Speaker 1: fifty thousand because you have to pay a percentage on
Speaker 1: the amount and excess of the lower limit. It's all
Speaker 1: mine numbing if you're just a lay person. But throw
Speaker 1: that all out the door, because anything under five point
Speaker 1: four or five million, let's just call it five and
Speaker 1: a half million bucks is under that ex lousion amount.
Speaker 1: But here's the weird part. Because it's the United States
Speaker 1: and we can't just make things simple. It's a unified credit.
Speaker 1: It's how it's structured. So what what you have to
Speaker 1: do is you have to structure it to pay on
Speaker 1: the full amount, and then they give you a tax
Speaker 1: credit back. Oh, that's just to make convoluted. That's not okay, though,
Speaker 1: you pay the full amount and then they're like, and
Speaker 1: then we'll pay you back what you I don't think
Speaker 1: you pay it. Actually, I think it's just in the
Speaker 1: computation different. But it still seems just unnecessarily convoluted, Like
Speaker 1: you should just knock it off the top and see
Speaker 1: what you got left. Here's the other trick. If you
Speaker 1: have a lot of money, and we should say that
Speaker 1: this is we do not qualify as text experts, or
Speaker 1: if we're giving tax advice. If if you're subject to
Speaker 1: the estate tax and you're using our tax advice, No, no, no,
Speaker 1: how did you come up with that money? Yeah? Uh?
Speaker 1: The gift thing, there's an annual gift tax exemption of
Speaker 1: fourteen thou dollars per person. Oh yeah, so if you
Speaker 1: have three kids, that's per year. Yeah, if you have
Speaker 1: three per person per years. If you've got three kids
Speaker 1: and they're all three married, and they have ten kids
Speaker 1: between them, and they they all are successful, they don't
Speaker 1: have drug habits or anything like that, right, you can
Speaker 1: give fourteen thousand dollars a year to each one of
Speaker 1: them per spouse. So that's four hundred and forty eight
Speaker 1: thousand dollars a year to those three kids, their three spouses,
Speaker 1: and those ten grandkids. And if you plan ahead way
Speaker 1: before your death, you could potentially give away all your
Speaker 1: money tax free by the time you die through gifts.
Speaker 1: So that seems legit to me because that is clearly
Speaker 1: middle class. It's upper middle class, but that's middle class.
Speaker 1: That that cap, the five million, No, that gift tax. Yeah,
Speaker 1: that cap of fourteen grand a year. It's not gonna
Speaker 1: help funnel a massive estate tax free onto the airs,
Speaker 1: but it does give a break to middle class, upper
Speaker 1: middle class, but middle class families. Well, but you would
Speaker 1: only be given that away though, if you were going
Speaker 1: to be above the five million dollars, right, because anything
Speaker 1: under that is exempted. So that ain't middle class. No,
Speaker 1: that's true, you're right, you know. Okay, Well that was
Speaker 1: that was a stupid thing for me to say. So
Speaker 1: if you're out there thinking, even with the deduction at rate,
Speaker 1: is a lot of money on an estate tax. They
Speaker 1: give an example here in this article. Let's say you
Speaker 1: have a seven million dollar estate knock off the five
Speaker 1: point four or five million, that's one point five five
Speaker 1: million at that's about six and twenty thousand. So if
Speaker 1: you didn't look at that for the whole seven million
Speaker 1: dollars state, that's only about nine. Yeah. And actually I
Speaker 1: saw a two thousand thirteen Brooking study Text Policy Institute.
Speaker 1: I think study found that of in that year, of
Speaker 1: all of the estates that had to pay taxes, they
Speaker 1: paid an average effective rate what they actually paid of
Speaker 1: sixteen point six percent, nothing like and um in that
Speaker 1: same year. There's another one too. There's there's a lot
Speaker 1: of objection. We should talk about some of these objections.
Speaker 1: Some of the objections to this is they're basically they
Speaker 1: go into two tranches. One is that this kind of
Speaker 1: tax stifles investment. That is the very wealthy and the
Speaker 1: very rich, who are really that the economic engines of
Speaker 1: America and capitalism't because they introduce capital to the markets
Speaker 1: and that's what drives the markets and makes the economic
Speaker 1: engine hum. And we're all better off as long as
Speaker 1: the wealthier pumping money into this. Well, if we don't pump,
Speaker 1: if we don't let the rich pump more money into it,
Speaker 1: meaning the government comes along and says, your father just died,
Speaker 1: give us of his of that vast estate that you
Speaker 1: just inherited, Well, that's going to Uncle Sam rather than
Speaker 1: potentially into the markets. Yeah. And also some people would say, hey,
Speaker 1: that's attacks for being successful. Well, that's the other trunch
Speaker 1: is that it's basically morally incorrect for the government to
Speaker 1: come in and say give us some money wealthy person.
