New Estate Tax Changes and Inequality

2018 is shaping up as a great year to die. I don’t say that because of the recent appointment of war hawk John Bolton as National Security Advisor1, but rather because of recent changes to estate tax rules.

Before now, the previous best year to die was 2010, when the estate tax took a gap year, like the proverbial kid who hitchhikes the entire length of Chile after high school before heading off to college. I remember that year mostly because, as a result of this legislative gap year quirk, the Steinbrenner sons Hal and Hank – owners of the New York Yankees2  – potentially saved hundreds of millions of dollars in estate taxes when family patriarch George happened to die in 2010 rather than 2009 or 2011.

But we’re back to some good times for dying; following the big federal tax reform passed December 2017.

Some people who hate the estate tax – a tax known by those haters as the “death tax” – point out the cruelty of the government taxing something like death. Those twin unavoidable certainties of life – death and taxes – together in one nasty package!

Steinbrenner’s death was timely

But that’s the wrong way to look at it. Economic theory and common sense posit that we should heavily tax the things we don’t want to see more of. As in the examples of cigarettes, alcohol, and affordable Chinese steel, we apply taxes to reduce their occurrence in our lives.  If we want to reduce death, we should tax it heavily. Lower the tax on death and we should reasonably expect an uptick in untimely deaths among the super rich.

If you’ve forgotten the reform passed in December 2017 – and if you have a net worth less than $25 million I don’t blame you for forgetting – Congress doubled the estate tax threshold, to $11.2 million per individual and $22.4 million per couple. That means that a lucky child of a wealthy family can inherit her first $22.4 million from mom and dad tax free! After that, the remaining estate would be subject to a 40 percent tax rate, although of course armies of tax and estate lawyers stand ready and able to reduce the full impact of that 40 percent tax rate.

The number of estates that will exceed the $22.4 million threshold – meaning subject to the estate tax – halved, from an estimated 5300 estates in 2017 to 1700 estates in 2018.

The next great thing to encourage death in 2018 – based on the 2017 tax reform – is the law’s maintenance of a step-up in basis for inherited appreciated assets. In plain language, that means most heirs will save big on capital gains taxes on inherited shares of stocks. An example may help explain the step up in basis concept. If Grandad’s shares appreciated by $500,000 over his lifetime and he wanted to sell them while still alive, Grandad would likely owe $100,000 on the capital gains, because that’s 20 percent of $500,000. After his death, however, Granddaughter can own the shares with a new cost basis that eliminates all of that $100,000 capital gains tax liability, as if she’d bought the shares at the new current price at the time of death. This represents another great tax incentive in favor of, well, death.

I imagine two kinds of readers of the above paragraphs. The first kind is like “why is he talking about such huge amounts of inherited money? Why doesn’t he focus on ordinary people’s investment portfolios? I can’t relate!”

The second kind of reader (a smaller group) is like “Shhhhh-ut up. Somebody tell him to shut up about that stuff. Hopefully most people can’t relate to the gift we just got handed in 2017, and their eyes will glaze over.” Put it this way: YOU may not have paid attention to the raising of the estate tax limit and the maintenance of the step-up in basis law, but everyone with a net worth over $25 million definitely noticed.

I’m being a bit flip about death taxes, partly because I know that it inspires a bunch of hate mail every time I write about it, and I’m steeling myself with humor for the nasty comments to come. At the same time, wealth inequality is one of the top three issues in America, and the estate tax is one of the symbolic ways we address wealth inequality.

Now I know as a practical matter, the estate tax has not historically raised significant government revenue. Also as a practical matter, the estate tax inspires inefficient tax-avoidance strategies.

As a symbol of societal priorities, however, the estate tax matters a lot, at least to me. My man Winston Churchill – grandson and nephew to the Duke Marlborough and deeply enmeshed his entire life in the British aristocracy – said estate taxes provide “a certain corrective against the development of a race of idle rich.”

The American history that I read as a kid taught that opposition to an entrenched aristocracy is one of the defining points of agreement in American political thought. We no longer seem to agree on this point.

My eldest daughter was born on the same day as the French celebration of Bastille Day, so every year we make a “let them eat cake!” joke after she blows out her candles. That iconic historic moment – in which the clueless aristocracy bought their tickets to the guillotine by ignoring the pent up rage of the poor – is why the estate tax matters. Extraordinary wealth inequality normally only changes extremely slowly. But then sometimes – change comes extremely quickly.

The 2017 increases in the estate tax exemption are set to expire without further legislative updating – by 2025. That provides a certain uncomfortable incentive to the very rich in the next few years to, you know, get on with it.


A version of this ran in the San Antonio Express-News and Houston Chronicle


Please see related post:


Death Tax is the Best Tax

Estate Tax Takedown, Levine beat Mankiw

2017 Tax Reform’s True Target


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  1. Badum-cha
  2.  bless their hearts!

