Stuff You Should Know - The ins and outs of the DEATH TAX

Episode Date: February 21, 2017

The estate tax, also known as the death tax, is not new. It's actually been around in some form since ancient Rome. Some say it's a necessary tax to help prevent resting on your inheritance laurels. Others say it's straight up double tax robbery. Learn all about this controversial tax today. Learn more about your ad-choices at https://www.iheartpodcastnetwork.comSee omnystudio.com/listener for privacy information.

Hey everybody, when you're staying at an Airbnb, you might be like me wondering, could my place be an Airbnb? And if it could, what could it earn? So I was pretty surprised to hear about Lauren in Nova Scotia who realized she could Airbnb her cozy backyard treehouse and the extra income helps cover her bills and pays for her travel. So yeah, you might not realize it, but you might have an Airbnb too. Find out what your place could be earning at airbnb.ca. On the podcast, HeyDude the 90s called, David Lasher and Christine Taylor, stars of the

cult classic show, HeyDude, bring you back to the days of slip dresses and choker necklaces. We're going to use HeyDude as our jumping off point, but we are going to unpack and dive back into the decade of the 90s. We lived it, and now we're calling on all of our friends to come back and relive it. Listen to HeyDude the 90s called on the iHeart radio app, Apple Podcasts, or wherever you get your podcasts. Welcome to Stuff You Should Know from HowStuffWorks.com. Hey, and welcome to the podcast.

I'm Josh Clark. There's Charles W. Chuck Lyon. There's Jerry. You put us together in a room, get a little air conditioner noise going. Black out the windows. It's Stuff You Should Know. Crates on the walls. Yeah.

Bring in a cup of water for me and like- I got nothing. Whatever. Why don't you have four beverages? I don't know. It's a weird day. What is that? It's so weird.

They're out of Pellegrino. Yeah. I know. It's very strange. I'm just kind of sitting here. Like, I've never seen you without a beverage within three feet of your body. And I also am really tired of the coffee here. It's not okay.

Oh, really? Oh, man. Are you drinking it right now? No, no. Water. Okay. Um, Chuck. Oh, yeah.

That's right. Although, it's funny, over the years when I go into restaurants, usually like some sort of like an ethnic restaurant, and they ask for my name and I say Chuck, they almost always say Jack. Oh, is that right? And I just go with it. Yeah. I'm like, yeah, Jack.

Because what kind of person's like, no, get my name right on the little thing you write down on my ticket. You just grabbed the thin name by his lapels. Yeah, I didn't care. Well, that's the perfect segue into what we're talking about today, Chuck. Yeah. Jack. The death tax.

That's right. One of our scintillating, uh, internal revenue centered casts. Mm-hmm. I mean, we have done a bunch of like tax related episodes, if you think about it. Yeah. This one, I'm surprised we haven't done this one. And actually I didn't check. We haven't, right?

I checked. We have not. Okay. Good. Yeah, but it did seem familiar here there, but I definitely double checked. Yeah. I thought it was pretty interesting, especially a lot of this will be the history of it, which basically is we're going to war.

Let's get the death tax going. Right. Exactly. The rich are getting too rich. Let's get the death tax going. Yeah. So we should probably say what the death tax is and actually death tax. We should be saying death taxes because there's a couple of different kinds of death taxes.

And that's basically the term that's used by people who aren't in favor of death taxes. Right. To kind of make it seem like it's just a stupid idea. Like you have to pay a tax to die. Come on, people. Snap out of it. Yeah. You know?

So basically you have two types of death taxes as it stands right now here in 2017. You've got, at least in the United States, you have the estate tax and you have the inheritance tax. Correct. That's basically death taxes. The estate tax is where you die, you have an estate, and your estate is the total of all of the stuff you own and all the debts you have. So the first thing that happens to your estate, your debts get paid off.

Sure. And then your executor gets paid off for their troubles. Yeah. Your funeral gets paid off, and then Uncle Sam's standing there with his hand out. So Josh got shot out of a cannon that costs $45,000. Right. That's off the top. Yeah.

So Uncle Sam's standing there and he says, hey, lay it on me, guys. I want 40% of that. That's your estate tax. Yes. Then after that, in some states, the money goes to the heirs, and then the states come along and say, it's our turn now. And because you know, states aren't what they used to be, right? And then your city comes along and they want theirs, and then...

If the city comes along, you don't have to listen to them. Then your next door neighbor comes along and say you didn't pay the neighborhood tax on that. You don't have a lawn mower back? So yeah, basically, if you die in a state that has inheritance tax, you're going to pay an estate tax and an inheritance tax on your estate after your death. You won't care, but your heirs will. Yeah.

And you may care every moment leading up to that last one. After that, you'll be fine. I think the Beatles had it right on the money there, that song. Come together? You're like, Lucy in the sky with diamonds? No, Taxman. It's a great song. If you drive a car, I'll tax the street.

If you take a walk, I'll tax your feet. It's very libertarian. Yeah. Come to think of it. In the background, if you play it backwards, it goes, who is John Galt? Do we do what I'm backmasking? No. All right.

We're going to do that one day too. Okay. I'm going to describe the estate tax. I describe both. Okay. You said the inheritance tax? Yeah. Okay.