Speaker 1: That yeah, that it's attacks on on success, that the
Speaker 1: government has no business taxing inter family fortunes, um. And
Speaker 1: then again that it stifles economic growth and development. Yeah.
Speaker 1: And another thing if you're against this, someone might say is, hey,
Speaker 1: we were already taxed on that stuff to begin with
Speaker 1: during life. So now and not only that, but my
Speaker 1: dad inherited that and paid in a state tax. So
Speaker 1: it's just double and triple and who knows depends on
Speaker 1: how long your family wealth goes back? Is how many
Speaker 1: times it's tax Yeah, because not only was it taxes income,
Speaker 1: it could be taxed multiple times. Is in a state
Speaker 1: that same estate is what you're saying. Yeah, Then of
Speaker 1: course a lot of people drop the mic with it's
Speaker 1: a wealth redistribution scheme that you're trying to take money
Speaker 1: from the wealthy and give it to the less wealthy
Speaker 1: e g. The poor and um, home, we don't play that.
Speaker 1: I remember Holming the Clown. That was great. Uh that
Speaker 1: was a great show. Yeah, oh yeah in living color. Yeah.
Speaker 1: It's crazy how many things kind of like carried over
Speaker 1: and are still part of the lexicon. Home, we don't play.
Speaker 1: We don't play that. Two snaps up. Let's bring all
Speaker 1: that stuff back, two snaps um. Another knock is that
Speaker 1: people say, you know what this is, state taxes is
Speaker 1: less than like one per cent of what the government
Speaker 1: collects annually, and they probably spend that much going after
Speaker 1: it and litigating this stuff because nine times out of ten,
Speaker 1: wealthy people are fighting this tooth and nail and you know,
Speaker 1: just cause too much to go get it. And that's
Speaker 1: a a lot of these, it turns out, are pretty disingenuous,
Speaker 1: Like they sound right if you don't look into them,
Speaker 1: but apparently a lot of them are not correct, like
Speaker 1: the idea that the effective tax rate is sixteen percent
Speaker 1: or seventeen percent, not fort Another one is that it
Speaker 1: hurts small businesses. This is a big boogeyman with the
Speaker 1: estate tax as well, like that you if you go
Speaker 1: in and a family owned business or a family owned farm.
Speaker 1: If the government goes in there and says you own
Speaker 1: on that just because your father died, So go sell
Speaker 1: some of the cows, go sell a tractor, you hay seed,
Speaker 1: and give us the money. That's gonna have a really
Speaker 1: negative effect on the family farm or the family small business.
Speaker 1: It may even cause it to go bankrupt. It may
Speaker 1: cause the farm to go under. That's not good. The
Speaker 1: government can't do that. Yeah, you hear that, and you think,
Speaker 1: of course that's awful, right, but the facts don't bear
Speaker 1: that out, correct, right. That same two thirteen Brooking study
Speaker 1: found that in two thousand thirteen, twenty twenty small businesses
Speaker 1: and farms owed any estate tax at all, and on average,
Speaker 1: those twenty small businesses and small farms that did have
Speaker 1: to pay a state tax paid an average about four
Speaker 1: point nine percent of the value of the estate. Um,
Speaker 1: there's special there's special rules, especially for calculating the value
Speaker 1: of farmland for estate taxes, in particular, that reduces their
Speaker 1: value so that the tax is inherently lesser. Another reason
Speaker 1: someone says might say that they're unfair. I'm sorry, you
Speaker 1: might say that they're fair, is what we alluded to
Speaker 1: a little bit earlier about the concentration of wealth is
Speaker 1: not a good thing, not just economically, but um when
Speaker 1: it comes to power, and it's dangerous to a democratic
Speaker 1: society to have UM. The influencers of this country be
Speaker 1: so few and only influencers because they have so much right,
Speaker 1: and the average Joe's voice is lost in the process. Yeah, so.
Speaker 1: Somewhere somebody pointed out that the estate taxes the most
Speaker 1: progressive part of the entire U S tax code because
Speaker 1: it truly only affects the people who actually can afford it,
Speaker 1: or who are actually wealthy. It doesn't it has no
Speaker 1: undoe or disproportionate burden, or any burden on people of
Speaker 1: lower socioeconomic status or even middle socioeconomic status. Something like um,
Speaker 1: two tenths of one percent of households are subject to
Speaker 1: the estate tax in the United States this year. I
Speaker 1: think two tenths of one percent. That's not much, that's true.
