Aim higher, reach farther.

Death, Taxes and Resetting the Capital Gains Basis

Your editorial "Death Tax Resurrection" (Oct. 29) is flawed. You say estate taxes won't raise much revenue. The meager revenues raised in 2011 and 2012 and cited as the basis for this argument were atypical. Better estimates are on the order of at least $25 billion per year. You suggest that eliminating the step-up basis at death would raise more tax than the estate tax would. Maybe, but that depends on current capital gains rates, the size of the estate-tax exclusion, the estate-tax rate, if any, in effect and whether or not the heirs ever liquidate the asset or simply hold it.

As to the perverse incentive to spend one's estate before death, if the tax is not draconian (the old 55% coupled with state estate taxes was approaching draconian) but something more reasonable, then this disincentive to save diminishes. You write of family businesses having to be sold at auction to pay the tax, but tax code section 6166 provides that closely held family businesses and farms can make estate-tax installment payments over many years. Don't forget: The kids didn't build that business. Mom and Dad did. But as long as it is a viable business earning a reasonable profit, the kids can keep their parents' business.

Yes, this tax along with every other tax out there can be construed as robbing economic growth. But with 85% of the wealth in the hands of the top 20%, we are literally spawning another entitlement class.

I am an economic conservative who along with my wife built our own business. But we have a huge national debt that needs to be paid. How about levying the tax when wealth is transferred (not earned) from one generation to another? It seems to be the least bad option out there.

Robert E. Chew, PE


I am a certified financial planner. Because my clients all have appreciated assets, their heirs will have taxes to pay when assets are sold if the basis step-up is eliminated. So let's be honest with each other. The elimination of the death tax is merely a ploy to eliminate a tax on one group of citizens and replace it with a tax on another group. If one is to believe the Tax Foundation quoted in the article, tax revenue is likely to increase.

Don't tell me you are saving the family farm for the next generation. My experience has been that fully 50% of the next generation want nothing to do with the operation of the family business and want only to sell it. Therefore, the elimination of basis step-up will cost the sellers significant taxes and the elimination of estate taxes saves them nothing.

Yes, people with large estates sometimes make large gifts to foundations to reduce their estate-tax liability. Is that bad? They are giving the money to charity. Bill Gates and Warren Buffett are attempting to save lives, which in turn increases the global GDP. That is good thing.

If the estate tax is terminated, it eliminates the tax on wealth transfer on those with estates above $5 million or $3.5 million (depending on which party has its way) which affects very few of my clients (and probably a microscopic part of America). If the step-up is eliminated, everyone who inherits an appreciated asset from a previous generation will have a tax liability they do not have now. This will hit many, many times the number of people the estate tax does.

So I ask that our lawmakers be honest with us. Stop telling only half the story. Tell us who will pay less and who will pay more.

Fredrick Wollman, CFP

Escondido, Calif.

Show More Archives

Popular on WSJ

Editors’ Picks