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Double Taxation

July 5th, 2006

Right-wingers go on about the estate tax, calling it “double taxation.” Recently, the White House itself said,

“The death tax results in the double taxation of many family assets….”

Aside from the fact that inheritances don’t always go to family members and the Bush estate tax repeal would not account for this, is the estate tax really “double taxation”?

Of course not. (What, did you think they were right?) Taxes apply whenever money changes hands from one individual to another. If my father were to give me $2 million, the gift tax would kick in after $1 million (presuming my father never gave any other gifts in his lifetime). If he hired me for 20 hours at $100,000 an hour, income and other taxes would apply.

But if he died and left me the same $2 million, I’d be covered by the $2 million exemption on the estate tax, and would pay no taxes on it at all! So, in reality, the estate tax actually is a lower tax. This guy makes the same point. These “double taxation” whiners leave out the fact that this is one person giving money to another by fiat of death, and instead they act like the money, once taxed by the income tax, should not be taxed again.

By this logic–which follows the money and ignores the transfer between individuals–one could say that every tax is “double taxation.” My company earns income and is taxed. The same money is taxed when I get paid. Then the same money gets taxed again when I buy something, in sales tax. Then the company which takes my money must pay taxes on that same money again when they pay their income taxes. And then it’s taxed yet again when they pay their employees… on and on and on. It’s not “double” taxation–it’s infinite taxation! No fair!

On the other hand, expats like me just barely escape real double taxation–because the U.S. is one of the few countries in the world that insists on taxing its citizens abroad. I duck under the exemption by a few ten grand, but a lot of people don’t. They pay full taxes to foreign governments where they live, and then they pay the same taxes to the U.S. government. But Republicans have no problem with that. No, they object to perceived double taxation, not the real kind.

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  1. Tim Kane
    July 6th, 2006 at 06:39 | #1

    The real death tax is the health care system. Most people will hand the remains of their entire estate in the last few months of their earthly existence to health care and drug companies.

  2. Shari
    July 6th, 2006 at 13:04 | #2

    To be fair, expatriates don’t “just barely escape” double-taxation unless they make a fairly decent amount of money. You have to make more than $70,000 a year to not be exempt from income tax.

    As for other countries, I can’t say I know precisely how it works. I’m sure you are correct when you say that only U.S. citizens have to file returns and possibly pay taxes in both Japan and their home countries. However, I do know that there are other issues for citizens of other countries, particularly in regards to saving money at home. My former boss, who is Australian, has told me that as long as he keeps all his income in Japan, he doesn’t have to deal with Australian taxes. If he puts any money into savings in Australia in order to take advantage of the higher interest rates, all of his income comes into play for taxation purposes and the situation becomes very complex. It is sufficiently dissuasive that he does not bother to try and save money at home. This means he makes nothing from his savings.

    This is something that U.S. citizens don’t have to worry about. We can send money home and collect far better interest rates and only worry about the income insofar as it pushes our total income level closer to the $70,000 mark. Considering that one of the biggest reasons foreigners come to Japan and work aside from cultural or language learning aspirations is saving money, this is no small thing.

  3. July 7th, 2006 at 06:46 | #3

    I think you are missing a key point here, Luis: The double taxation inherent in the estate tax is unfair because it only happens to very wealthy people. The infinite taxation you describe that applies to the rest of us is only natural and proper. It’s discriminatory, you see, for all of the Paris Hiltons of the world to be burdened with a tax that none of the rest of us will ever have to worry about. Have some pity on those poor rich kids! 😉

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