Speaker 1: And then another one to address that, the idea that
Speaker 1: it doesn't bring in very much, and the government spends
Speaker 1: more money than it then it takes in it. Yeah,
Speaker 1: we're fighting for it. Supposedly. I saw estimates of two
Speaker 1: billion I saw one estimate of two billion UM between
Speaker 1: two thousand seventeen and two thousand twenty six is how
Speaker 1: much they expect the estate tax to take in, which
Speaker 1: isn't much. It's like less than one percent of the
Speaker 1: government's tax revenue. But the author of this one article
Speaker 1: I saw pointed out that's like the combined budgets of
Speaker 1: the f d A, the CDC, and the e p
Speaker 1: A combined, So it's it's actually paying for stuff, you know.
Speaker 1: And apparently it cost about seven percent for enforcement and administration,
Speaker 1: whereas income taxes cost about four to UM chase down
Speaker 1: dead beats, So there's that. It's about half the state
Speaker 1: tax problems debunked you anything else? No, I thought I
Speaker 1: thought that was fairly interesting for someone who doesn't like
Speaker 1: I go a little uh foggy when I start talking
Speaker 1: about finance and taxes, But for some reason this one
Speaker 1: kind of interested me. Do you do your own taxes? No?
Speaker 1: I love it? No, no, no, no, I love it. Man,
Speaker 1: I love doing taxes. I not only do I not
Speaker 1: like it, but I would say that I can't put
Speaker 1: a percentage on it. But having a professional involved, really
Speaker 1: really financially is beyond worthwhile. Like a thousand percent worthwhile
Speaker 1: Yeah for what they can save you. Oh no, I'm
Speaker 1: sure like like we're having somebody go back over my
Speaker 1: figures this year, but um it's and I don't like
Speaker 1: paying tech because it's not fun. But it's like this
Speaker 1: big horrible ball like hair and teeth after like like
Speaker 1: work into uh a usable yeah figure, I gotta turn
Speaker 1: it into the venus. Gummy venus to Mila. So you
Speaker 1: take a taratoma and you form that into a beautiful
Speaker 1: statue right with no arms, and then I cry Matt's Texas. Uh.
Speaker 1: If you want to know more about death Texas, type
Speaker 1: those words into the search part how stuff works dot Com.
Speaker 1: Since I said search parts, it's time for listener mail.
Speaker 1: I'm gonna call this uh fan that found us through Delta,
Speaker 1: all right. I know this would pay off one day.
Speaker 1: You know, we don't know for still on. But for
Speaker 1: a while we were on Delta flights. We're supposed to
Speaker 1: be back on this year, are we? And I always
Speaker 1: kind of wondered, like we got booted off? Does anyone
Speaker 1: actually discover us board on a flight? That's what I'm saying.
Speaker 1: We now come we have one person, so uh, Ethan
Speaker 1: lives in Los Angeles and says he found us on
Speaker 1: a Delta fight and a loyal listener ever since. Um,
Speaker 1: I'm sure many fans have their favorite episodes, favorite sweets,
Speaker 1: band names, ideas. Here if you my favorite jokes, and
Speaker 1: I didn't remember a couple of these, so I'm gonna
Speaker 1: test your memory. Josh, you had one look at those
Speaker 1: look at these shoes. I'm the king of Rotterdam. All right, Nope,
Speaker 1: he said. He laughed for five minutes on that one.
Speaker 1: Chuck the Language of the Beard. He says, he's still
Speaker 1: laughing at that. In fact, anytime I need to pick
Speaker 1: me up. I scrolled to the forty three minute mark
Speaker 1: of how the Stigil the Stigil Organs work. The whole
Speaker 1: exchange is hilarious, including Josh's reaction. The joke verges on
Speaker 1: toilet humor, but doesn't quite belong in that category. So
Speaker 1: I don't remember that one. I have to look it up.
Speaker 1: I do remember this one, Chuck the runner up his
Speaker 1: Chuck's line when you realize that diesel fuel is named
Speaker 1: after a person, Jimmy Gasoline. I remember that. I remember that.
Speaker 1: I don't remember what episode it was in, though, but
Speaker 1: I do remember that, but he has a little factoid
Speaker 1: for us. He finished the Alexander Hamilton's show, uh and
Speaker 1: he says, this saw the visit of the Grange a
Speaker 1: couple of years ago and loved it. While there, I
Speaker 1: learned something I'm surprised you mentioned as a testament to
Speaker 1: his character. Not only did Hamilton's shunned slavery, as you mentioned,
Speaker 1: he also defended Tories and British subjects as a lawyer
Speaker 1: in court. And this was only six years after the
Speaker 1: Declaration of Independence. What a guy. Wow, he really was
Speaker 1: top knock. Yeah, that's from Ethan barber Er. Thanks a lot.
Speaker 1: Ethan Ethan Barber or Barber one of the two. Oh
Speaker 1: it wasn't Barbara. It was spelled different Barber, I know,
Speaker 1: like the hunting gear right, I don't know barb barber whatever.
Speaker 1: If you want to get in touch of this, like
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