That's the one where the state's like, can we ever cut to where they tax your heirs, not your estate? Yeah. Like after you get the dough, then you're taxed. So you're right. Both of those together make up the death tax and well, over the years, it's been debated both economically and philosophically, and I guess we should go back in time in the way back machine to ancient Egypt if we fire it up.

Did you put gas in? I did. So if you go back to ancient Egypt, they actually have existing papyrus that tells the story of men basically either trying to dodge paying a death tax or paying a death tax, two different versions of that story, I guess, depending on who the guy was. You could tell which one you're supposed to do because the guy dodging it, he was in the middle of a circle with a slash through it. That's right.

Don't be this guy. And of course, in ancient Rome, they were big on trying to modernize everything and of course met the tax code as well. And Caesar Augustus instituted something called the Visicina Herod Tittadium. Is that right? I think so, my Roman's not what it used to be. Herod Tittadium. Apparently that translation is 20th penny of inheritances and taxes, secessions, legacies

and donations after death. Right. They should have called it death tax. They should have. Whoever came up with that, I couldn't find who did, but it's pretty clever. And like I said, there's long been debate, even in ancient Rome. There were exemptions for close family back then. You could give away some charitable donations, which is kind of similar to what you can do

today. That's a very longstanding tradition and it should be. I mean, like if you want to give a bunch of money to a charity, man, that should be unfettered. Yes. And in fact, you should maybe even get a little tax break for that, as people do. At least a pat on the back from everybody in your community. And then Planny the Younger, not the elder beer man.

Which one's the one that's so hard to get? I think Planny the Elder is the beer that's hard to get, right? I don't know. It might be the other way around. So there's a Planny the Younger beer as well? Yeah. There's two versions. One you can get basically all the time.

The other one, like you have to stand in line for a week and a half outside of the brewery to get it and they give you a, you have to bring your own like bucket and they fill it up and they make you chug it right there and then they kick you in the butt as you're walking away. So you're doing it right. Well regardless of, I'm not sure which one, Planny the Younger criticized this tax and he's like, you know what you're doing? You're taking advantage of people of these families that are distraught over the death

of a loved one. Yeah. How unfair is that? I would guess that Planny the Younger may have been rich from that quote. I bet you're right. Where else? We can go to England and France. Yeah.

I mean, we jumped over several centuries. Well, yeah, sure. I don't know though if the Holy Roman Empire was into death taxes, but by the time we arrive in, well, feudal England, that still would have been the Holy Roman Empire, I think, in the 13th century in England. By the time they founded the Magna Carta, death taxes were so unpopular that it's like one of the first clauses of the Magna Carta. Yeah.

Like you got to lay off on the death taxes. You could do them, but not so much. I think that was the verbatim quote in the Magna Carta. Every time I hear Magna Carta, I think of Johnny dangerously. Did you see that? I don't remember that. I think it's the end when they're taking like walking, maybe Johnny to his execution and they have the fake priest and he's doing this fake Latin because Magna Carta, Master

Charge, is just so dumb. Whenever I hear Magna Carta, I think of that one, Simpsons, where Marge is training to be a realtor and Lisa's teaching her like that. If you make a song out of what you're trying to memorize, remember, she's like in 1215 at running me, doodad, doodad. It's funny. There's historians out there right now going, when I hear Magna Carta, I think of the Magna Carta.

Right. Exactly. You two imbeciles. You dunces. But moving on to the United States, because that's mainly kind of what we're talking about here with the death tax. It was debated in Scotland, which carried over eventually into our own founding fathers, but some notable philosophers and economists, and they used to be very heavily tied, which

I think is interesting. Yeah. Philosophy and economics. Yeah. I guess it still is in some circles. Yeah. I think economists like to pretend that's not the case, but I think you're right. I mean, there's a certain philosophy to it.

But we talked about people like John Locke and Bentham and Adam Smith before, and they kind of remained lockstep with their principles on the death tax. Right. So, Smith and Locke were saying, no, no, no, that is not the government's role, the tax of person's heirs after they die. Blackstone, the very famous magician, said, no, we absolutely should be taxing people's estates when they die, because we want to prevent dynasties. And finally, somebody in history comes out and says it.

That's basically the point of the estate tax. Yeah. And then, I think Jeremy Bentham said basically the same thing, like, yeah, we, like, wealth should not be able to grow exponentially in a single family. That's bad news. Yeah. And that's sort of, like you said, been the root of the philosophical debate from Blackstone to Bernie Sanders saying, and we'll get into what people commonly call the pros and cons.

But one of the cons is, and whether or not, it's, I don't know, you can prove it's true, but one of the cons that people point to is, you leave these kids, all these millions of dollars, and they're going to end up on dope. Well, or they're much less likely to be super, or not much, much less likely necessarily, but they're not as incentivized to be constructive contributors to society. No, they're not. That's well put. Yes.

So like I said, this kind of transferred over to the founding fathers of the United States. Yeah, because again, I mean, the U.S. was founded very much on enlightenment thinking. Yeah. So the guys who founded the U.S. were looking over to Europe and saying, like, what are those guys saying right now? What do we think about that? Yeah. How does that apply here?

