Measure 84 appears to open giant income tax loophole
We wrote about this a while back, but it's worth repeating as the election draws nigh. Ballot measure 84, which would kill the Oregon estate tax, would also create an enormous gap in the Oregon personal income tax. It forbids any tax on transfers of property between family members, and that would include the income tax. And so anyone about to turn a profit on a sale of property could simply sell it to their family member first, tax-free, and then the family member could sell it to the outside buyer without incurring any tax themselves.
Here's an example. Mom has stock that she bought for $1,000. Today it's worth $5,000. Mom sells it to her daughter for $5,000. Under Measure 84, Mom pays no income tax on her profit. Later, the daughter sells on the market for $5,000. Daughter pays no tax because daughter made no profit -- she sold only for her cost.
Maybe that's not what the drafters of Measure 84 intended, but that's what it does. The legislature could cope with this, we suppose, by redefining the daughter's tax basis for calculating profit to be only $1,000, the same as Mom's, but that shouldn't be necessary. Whatever one thinks of estate and inheritance taxes, the only sane vote on a poorly drafted tax measure like this one is no. Let the haters of the "death tax" come back with a straightforward repeal of that tax, with a savings clause to prevent the preposterous drain on the income tax.
| Posted at 8:46 AM | Permalink |
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Comments (13)
But if Mom dies and then leaves a modest estate of say $999,999, doesn't the estate avoid taxes and daughter get the $5000 equity and inherit the basis of $5000?
Just wondering...
Posted by Fred Stovel | October 15, 2012 10:28 AM
Ditch the income tax OR property tax and have a sales tax. Funding problems solved. But Oregonians are not bright enough to see that easy and painless solution.
Posted by Irving J Feldspar, ESQ | October 15, 2012 10:43 AM
Ditch the income tax OR property tax and have a sales tax.
Sales/Use taxes are not easy and painless. They open up a whole set of other problems, not the least being what is taxed and what is not taxed.
Posted by John | October 15, 2012 11:14 AM
How about moving the OR estate tax into conformity with Federal. A 3.5 million dollar exemption> The form went federal why not the amount? And like the federal let them choose between no estate tax and no step up or step up and estate tax.
Posted by George | October 15, 2012 11:21 AM
A classic illustration of the foolishness of initiative processes.
Posted by Allan L. | October 15, 2012 11:25 AM
"A classic illustration of the foolishness of initiative processes."
A lot of people thought, and still think, that Measure 5 was a badly rendered solution to a very real problem. A very real problem that year after year after year the legislature utterly failed to solve. So Don McIntire solved it.
Posted by sally | October 15, 2012 12:47 PM
Other foolishness of the initiative process?
https://bojack.org/2012/10/more_late_night_street_holdups.html
follow the links. Those cretins will be out of circulation for a long time
Maybe the bad guys are the bad guys and not Kevin Mannix and Ballot Measure 11.
Posted by Concordbridge | October 15, 2012 1:07 PM
"A classic illustration of the foolishness of initiative processes."
Or perhaps "a classic illustration of the foolishness of poorly worded legislation, regardless how it is promulgated."
Reminds me of the original poorly worded law that prohibited 16 year old new drivers from driving with other 15 or 16 year olds in the car. The original wording was such that it prevented a 16 year old driver from driving to church with his twin brother in the car, even when his parents were in the car as well.
Laws are often written so poorly, that you have to pass the law in order to know what is in it, regardless of if passed via the initiative process or not.
Posted by Harry | October 15, 2012 2:01 PM
Professionals writing laws doesn't make me feel better.
Posted by Sam L. | October 15, 2012 5:36 PM
Jack isn't the basis stepped up when inherited anyway?
Posted by Jo | October 15, 2012 6:34 PM
I man sorry, the step up happens, but the tax has already been assessed on the FMV of what is being passed.
My bad.
Posted by Jo | October 15, 2012 6:34 PM
Jack isn't the basis stepped up when inherited anyway?
Yes, but if it's sold at a big profit while Mom is alive, it's subject to income tax.
And under current law, although the basis gets stepped up when Mom dies, the tradeoff is the estate tax. The Measure 84 backers want a couple of different windfalls here. Maybe they should get one (although I disagree), but certainly not two.
Posted by Jack Bog | October 15, 2012 9:38 PM
The legislature at least has a robust process for trying to ensure that laws will accomplish what the legislators intend them to.
Posted by Zach | October 15, 2012 11:41 PM