Hacker News Reader

Comment by igonvalue | Hacker News Reader

The real travesty is the last paragraph:

> Well, as we were eating I glanced up at the Keno board and Sara had won $7500.

> The downside of this is that Sara gained $7500, I lost $7500, the government gained $7500 and the casino lost $7500. You see, I had to fork out the $7500 to my daughter and collect the winnings myself. But about half the winnings would be paid by me on my taxes as income, and other half of $7500 would be paid as gift tax for giving the winnings to my daughter (I'd already transferred the maximum yearly tax free gift of $10,000 to each of my kids).

View on HN

If woz chooses to pay the tax for his children's earnings, that's his prerogative, but it's not a travesty.

Could you please explain why?

It's already explaind by Woz.

He collected the money into his account. So that $7500 is taxable as income. He lost nearly half of it now.

(Balance=savings + 7500 - 7500/2 tax)

Then he transfered $7500 to his daughters account. Up to here, He lost ~7500/2 to taxes.

(Balance=savings - 7500/2 tax)

And this transfer process is also taxable as a inheritance/gift payment. Another tax paid by his savings.

(Balance=savings - 7500/2 tax - 7500/2 gift tax)

Happy government, Happy daughter, neutral Woz :)

So where's the travesty then? Is the complaint that enabling underage gambling is tax inefficient?

There's a difference between tax inefficient, and a 100% effective tax rate.

What effective tax rate should we use for underage gambling then?

Personally, I don't believe it should be legal at all. In Australia and NZ, where I'm from, they just won't let you in until you're 18 and (I believe) 20 respectively.

Allowing kids to play, and then funneling the earnings through their parents with extreme tax consequences is the kind of bizarre middle ground I'm not surprised to see from the US.

Well, it's not really allowed in the US either. Minors aren't allowed on the gambling floor, but Keno games can be played from essentially anywhere, such as the restaurant where you take your family to eat. A "it's legal if you pay extra" loophole doesn't exist except to the extent that if you lie and put the wrong name on the form, it's hard to check.

Yeah but go to any RSL club or pub and you'll see keno, greyhound racing and the trots on every TV in the family bistro.

We don't really have a moral high ground here.

His problem is not with underage gambling restrictions. It's about how expensive it's to transfer funds to family. Also he's paying income taxes on behalf of his daughter. That's unavoidable. But the gift tax? that's really insane.

The gift tax exists to prevent estate tax avoidance. Is your view that on principle estate and gift taxes shouldn't exist? I am philosophically against inherited capital accumulation, so think it should exist.

FWIW, only those who have given over $5.43 million of gifts in their lifetime pay the gift tax in the first place. Woz is by all accounts a generous person. While generous, this also reduced the size of his taxable estate by quite a bit.

In addition, each parent can give a child up to $14K tax free (now; $10K then). Spouses can give gifts to each other tax free. If I read it right, each of Woz's children probably received up to $20K in a year without paying gift taxes, though he only mentions the $10K from him personally. This gambling win would have been on top of that $20K.

It's hard for me to be concerned about 12 year olds making 20K/year tax-free.

I do not understand the rational after estate tax. It may be rational to prevent "depth escaping" in many cases but in death? I think most of the time some illegal activities or workarounds are used as subtext by government to take some more cut.

I don't know what you mean by "death escaping." I don't know what illegal activities you are referring to in this matter. The Wikipedia page http://en.wikipedia.org/wiki/Estate_tax_in_the_United_States has a pretty complete coverage of the points both for and against the estate tax.

While the gift tax is, in the US, closely coupled to the estate tax, they are distinct things. I made an error in not mentioning income tax as well was the estate tax.

Gifts could be used to get around income tax. If I pay my children to work in my store, then they pay income tax. If however I give them gifts, and they just happen, out of generousness and familial good will, happen to do the same amount of work as an employee, then that's an illegal scheme to avoid paying income tax.

Estate taxes are a reflection of a philosophical viewpoint, which is that inherited wealth is not as good for the country's well-being as wealth from labor. Consider if I were to own 1/5th of the land of Manhattan, and make money from leasing out the properties.

If there were no wealth tax, then I could pass that land to one of my children, who then passes it on to one of my grandchildren, etc. Wealth like that tends to accumulate, and lead to increased economic inequality. The philosophical viewpoint is that a humane society does not have drastic differences between the richest and poorest people. In addition, this would tend to create de facto nobility, or landed gentry, which is something the US has traditionally opposed. If Picketty is right, and r > g, then the death tax or a wealth tax or some other means is needed to limit wealth inequality.

I meant "debt escaping". Being a foreigner I made a bad typo. I don't know really the term used in English, that's a way to evade debt by transferring funds to someone else.

Unless you regard all taxes as debt, this meant to keep people from escaping from paying taxes, not paying debts.

Here's a variation of the earlier scenario. I have a company. I give people gifts of US $40,000, with no strings attached. It happens to be that, in their free time, they volunteer at my company to help me out with my business, and spend about 35 hours a week in volunteer labor.

Is this really a "gift" that shouldn't be taxed at all? If so, it's a way to avoid employment and income taxes.

To prevent that from happening, the gift taxes are going to have to be at least as high as employment-related taxes would be.

Since the gift tax doesn't kick in until $14,000/year, which is under minimum wage, the gift tax for higher valued gifts must be much higher than employment taxes. Otherwise it will still be used to avoid employment and income taxes.

It's really only applicable to folks giving pretty large amounts to their families. He and his wife can gift each kid (as well as any number of other individuals, it seems) $28k/year tax-free. http://en.wikipedia.org/wiki/Gift_tax_in_the_United_States

> There are two levels of exemption from the gift tax. First, gifts of up to the annual exclusion ($14,000 per recipient as of June 2013) incur no tax or filing requirement. By splitting their gifts, married couples can give up to twice this amount tax-free. Note that each giver and recipient pair has their own unique annual exclusion; a giver can give to any number of recipients and the exclusion is not affected by other gifts that recipient may have received from others.[7]

> Second, gifts in excess of the annual exclusion may still be tax-free up to the lifetime estate basic exclusion amount ($5,340,000 in 2014), although for estates over that amount such gifts might increase estate taxes. Taxpayers that expect to have a taxable estate may sometimes prefer to pay gift taxes as they occur, rather than saving them up as part of the estate.

> Furthermore, transfers (whether by bequest, gift, or inheritance) in excess of $1 million may be subject to a generation-skipping transfer tax if certain other criteria are met.

Woz wouldn't come out neutral here though, he'd come out $7500 in the hole.

He wins $7500 but gives it all to his daughter, so now he's at $0.

But he's still paying (say) $3750 in income taxes on his daughter's behalf (since she's not old enough to even play Keno) and letting her keep the whole $7500 (nice guy!) Now he's $3750 in the hole already.

But then he has to pay the gift tax (again, on the whole $7500, since that's what he gave her!), so let's say again that's another $3750. Now he's $7500 in the hole. Taxes aren't ultimately exactly 50% so it probably wouldn't be that bad, but it makes for simple calculations; and either way, he's guaranteed to be net negative.

If instead he gifted only the after-tax proceeds to his daughter (which would be more reasonable), he would only be "down" $1875 after the gift tax, and even then he could just take that out of her gift, which would mean that she would only get $1875 in total (assuming 50% tax), and he would net $0.

He's a nice guy for giving her the whole $7500 though.

Reply on news.ycombinator.com