I say, what are they saying over there? I don't know. I'll let you know in six months. Right. There's a pulse in the message on a boat. The stamp tax of 1797, and this kind of begins a long tradition of, hey, we're going to war, we need to raise some dough. Yeah, because at first they resisted the death tax.

Sure. Yeah. But they needed to protect the colonies, and that's expensive. Sure. So to fund a war against France, a naval war, they said, how about a stamp tax, which when I was a little kid, I heard of the stamp tax, and I didn't get it. Me either. But basically, it was a tax on every piece of paper printed, like every kind of official

document and newspapers and stuff. If you had a document that you needed to file for the judge to release somebody's personal effects to you, their heir, you had to show them this document, and for the judge to release it, it had to be stamped, and you had to pay for that stamp. So in effect, it was a government tax, because this whole transaction couldn't happen until the government officially got its cut, and the stamp was proof that the government had gotten its cut, and the transaction could proceed. Yeah.

So anything from an administrative letter to receipts for legacies, even the attorney's license, like apparently attorneys had to pay like 10 pounds. Powder for the wig? Just to get license, which is about $1,000 now. Oh, really? Yeah. I'm sure they passed that savings on to you. I'll bet that's about, I'll bet it costs about that much these days.

You think? Probably. $10,000 for an attorney's license? I could see it. Does that sound about right? Sure. They make that up pretty quickly, though. I think so.

You know? Just a couple hours. A couple hours sitting at the desk, watching the little bird dip its beak in the water. Thinking about the smurfs. I'm just kidding. Attorney's out there. We love you. Everyone does.

Huh? Everyone does. Sure. They did have rules back then, though, even for the stamp tax, which were kind of carried out throughout the years in one way or another. Estates under $50 were exempt. And then anything above $50 had a graduated scale of tax, which is still kind of what we have today.

Yeah. I read this post by this guy on, I believe, Forbes. And he, his name is Bob Rywick, and he wrote a book on death tax. He wrote the book on death tax? Pretty much, literally. And he was saying that for most of history, especially the history leading up to America, there was not a question of whether there should be a death tax or not. It was how much is the upper limit and what are the exemptions?

Right. You know? Yeah. Or what's the minimum and what are the exemptions? Basically, yeah. Which is kind of where we ended up in the modern times, just sort of debating and going back and forth. Right.

But even still, I mean, like right out of the gate, you know, back in Rome, we talked about how there were exceptions where if you donated to, like, a charity, or here it's like if you... Like the Boys' Club of Rome. Right. Or if your estate's $50, worth $50, there's like, no one wants that, and it's fine. Going back in the late 18th century, that wasn't very much. Yeah.

It's like $100 today. So the stamp tax was repealed in 1802 because the war ended, or at least that particular war that they were funding ended. Yeah. And they thought about it again during the War of 1812, but that war ended before they had a chance to get it through. And maybe we should take a break here and pick up with more history. Yeah?

Let's do that. That's why! On the podcast, HeyDud the 90s called David Lasser and Christine Taylor, stars of the cult classicaya show HeyDude. Bring you back to the days of slipdresses and choker necklaces. We're gonna use HeyDud as our jumping off point, but we are going to unpack and dive back into the decade of the 90s. We lived it, and now we're calling on all of our friends to come back and relive it.

It's a podcast packed with interviews, co-stars, friends, and non-stop references to the best decade ever. Do you remember going to Blockbuster? Do you remember Nintendo 64? Do you remember getting frosted tips? Was that a cereal? No, it was hair. Do you remember AOL Instant Messenger and the dial-up sound like poltergeist? So leave a code on your best friend's beeper, because you'll want to be there when the nostalgia starts flowing.

Each episode will rival the feeling of taking out the cartridge from your Game Boy, blowing on it and popping it back in as we take you back to the 90s. Listen to, Hey Dude, the 90s called on the iHeart radio app, Apple Podcasts, or wherever you get your podcasts. Hey, I'm Lance Bass, host of the new iHeart podcast Frosted Tips with Lance Bass. The hardest thing can be knowing who to turn to when questions arise or times get tough, or you're at the end of the road. Ah, okay, I see what you're doing. Do you ever think to yourself, what advice would Lance Bass and my favorite boy bands give me in this situation? If you do, you've come to the right place, because I'm here to help.

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Listen to Frosted Tips with Lance Bass on the iHeart Radio App, Apple Podcast, or wherever you listen to podcasts. So, Chuck, Naval War with France, funded by the Stamp Act, death taxes go away for a while. And they came back, they actually stayed low in the United States until the Civil War. Yeah, we should point out this, these death taxes didn't like fund entire wars, they, you know, there were many other taxes involved for this stuff. Right. Okay. So, and when I mean stay low, I mean like non-existent, not that the rates were low. So, in the Civil War, death tax came about, and it was, it was different than what had been proposed with the Stamp Act.

