471 million in estate taxes on a $1 billion collection? That's depressing. Tax collectors being able to declare arbitrary valuations? That's terrifying.
The more common situation is extremely high valuations, and thus taxes, on real estate which is listed and not selling at half the valuation. I know many people who have gotten burned by that.
The fix for this is to give people the option to sell the items to the government at some high fraction (eg 75%) of the valuation, instead of paying the taxes.
I think Nascar uses this system to discourage undervaluing entries: owners declare a value for their car, and Nascar has the right to buy the car at that valuation. They would only do this if the car was under by a significant margin, so there's a huge incentive to give a fair estimate for the car.
Its also a little similar to a system used to resolve splitting a 50/50 owned company: the person who wants to buy out the other partner must first give the price they'll pay, and then the second partner must choose between buying them out at that price, or selling their share.
Pretty much the same as the "one splits, the other chooses which half they want" that my brother and I would use to guarantee fair splits of cookies or cake.
Guatamala tried the reverse of that--they paid Chiquita chiquita's declared tax value for their land... pennies per acre. The US overthrew their democratically elected government over it.
The valuation is given by IRS, so if they value it so high to get taxes (they jumped from 15M to 60+M just like that), they should also be able to buy it at the valued rate.
The last thing the government wants to be involved with is selling real estate, art and other illiquid assets. There is a very real possibility that the government would lose money if it is unable to sell the asset at the original valuation.
Well the reality right now isn't too different. Ignoring the bald-eagle situation, they sell some of the items to pay for the tax bill, and keep the remainder.
The government wants cash, it has no use for paintings!
Even assuming they can find buyers for enough of the collection to pay the taxes, that's an enormous, instantaneous pile of stress on the children of a parent who just died and is probably missed tremendously.
Hey kids, I hear your parent died? Great! You owe us 500 million dollars, get to work.
I think estate taxes are defensible, but the way this particular estate was handled doesn't seem defensible. Out of all the things someone could do with their vast fortunes, buying art and then loaning it out to museums and collections doesn't seem like the worst thing in the world.
In particular, the article points out that black market valuations may have even been considered when valuing the art in the estate: That means the government is basically encouraging these works of art to be sold on the black market (likely to private collectors who will keep them in private), where if they were at least sold on the open market - or in this case, held by the original owners - they would be more likely to be put on loan to museums so the public could benefit from them.
Alternately, in a case like this where it's illegal to sell the item being taxed, the government should offer the option of simply handing it over to them in order to erase the tax liability, or giving it to a charity, in order to conclusively demonstrate that no profit is being made from the work of art (black market or otherwise).
If you're paying $500M in taxes, you just inherited so much money you'd need several trucks to take it to the bank.
So you're supposed to feel sorry for people in that position? That they have to pay so much tax they might have only a few hundred million left to pad out their mattress?
Most people are ground down to nearly nothing by taxes and cripplingly high insurance premiums. They should be so lucky to have this much left over after taxes.
You know what most kids inherit when their parents die? A giant tab for the funeral.
No one has $500m of cash lying around in a liquid form. Generating that kind of cash, even for the very rich, usually involves selling lots of assets at rock bottom price.
Moreover, when the cash is tied up in an art collection, the valuation is really tricky. Art that earns a $500m tax bill could easily be worth less than that if sold immediately - as is, in fact, the case with the piece under consideration.
As for the fact that most people inherit debts from their parents, I don't see how that's material to the discussion at hand.
The article says they sold $600m of the collection. Which means even with the huge tax bill, they have over $100m plus whatever art they havent sold left.
To be fair, if you piloted your $100M yacht into Monaco harbor you'd have to anchor your sad little boat way in the back. Think of the shame this brings!
"Get the rich" is not a good justification for policy.
Do you have kids? It turns out one big economic incentive, particularly late in life, is to make money not for yourself but for your children. A lot of people hate the concept of an heir running around with money he/she didn't earn, but i mean, it's Not Your Problem so long as the money was fairly earned by the parents. Furthermore, a billion dollar estate is probably something that has already been taxed, possibly several times, possibly in a compound fashion, so I don't think there should be any worries that rich heirs have not paid society for their money.
There's also serious implementation problems with estate taxes, as other posters have described. Levying very large taxes on illiquid and hard-to-value possessions is unfair no matter how you slice it.
I don't want to defend the handling of this particular estate, but the justification for estate taxes in general is that it is counter to the interests of a democracy to have a hereditary aristocracy. It's not just that we hate the idea of trust fund babies -- they actually hurt America.
> A lot of people hate the concept of an heir running around with money he/she didn't earn
I don't hate the concept either, but IMHO complaining that one would only receive $500M of unearned money instead of the $1B anticipated just makes the would-be recipient look like an asshole.
Most people in the world would probably be satisfied to receive a few thousand dollars of unearned money. $1M and they'd be set for life in most parts of the world. Anything above that is just gravy.