Book Review: The Pale King by David Foster Wallace

The_Pale_KingI bought this book a few years ago but delayed reading it until this Spring. Maybe I was afraid of thinking about the trauma of his suicide while reading it. I shouldn’t have worried. There are autobiographical elements in here I assume…He has a semi-absurd character with a dramatic sweating disorder, which I’m guessing from the opening line of his Kenyon graduation speech he sometimes also suffered from. But he’s not dwelling in an obvious way on suicidal ideation. On the contrary he seems to be mulling cures for depression, through a kind of learned meditative technique for life.

The recurring theme of The Pale King is boredom, and maintaining a kind of alert concentration throughout that boredom.

My guess is he picked the location of an IRS examination office in flat, empty, off-the-highway Peoria, Illinois as an extreme setting for testing his ideas, but also for testing himself. Is he a good enough writer to make even that topic (boredom) and that setting (an IRS examiner’s office) still scintillating writing? Of course he can. He’s freaking David Foster Wallace. During the week of filing another year’s worth of taxes, I recommend reading a great novel about IRS examiners.

David Foster Wallace is among my top three all time favorite authors,1 so I’m not surprised I enjoyed The Pale King  so much.

On one page Wallace plays the straight man, describing incredibly detailed inner thoughts of a character, or the minutiae of a scene in hyper-realism. And in the next page he switches it up by introducing an absurdity, like a tax reviewer who levitates right out of his chair when concentrating hard enough, or an IRS building with an entire front-entrance facade designed to look like a 1040 tax form.

David_Foster_WallaceJust like with Infinite Jest, he fractures the narrative – jumping time, location, perspective, and characters without warning. If you link Wallace’s fractal together to figure out who all the narrators and character are, that’s fine, but not necessary to enjoy this on your first read-through. A few essays ran earlier in the New Yorker and stand alone as individual chapters.

Some of his chapters are unforgettable. The nerd examiner and the unbearably pretty girl at the post-work bar, she with the tragic love story and he with the levitating powers of concentration. The absurd goody two-shoes who as a child drove everyone completely bonkers. The centerfold chapter with the never-ending “how I became an IRS examiner” childhood story of trauma and slackerism, nearly a complete novel in itself full of family psychological drama and insights. The sweating man trying to avoid triggering his sweat response. The infinite-mirror-meta-story of an IRS trainee named “David Foster Wallace” who arrives at the Peoria office, only to suffer a mixed up-identity with another more senior IRS examiner David Wallace, blended with an “author’s forward” by “David Foster Wallace” to claim all of the story is “true.” Typical post-post-post-modern DFW bullshit but totally enjoyable from my perspective, complete with diversionary and diverting footnotes as rabbit-holes.

That famous graduation speech in fact from 2005 captures some of what I think he’s trying to do in The Pale King. How do we maintain a meditative (Buddhist?) attentiveness, even while surrounded by deadening bureaucracy or deadening inputs from normal adult life?

Clearly he didn’t have answers in his own life. But he suggested a sort of path for us to try to follow. He couldn’t do it. But we can keep trying.

Please see related posts:

All Bankers Anonymous Book Review In One Place


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  1. Peter Matthiessen and Nabokov thanks for asking

Book Review: The Mandibles, A Family 2029-2047, by Lionel Shriver

The_mandibles_bookOne important rule of thumb about book reviews (I assume) is that you should finish the book before reviewing it. That seems wise. On the other hand, when reviewing a book that seems bad in the first 110 pages, it seems like a waste of time to continue. I read the first part more than a year ago, and figured I’d go back, (I’m a completionist most of the time) but I never did.

This should be the perfect novel for me to enjoy. The author is clearly obsessed with the 2008 Financial Crisis. Me too.1 The premise of Mandibles is that, post-financial crisis, people in the United States lives in a kind of Venezuelan-crisis mode of shortages.

Action takes place in Brooklyn, a place I’ve lived in and loved. Brooklyn, finance…count me in, right?

I did not enjoy Lionel Shriver’s The Mandibles, A Family 2029-2046.

Another good rule of thumb (besides the finish-the-book rule) is that if you can’t say anything nice, don’t say anything at all. Well, sorry. I’ve already broken that many times before in these book reviews.2

The problems I had with the book began early, and continued. They stem directly from the finance theme as well as the Brooklyn-based action. The dialogue about finance is not character dialogue – it’s carefully scripted diatribes about financial theory. This character presents one view on trade and international finance. This other character mouth-pieces the connection between debt and a financial crisis. I suppose if one never reads the paper or took an economics class this would be informative? It’s definitely not believable conversation. Nor is it interesting.

Also, Brooklyn. It should be fun to read satirical takes on what I assume are the author’s neighbors, with their twee styles and overly precious concerns. Who doesn’t like a good satire? Having moved away from Brooklyn a while ago, however, I found the satire and obsession very inward-focused. I kept thinking: Did the author and the editor have a good chuckle over the sendup of preciousness, but then forget that most people don’t live in Brooklyn? Sorry, I found it unfinish-able. Maybe someone can tell me how it ends.

Please see related posts:


All Bankers Anonymous Book Reviews in One Place!

Sarah Ban Breathnach’s Peace and Plenty – The Worst Finance Book Of All Time

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  1. I’ve written a lot about AIG, and mortgages, and over-indebtedness, and other books about the crisis.
  2.  Including one in which I nominated the worst finance book of all time.