So, the people who received the inheritance were the ones who were taxed. So, it was an inheritance tax, not an estate tax, right? Yeah, and it wasn't like, hey, we're going to tax these stamps, which is really kind of a roundabout way of making a death tax, a state tax. Right, exactly. This was like actual tax. Your uncle died, you got that money, give us some, or we're going to break your legs. Yeah, all those Civil War Italians. Right, after that, there was an amendment two years later where it wasn't just like personal effects or maybe stocks or cash or whatever, but real property came to be taxed as part of the estate as well.

Yeah. And then lastly, I think in 1870 or no, as part of that 1864 amendment, there's also a gift tax. And this is a big loophole that people would take advantage of. Yeah, it's funny how like early on even people were like figured out a way like, oh, well here's what I'll do, I'll just sell my assets and even if it's for even less money just to get it off the books. Well, to my kids or something like that. Yeah, like here's like, my dad sold me a car once for a dollar. Nice. That's a sweet deal.

Yeah, it was all right. Did you pay him in like pennies? No, he actually wanted the dollar and it ended up costing me like a lot of money in repairs and stuff. It was sort of not a great deal in the end. Did he say buyer beware, chump? No, and I don't want to be a look a gift horse in the mouth. It was a nice gesture. Sure.

It's only, yeah, very nice. So let's move on, shall we? Yeah. So the big loophole with that gift tax is if you want your kids to have all of your stuff and you wait until you die to pass it on to them, well, if there's an estate tax, the government's going to take a big chunk. Yeah. But if you're alive and you say, hey kids, I'm feeling a little over the hill. Yeah. And I think I'm going to die soon.

So I want you to have all of this stuff from my estate. You can have it tax free because there is no gift tax. The government finally said in, I think, 1864, wait a minute, there's a gift tax now. Right. And we see your loophole. But I think they even made it, the gift tax was still less than it was for an estate tax or an inheritance tax. Yeah, I think so. So it was still advantageous if you're a very wealthy family to pass on your estate while you were living than it was to leave it after you died.

Right, because they would eventually equalize those, right? Later on, yeah. But now for a few decades. All right. So let's get into the 20th century here. Industrialization, one of the byproducts of that was it led to a concentration of wealth for a lot of families. So the government was like, all righty, see all you wealthy families out there thinking you can earn all that money and keep it and pass it to your kids. They can pass it to their kids.

We want our cut. And it wasn't just the government. As a matter of fact, I'm not sure how much the government had to do with it, but there was a populist movement that arose that was basically like we want our cut. And you know, Wizard of Oz was written during that time. Frank Elbaum, the author of The Wizard of Oz, was a populist and apparently it's a big populist allegory. Yeah, lots of it. The Yellowbrick Road is some commentary on the gold standard fact that it's in Kansas has to do with the agrarian roots of the populist movement. The Scarecrow is, I don't know, Elvis, something weird like that, right?

Yeah, put on some Pink Floyd. So there was this big movement and part of this big populist movement was, hey, there's a lot of really wealthy people here. You guys should stop this procession of wealth, you guys being the government, and they started to get there. There was an income tax instituted in 1894. I didn't realize this. I thought the first income tax came later in 1916, but they took a crack at it in 1894, but it was ruled unconstitutional for reasons other than the fact that it was an income tax. Or a death tax. Right, but it was ruled unconstitutional, but not because of the death tax.

Gotcha. For different reasons. So they said, we'll get that income tax. Don't you worry. Right. That's plenty constitutional. Just wait 20 years. 22 years.

Then comes along another war, the Spanish-American War, and they instituted the War Revenue Act of 1898. And this one looked a lot like the one that we have today. Well, it was an estate tax rather than an inheritance tax. Yeah, and it had familiar exemptions. This time under 10,000 left to a spouse fell under the exemption. And the rate of tax depended on, of course, how big your estate was and then who you were given it to. Yeah, and those are still around today in a lot of places. Yeah.

If you are somebody's nephew, you're probably going to pay the full bracket of taxation. Oh, really? Does it vary according to? Yeah, according to who you are or if you're a drinking buddy, you're going to pay the full. Right. The full amount. If you're like a grandchild, you pay less than the drinking buddy, but more than the spouse. And then the spouse is usually and has been for a very long time.

Whenever there's an exemption within a state tax, the spouse is usually completely left alone. There's no tax if the entire estate goes over to the spouse. So that's the current rule, Sue? Yeah. Boy, I get to look up drinking, buddy. So I got to take care of Clem. Right. Well, Clem's going to pay through the nose, I'm afraid.

Oh, boy, he's not going to like that. He's really counting on me dying, leaving him a podcast fortune. So with that one, the War Revenue Act of 1898, again, war ends in 1901, Congress repealed the tax. Yeah, which is weird. I kept reading that like, what do you mean repealed the tax? When did they stop doing that? But apparently they used to institute new taxes, get the money they needed, and then they would say, we got enough. Now they have new taxes.

Thank you, everybody. And then just more new taxes. Right. Yeah. So this kind of marked a turn where people started to get, who wrote this? Was this Jane McGrath? Jane McGrath. I remember Jane.