Oh come on. Is expecting them to pay taxes an "enormous ... pile of stress"? Is it not treating them as humans? They inherited an incredibly big estate consisting of illiquid assets. They did not have to work to inherit the assets, now they have to either actually do some work or hire a professional to do their fiscal duties. If that is too much stress, not accepting the inheritance is a stress free option as well, but of course it means they don't get to never have to work for money again.
The money was already taxed. I have no problem taxing transactions that have a value add. When I get paid a wage I have created that wealth a tax on the newly created wealth is fine.
No wealth is created when an estate gets handed over. The tax thus stops being a way to assign a percentage of wealth to public projects and becomes a accounting trick. The idea that this simple wealth transfer should be taxed at such a high rate is slly.
No less an extremist as Thomas Jefferson supported the estate tax, and we still have it for many good reasons. This article talks about it better than I could:
The entire principle behind estate taxes, which are only relevant to those with significant estates, is to prevent the massive accumulation of wealth by a tiny minority.
The United States, as conceived, was a departure from the European system comprised mostly of wealthy land owners and destitute peasants.
In a sense, the estate tax is an unfortunate necessity. Without it you would have Paris Hilton inheriting billions absolutely tax free, and likely accumulating even more wealth not by any particular skill, but through interest alone. That much money has a sort of gravitational pull at that point if not mis-managed.
> Hey kids, I hear your parent died? Great! You owe us 500 million dollars, get to work.
Clearing up a dead parents estate an be psychologically challenging. Luckily most people paying the estate tax can afford lawyers to help them muddle through. If you have a well adjusted family and the person doesn't die suddenly you could even plan a lot of this ahead of time.
>Even assuming they can find buyers for enough of the collection to pay the taxes, that's an enormous, instantaneous pile of stress on the children of a parent who just died and is probably missed tremendously.
Yeah, it sucks, and it's not ideal, but out of all the places the government can extract money to benefit society, it's one of the most effective and least painful in the big picture.
That's a bold statement to make without any substantiating argument.
This is money earned by someone through their hard work. They probably created hundreds or thousands of jobs in the process too. They paid taxes on it already, too. Why should the state help itself to almost half of the inheritance? Because it doesn't suck enough to have a close relative die, so you want to make it more painful?
Even after paying $471 million in taxes on the art, the heirs stand to net half a billion dollars. So it's hardly "nothing" and hardly a cause of hardship (and that's just the art portion of the wealth). In the US, it is a tiny fraction of estates which are encumbered with any sort of inheritance taxes.
As an American, I am not opposed to inheritance taxes. Discouraging the creation of an hereditary aristocracy is part and parcel of the legacy of our revolution and has long been one of the reasons for enacting inheritance taxes. Given the way in which our tax code favors capital gains, the inheritance tax is in many ways a mechanism which allows people to grow their wealth tax deferred. And in the case of the art, it is a stretch to consider any increase in value a capital gain that contributed to economic growth.
Other cultures enjoy supporting hereditary nobility. But it's not part of our founding principles.
I think you're only making this argument because it doesn't apply to you.
If you were rich, that would be because you cared to generate wealth on that scale. You worked your bollocks off and created vast amounts of wealth at the cost of blood and sweat and your life. I am not rich, but I am earning decent money through my business now and trust me when I say that every penny the government takes on the money that I earned through my hard work creating something from scratch is painful.
I shudder at the thought that when I die, a large percentage of what I earned would be snatched away from those I love "just because the state can".
My comments have been motivated by the characterization of the inheritance tax as liable to leave the heirs as waifs. Sonnabend's heirs are middle aged adults, who like their mother were raised in wealth. There is nothing wrong with that, nor even with owning a $30,000,000 stuffed bald eagle (the prohibition on the sale of which I think is absurd).
However, the basis of my opinion regarding the inheritance tax in general is based on a simple political philosophy similar to that of Socrates - when one has enjoyed and benefited from the rule of law for a life time, the only ethical course is to accept those parts of the law which may be to one's detriment.
Sonnabend clearly benefited from the laws of the US for many decades - among those the ability to own private property, enforce contracts, and exchange goods for fungible currency. Indeed, it was US immigration policy which allowed her and her family to immigrate and transfer their wealth from Europe on the eve of the Second World War.
The US tax code allows wealth to be transferred between generations in accordance with American values. The creation of a permanent aristocracy has not traditionally been consistent with those values. As for me, I shudder at the the thought of money constituting my most important legacy to those I love.
Since when is the government the rightful owner of anything? Are we ultimately slaves, then?
If my spouse is dead or I am divorced, and I have a house, and I die, are my children homeless and destitute?
I am honestly flabbergasted at the concept that a government should own things by default. A government is not a kingdom, and it should govern, not own.
Actually, it's going to the people. The government is representing the people. However, the children inheritances will still far above average after rich inheritance taxes.
The more common situation is extremely high valuations, and thus taxes, on real estate which is listed and not selling at half the valuation. I know many people who have gotten burned by that.