Yeah. She calls it a growing distaste for inherited wealth. And it started to kind of pick up steam, most notably in the form of President Teddy Roosevelt, who was not a fan. No, he actually, around this time, there was another big push for the income tax. I remember it had been repealed. Yeah. And Roosevelt was like, I'm not sure about the income tax, but I'll tell you what is

great idea, that estate tax. Yeah. Let's get one of those in there. He said basically, our national legislators should enact a law providing for a graduated inheritance tax. The prime object should be to put a constantly increasing burden on the inheritance of those swollen fortunes, which it is certainly of no benefit to this country to perpetuate. Yeah.

I mean, that kind of lays it down there. Yeah. Like go out and make your own money, essentially. Well, yeah. And I think part of the other point that really seems to apply today, if you've listened to our dark money episode too, money very easily translates into political power. Now it translates into political speech, but it's always translated into political power. And if you have more and more money just being passed along from one generation to the next,

that family is not just amassing more and more money, they're amassing more and more power. Yeah. And that's not good for democracies. It's good for monarchies, but not democracies. Yeah. And that's what Roosevelt was saying. So Roosevelt supported it big time. It also was supported by Taft and Wilson, but it still took a little bit of time and another

war before Congress would get back on board again with another death tax. World War I? Yes, World War I. The U.S. lowered tariffs on our allies and wanted to build up a stronger defense, and all of a sudden they said, wait a minute, we need dough. Yeah, those new fangled tanks aren't cheap. They're not building themselves. Right.

So they went back and said, all right, maybe that income tax idea is a pretty good one. So they came up with the Revenue Act of 1916, and that's where the modern income tax and the modern estate tax were born. And there's been no going back. No, there really hasn't, because they were initially, apparently initially they planned on repealing it after the war, and they're like, oh, this feels pretty good. I like rolling in piles of money. Yeah.

So let's just keep it going. Yeah. And at this point, the exemption was $50,000 and had a graduated rate of 1% on amounts under 50 grand, up to 10% on amounts over $5 million. Right. It's a lot of dough back then. Yeah. It's a lot of dough now.

It also taxed real and personal property. If you transferred something at death, or even in the two years before death. Yeah, that loophole. Yep, it was taxed. And then the gift tax, but there's still a loophole. See, like if you did it three years, if you transferred all of it three years before your death, you're fine. Yeah.

You just had to live in poverty for the last three years of your life, and hope that you called it correctly, and that it wasn't like 17 years. Right. So in 1924, Congress said, we see what you're doing. We're coming back with that gift tax again. That was a good idea. I don't know why we ever forgot it. We lost our institutional memory, but we're putting it back in.

So they put in this gift tax, and now all of a sudden, it was not smart to... It was not a loophole any longer. Yeah, and then the Great Depression had a lot to do with that, because obviously income tax went down during the Great Depression, and they said our coffers are getting low, so we need to equalize this again. That's right. And I think the gift tax has stayed since then, too, right? Yeah.

It never went away. Yeah, because I guess it was challenged in court, and it was upheld by the Supreme Court to be constitutional, but Congress was like, ah, we'll repeal it. And yeah, they brought it back, and it's been there ever since. Yeah, and here's a staggering stat. You know, we've talked before about past income tax, and how even though it might not seem like it, we've got it pretty good today compared to certain years. But the estate tax from World War II, when they raised rates in 1941 until 1977, the

very top estate tax was 77 percent. Yeah. Isn't that crazy? Yeah. Wow. That's like Gerard Depardieu fleeing for the border's high. You know what I mean? Yeah, like you made all this dough in your life, and your family gets to keep 23 percent

of it after you die. Yeah, and give us a smile. Yeah. Amazing. So they stayed that way, actually, for a really long time. It wasn't until... Yeah, 77. Yeah, it wasn't until 1977 that Congress brought that highest rate down from 77 percent, and

they just brought it down to 70 percent then, and then Reagan came in and started whittling it away, little by little, and it got as far down as, I think, 35 percent. Yeah, that was the tax reform act of 1976, and another thing that came along with that was something called the GST tax, the Generation Skipping Transfer Tax. Another loophole. Yeah, which is like, oh, well, I'm not gonna give my fortune to my kids, I'll give it to my grandkids. Yeah.

Wink, wink. And then if you had a really good estate planner, they could teach you how to leave your assets to your grandkids, but make your kids the beneficiary of any interest and income arising from those assets. So both generations were taken care of tax-free. So in 1976, they closed that loophole with the Generation Skipping Transfer Tax, and grandchildren around the world cried and cried and cried. Yeah, and that's when the, well, the exemption at that point in 1976 went from 60 grand to

$120,000, and you know what, let's take a little break here, I'm gonna leave people in suspense. Yeah, I think we should, because I'm starting to get excited. On the podcast, HeyDude, the 90s, called David Lasher and Christine Taylor, stars of the cult classic show HeyDude, bring you back to the days of slip dresses and choker necklaces. We're gonna use HeyDude as our jumping off point, but we are going to unpack and dive back into the decade of the 90s. We lived it, and now we're calling on all of our friends to come back and relive it.

It's a podcast packed with interviews, co-stars, friends, and non-stop references to the best decade ever. Do you remember going to Blockbuster? Do you remember Nintendo 64? Do you remember getting frosted tips? Was that a cereal? No, it was hair. Do you remember AOL Instant Messenger and the dial-up sound like poltergeist?

So leave a code on your best friend's beeper, because you'll want to be there when the nostalgia starts flowing. Each episode will rival the feeling of taking out the cartridge from your Game Boy, blowing on it and popping it back in as we take you back to the 90s. Listen to HeyDude, the 90s, called on the iHeart radio app, Apple Podcasts, or wherever you get your podcasts. Hey, I'm Lance Bass, host of the new iHeart podcast, Frosted Tips with Lance Bass. The hardest thing can be knowing who to turn to when questions arise or times get tough,

or you're at the end of the road. Ah, okay, I see what you're doing. Did you ever think to yourself, what advice would Lance Bass and my favorite boy bands give me in this situation? If you do, you've come to the right place because I'm here to help. This I promise you. Oh, God. Seriously, I swear.

And you won't have to send an SOS because I'll be there for you. Oh, man. And so will my husband, Michael. Um, hey, that's me. Yep, we know that, Michael. And a different hot, sexy teen crush boy bander each week to guide you through life, step by step. Oh, not another one.

Uh-huh. Life versus relationships, life in general can get messy. You may be thinking, this is the story of my life. Just stop now, if so, tell everybody, yeah, everybody about my new podcast, and make sure to listen. So we'll never, ever have to say bye, bye, bye. Listen to Frosted Tips with Lance Bass on the I Heart radio app, Apple podcast, or wherever listen to podcasts.

All right, Chuck, you've left this in suspense long enough. What? So that exemption rate, I said, in the tax reform act of 1976 went from 60 grand to 126.67. And we've explained what the exemption was, right? Like, or did we not even? I feel like we did, but if not, let's make it more clear. The exemption is where if the value of your estate comes, and that's part of the process is everybody goes in and says, this is worth this much.

No, it's not. Yes, it is. No, it's not. And then they come up with the value of your estate. If that value was less than 60 grand at that point, then you could transfer it to any, you could transfer it to Clem tax-free. It's exempt below the level of 60 grand. Okay, so super clear.

So that rose to 120 grand and change. And then in the 1990s, things kind of started rolling a little bit. We had this big budget surplus. I remember that. Yeah, the good old days. And then George W. came along and said, you know what we're going to do? We got this big surplus. We're going to start giving it back to the American people, and especially the wealthy

American people, and the threshold really started climbing. Like it went from, in 2009, it had climbed to $675,000, not bad, and it jumped from $675,000 to $3.5 million in 2009. So it went from the 80s, no, I'm sorry, the 70s, $120,000 to 30 years later, $3.5 million. The exemption was. Yes. That is quite a climb, but it had an even more astronomical climb from 2009 to 2013. Because it went, Chuck, in the taxpayer relief act.

So remember, George W. came in and said, hey, it's not government's role to have a bunch of taxpayers' money, and you don't know what you're going to do with it. Give it back. Yeah. I'm the man who's going to get it back. And like you said, certain people got it back. Some other people got it back, but it was a transfer of wealth, right? Barack Obama came in and said, you know what, that was screwed up.

I'm going to get some of that money back for everybody. I'm going to tax the wealthy. I'm going to get rid of these so-called Bush tax cuts, which is what they were called. And he didn't at all. As a matter of fact, he signed into law in 2012, the Taxpayer Relief Act of 2012, which took the Bush tax cuts, which had expired already, but then had been extended temporarily for two years. He took those Bush tax cuts he campaigned on getting rid of and actually enshrined them

in law. And now for the indefinite future, the exemption is up to $5 million for an estate. Yeah. More than that now, actually. So it must have been at least five. Well, it's indexed for inflation. Yeah. So now for 2016, it was $5.45 million for a single individual, $10.9 for a couple.

For a couple, yeah. And then the tax rates were set at 40% maximum. Right. And that's after it had gone down to 35% under Bush. Right. So I think that was part of the compromise. Yeah. Let's bring it up to 40%, but let's basically make it permanent at $5 million.

Yeah. And there was even a year in there. This is crazy. Do you remember this? This whole back and forth, like getting rid of the Bush tax cuts, what's going to happen? 2010. Yeah. And in 2010, there was, I guess they didn't sign a paper fast enough or something, but

there was no death tax in that year. So if your wealthy Aunt Gladys died in 2010, you were, you lucked out because the very next year, those cuts got restored or those gift taxes or estate taxes got restored. And don't think that there weren't some people in 2010 that were peeking in on Aunt Gladys holding a pillow in their hands. Right. Yeah. Did you sleep now?

Yeah. That's not funny at all. They're killing a relative for their inheritance. It's not funny. No, it's not. Certainly not in practice. So here's the deal and we're going to get to the pros and cons in a second. But like I said, for 2016, because of inflation, $5.45 million is the lifetime exclusion amount.

They have this chart that you can basically throw out the window that says like, if you have a taxable state of 400 grand, you'll owe $70,000 plus 34% of $150,000 because you have to pay percentage on the amount in excess of the lower limit. It's all mind numbing if you're just a layperson, but throw that all out the door because anything under 5.45 million, let's just call it five and a half million bucks is under that exclusion amount. But here's the weird part because it's the United States and we can't just make things simple.

It's a unified credit. It's how it's structured. So what you have to do is you have to structure it to pay on the full amount and then they give you a tax credit back to make things convoluted. That's not okay though. You pay the full amount and then they're like, and then we'll pay you back what you... I don't think you pay it. You didn't actually owe.

I think it's just in the computation. Okay. Well, that's different. But it still seems just unnecessarily convoluted. Sure. So you should just knock it off the top and see what you got left. Here's the other trick. Okay.

If you have a lot of money and we should say that this is, we do not qualify as tax experts or if we're giving tax advice. Dude, if you're subject to the estate tax and you're using our tax advice, how did you come up with that money? Yeah. The gift thing, there's an annual gift tax exemption of $14,000 per person. Oh yeah. So if you have three kids...

That's per year. Yeah. Okay. If you have per person per year. So if you've got three kids and they're all three married and they have 10 kids between them. And they all are successful. They don't have drug habits or anything like that.

Right. You can give $14,000 a year to each one of them per spouse. So that's $448,000 a year to those three kids, their three spouses and those 10 grandkids. And if you plan ahead way before your death, you could potentially give away all your money 100% tax free by the time you die through gifts. So that seems legit to me because that is clearly middle class. It's upper middle class, but that's middle class. That cap.

The five million? No. That gift tax. Oh yeah. That cap of $14,000 a year, that's not going to help funnel a massive estate tax free onto the heirs. But it does give a break to middle class, upper middle class, but middle class families. Well but you would only be given that away though if you were going to be above the five

million dollars, right? Because anything under that is exempted. So that ain't middle class. No, that's true. You're right. You know? That was a stupid thing for me to say. So if you're out there thinking even with a deduction of 40% rate is a lot of money

on an estate tax, they give an example here in this article. Let's say you have a $7 million estate. Knock off the 5.45 million, that's 1.55 million at 40%, that's about $620,000. So if you didn't look at that for the whole $7 million estate, that's only about 9%. Yeah, and actually I saw a 2013 Brookings study, tax policy institute I think, a study found that in that year of all of the estates that had to pay taxes, they paid an average effective rate, what they actually paid of 16.6%, nothing like 40%. In that same year, there's another one too, there's a lot of objections.

We should talk about some of these objections, right? Some of the objections to this is they're basically, they go into two tranches. One is that this kind of tax stifles investment. That is the very wealthy and the very rich who are really the economic engines of America and capitalism because they introduce capital to the markets and that's what drives the markets and makes the economic engine hum and we're all better off as long as the wealthy are pumping money into this. Well, if we don't let the rich pump more money into it, meaning the government comes

along and says, your father just died, give us 40% of that vast estate that you just inherited. Well, that's 40% that's going to Uncle Sam rather than potentially into the markets. Yeah, and also some people would say, hey, that's a tax for being successful. Well, that's the other tranche is that it's basically morally incorrect for the government to come in and say, give us some money, wealthy person, that yeah, that it's a tax on success, that the government has no business taxing inter family fortunes. And then again, that it stifles economic growth and development. Yeah.

And another thing if you're against this, someone might say is, hey, we were already taxed on that stuff to begin with during life. So now and not only that, but my dad inherited that and paid an estate tax. So it's just double and triple and who knows, depends on how long your family wealth goes back is how many times it's taxed. Yeah, because not only was it taxed as income, it could be taxed multiple times as an estate. That same estate is what you're saying. Then of course, a lot of people drop the mic with it's a wealth redistribution scheme.

Right. You're trying to take money from the wealthy and give it to the less wealthy, e.g. the poor and homie don't play that. I remember homie the clown. That was great. That was a great show. Yeah. Oh yeah.

In living color. Yeah. It's crazy how many things kind of like carried over and are still part of the lexicon. Homie don't play that. Homie don't play that. Two snaps up. Let's bring all that stuff back. Two snaps.

Another knock is that people say, you know what? This estate taxes is less than like 1% of what the government collects annually and they probably spend that much going after it and litigating this stuff because nine times out of 10 wealthy people are fighting this tooth and nail. Just cost too much to go get it. And that's a lot of these, it turns out, are pretty disingenuous. They sound right if you don't look into them. But apparently a lot of them are not correct.

The idea that effective tax rate is 16% or 17%, not 40%. Another one is that it hurts small businesses. Yeah, and farms. This is a big boogeyman with the estate tax as well. If you go in in a family owned business or a family owned farm, if the government goes in there and says, you own 40% on that just because your father died, so go sell some of the cows, go sell a tractor, you hayseed, and give us the money, that's going to have a really negative effect on the family farm or the family small business.

It may even cause it to go bankrupt, it may cause the farm to go under. That's not good. The government can't do that. Yeah, you hear that and you think, of course, that's awful. But the facts don't bear that out, correct? Right, that same 2013 Brookings study found that in 2013, 20 small businesses and farms owed any estate tax at all, and on average, those 20 small businesses and small farms that did have to pay estate tax paid an average of about 4.9% of the value of the estate.

There's special rules, especially for calculating the value of farmland for estate taxes in particular that reduces their value so that the tax is inherently lesser. Another reason someone might say that they're unfair is what we alluded to a little bit earlier about the concentration of wealth is not a good thing, not just economically, but when it comes to power, and it's dangerous to a democratic society to have the influencers of this country be so few and only influencers because they have so much, and the average Joe's voice is lost in the process. Yeah, I saw somewhere, somebody pointed out that the estate tax is the most progressive

part of the entire US tax code because it truly only affects the people who actually can afford it or who are actually wealthy. It has no undue or disproportionate burden or any burden on people of lower socioeconomic status or even middle socioeconomic status. Something like two-tenths of 1% of households are subject to the estate tax in the United States this year, I think. Oh, really? Two-tenths of 1%.

Oh, wow. Yeah. Yeah. It's true. And then another one to address the idea that it doesn't bring in very much and the government spends more money than it takes in. Oh, like fighting it? Yeah.

Yeah, we're fighting for it. Supposedly, I saw estimates of $200 billion, I saw one estimate of $275 billion between 2017 and 2026 is how much they expect the estate tax to take in, which isn't much. It's less than 1% of the government's tax revenue. But the author of this one article I saw pointed out that's like the combined budgets of the FDA, the CDC, and the EPA combined. So it's actually paying for stuff. And apparently, it cost about 7% for enforcement and administration, whereas income taxes cost

about 14% to chase down deadbeats. So that's about half. Estate tax problems debunked. You got anything else? No. I thought that was fairly interesting. For someone who doesn't like, I go a little foggy when I start talking about finance and taxes, but for some reason, this one kind of interested me.

Do you do your own taxes? No. I love it. No, no, no, no. I love it, man. I love doing taxes. Not only do I not like it, but I would say that I can't put a percentage on it, but having a professional involved really, really financially is beyond worthwhile.

Like 1,000% worthwhile? Yeah, for what they can save you. Oh, no, I'm sure. We're having somebody go back over my figures this year, but I don't like paying taxes. It's not fun, but it's like this big, horrible ball of hair and teeth that I have to go work into a usable figure. I've got to turn it into a gummy venus de milo. So you take a teratoma and you form that into a beautiful statue with no arms.

And then I cry. That's taxes. If you want to know more about death taxes, type those words into the search bar at howstuffworks.com. Since I said search bar, it's time for Listener Mail. I'm going to call this fan that found us through Delta. All right. I knew this would pay off one day. You know, we, I don't know if we're still on, but for a while we were on Delta flights.

We're supposed to be back on this year. Aren't we? Yeah. I always kind of wondered like, does anyone actually discover us bored on a flight? That's what I'm saying. We now have evidence. That's what I'm saying. Awesome.

Awesome. So, Ethan lives in Los Angeles and says he found us on a Delta flight, been a loyal listener ever since. I'm sure many fans have their favorite episodes, favorite sweets, band names, ideas. Here are a few of my favorite jokes and I didn't remember a couple of these, so I'm going to test your memory. Josh, you had one. Look at those.

Look at these shoes. I'm the king of Rotterdam. Do you remember that? No. All right. Do you? Nope. He said he laughed for five minutes on that one.

Chuck, the language of the beard, he says he's still laughing at that. In fact, anytime I need to pick me up, I scroll to the 43-minute mark of how the Stigial organs work. The whole exchange is hilarious, including Josh's reaction. The joke verges on toilet humor, but doesn't quite belong in that category, so I don't remember that one. I have to look it up. These are arcane.

I do remember this one. Chuck, the runner-up is Chuck's line and you realize that Diesel Fuel is named after a person. Jimmy Gasoline. I remember that one. I don't remember what episode it was in, though, but I do remember that. But he has a little factoid for us. He finished the Alexander Hamilton show, and he visited the Grange a couple of years ago

and loved it. While there, I learned something I'm surprised you didn't mention as a testament to his character. Not only did Hamilton shun slavery, as you mentioned, he also defended Tories and British subjects as a lawyer in court, and this was only six years after the Declaration of Independence. What a guy. Wow. Yeah, that's from Ethan Barbour.

Thanks a lot, Ethan. Ethan Barbour or Barber? One of the two? No, it wasn't Barber. It was spelled differently. Barbour. I know. Like the hunting gear, right?

I don't know. Barbour. Whatever. If you want to get in touch with us like Ethan did, Ethan, right? Ethan. It's his last name that's up for grabs. Yes. You can tweet to us at S-Y-S-K podcast.

You can join us on facebook.com slash stuff you should know. You can send us an email at stuffpodcast.howstuffworks.com, and as always, join us at our home on the web, stuffyoushouldknow.com. For more on this and thousands of other topics, visit howstuffworks.com. On the podcast, HeyDude the 90s called David Lasher and Christine Taylor, stars of the cult classic show Hey Dude, bring you back to the days of slip dresses and choker necklaces. We're going to use Hey Dude as our jumping off point, but we are going to unpack and dive back into the decade of the 90s.

We lived it, and now we're calling on all of our friends to come back and relive it. Listen to Hey Dude the 90s called on the iHeart radio app, Apple Podcasts, or wherever you get your podcasts. Listen to Frosted Tips with Lance Bass on the iHeart radio app, Apple Podcasts, or wherever you listen to podcasts.