Today’s the last day to print and mail Form 4868, giving you up to six additional months to file – though not to pay – your income tax. (If you don’t accompany the form with any outstanding balance due, you’ll incur interest and penalties.)


This just builds and builds. If you have five minutes, it will make you smile – even on tax day.


Dan: ‘Is DNDN a happy memory for you or a sore subject?’

☞ Well, if Dendreon‘s new drug meaningfully extends the lives of prostate cancer sufferers, how can that be anything but happy? And that is certainly what the market concluded from the results released yesterday.

I had been short the stock – I attached a strong caveat when I told you this – because a hugely smart, hugely successful friend had studied this new drug every which way from Sunday and was certain it would fail to gain approval.

From nothing, on his wits alone, specializing in pharmaceutical stocks, he had made many tens of millions of dollars. He is really good at this, and really does his homework.

(And he still thinks something odd may be operating here; that even if it does gain approval, as it now likely will, it’s not going to deliver the results people hope.)

But the stock – which had been $3 or $4 for months and months, and which he thought would approach zero on yesterday morning’s announcement – topped out at $22 instead.

The lesson here cannot be repeated too often: never, ever bet the farm on anything, no matter how sure, no matter how conservative (was there ever a record more steady than Bernie Madoff’s?), no matter what.

I lost money on some DNDN puts (I should have owned calls!), but I’m not a farm-better, so life goes on.


If you don’t find this topic as fascinating as I do, rejoice in your mental health and skip all but this summary:

It’s a shame anyone has to be taxed on anything, but perhaps least painful to be taxed when you’re dead – and only on whatever you had ‘left over’ when you died.

Or if you view the estate tax as a tax on heirs, consider this: If they had earned $20 million by the sweat of their brow, it would have been taxed at a 39.6% rate under Clinton and now again, more or less, under Obama. So is a slightly higher rate unreasonable – 45% instead of 39.6% – considering that, far from working for it, the money simply arrived in the mail? Remember, this is after the first $3.5 million passes to them exempt from any tax (or $7 million if the decedent utilized a by-pass trust . . . or the full $20 million if you are the decedent’s spouse).

That said . . . here goes:

Mary Erskine: ‘It’s not double taxation: for a great number of large estates, a large portion of the estate is a capital gain that was never subject to capital gains tax since the assets were never sold.’

☞ Right. That was the point made Friday. I should have linked it to yesterday‘s entry.

Tom M.: ‘You don’t get it – the reason estate tax is wrong has nothing to do with taxes – it’s because estate ‘tax’ is the blatant seizure of private property by the Federal government. Go ask small farmers how they cope with estate tax. But it’s nothing new, the federal government seized the land originally from the Indians, they’re just continuing the practice.’

☞ This is just factually wrong.

For starters, there’s this small distinction: The Indians did not vote for the government that seized their land. But we taxpayers elected the government that enacted the estate tax, and some who are subject to it even grudgingly support it.

But leaving that aside, small farmers would not be touched by the estate tax President Obama has endorsed retaining. That’s because a small farm is 160 acres or 320 acres, and at $5,000 an acre (up perhaps fivefold in the last 20 years, incidentally), that’s still well below the $3.5 million exemption, let alone the effective $7 million exemption with a by-pass trust. Even at 640 acres – a full square mile – there’d likely be no tax; and if you know farming, you know small farms are usually not a mile long and a mile wide. (The average farm in 2007, according to this, was about 450 acres – even figuring gigantic corporate farms into the average. The average household net worth even of ‘large’ farmers in 2000, according to this, was only $1.4 million.)

Paul Ward: ‘Debates about the federal estate tax tend to be manichean. As a lawyer and CPA who has worked closely with estate and inheritance tax issues for many years, I have reached some conclusions about this tax:

“1. The estate tax is very, very good for lawyers and accountants. [True! One more reason to simplify it?]

“2. People who think of themselves as middle-class really, really hate the idea of the federal government taking half of their estates after they die. Many millionaires think of themselves as middle-class. This includes many farmers and ranchers, many of whom live in those states with the Democratic senators who voted for a lower tax rate. [True! But with a $3.5 million exemption, adjusted for inflation, as many propose – and with the basic by-pass trust that doubles the exemption to $7 million – only those with estates above $7 million, net of whatever they chose to give to charity, would pay even a single penny of this tax . . . which leaves out almost every farmer and rancher in America. So it’s more perception than reality.]

“3. Because the law allows for a stepped-up basis [meaning that your heirs inherit property not as if they bought it at the low price you paid, exposing them to a big capital gain when they sell, but can claim a cost-basis as of the value as of the day you died], there should be some type of inheritance tax on the appreciation. Canada imposes capital gains tax instead of a transfer tax on gifts and inheritances. This seems to me a better system. [Well, but it would cut the top rate from 45% to, currently, 15%. With multi-trillion-dollar deficits, should we be doing that?]

“4. The U.S. has one of the highest estate tax rates in the world. [But it was cut from 60% to 55% to 45% – which I support – so that’s something. And an awful lot of billionaires seem happy to be living here despite the high rate.]

“5. Many mega-wealthy people (Buffett, Soros, etc.) trumpet their support of the estate tax while using private foundations to shelter their assets from the tax while maintaining family control. These foundations must pay out a mere 5% of assets each year (the 5% includes accountant, lawyer and family member trustee fees!). [I’m not sure the world is worse off for having the Ford Foundation or the Rockefeller Foundation or the Gates Foundation, et al, or that it would be better off if they were required by law to pay out a higher proportion of their assets every year.]

“6. If a retirement account is part of an estate, it is subject to income and estate taxes. This can result in near-total confiscation. [If it’s a Roth IRA, it’s only subject to estate tax. If it’s a traditional IRA, most people will have been required to – and almost all would have been allowed to – spend most of it on their retirement prior to their death. And the beneficiary of the remainder could be one or more charitable organizations, exempting it from both income and estate tax. True, if someone with an estate above $7 million wanted to leave nothing at all to charity, then the remainder of their traditional IRA would be very heavily taxed. But the purpose of an IRA is to help fund your retirement, so the only modification I would make is to include only the after-tax portion of the IRA in your estate. Does that make sense?]

“7. In states like New York with high inheritance tax rates, the marginal federal and state rate on an estate can exceed 55%. People will take great measures to avoid such a tax rate. [True. A flip side to this though is that at 55%, the ‘cost’ of giving a big chunk to charity is only 45%. Cut the tax rate to, say, 15%, and the cost of charitable giving rises to 85%. So while one benefit of lowering the rate would be to give less incentive to avoid the tax, a side-effect could be to lower the incentive to fund non-profits. But remember, only about 15,000 estates in 2008 incurred any tax liability at all – and that was before the exemption rose from $2 million to $3.5 million. And those 15,000 didn’t pay 55% on their entire estate – even in New York – only on the portion in excess of the exemption that they chose not to give to worthy causes.]

“8. I view the estate tax as a very inefficient tax . The resources people spend to minimize or avoid it are tremendous. These efforts are often wasteful and could be more productively employed elsewhere. I think it is naive to say as you do that the tax should be made ‘less porous.’ [You may have me there. We could likely figure out how to do it; but getting it enacted into law would be hard. This is certainly the argument for cutting the top rate as part of a deal to reduce porosity. But the bill I was decrying, to lower the rate from 45% to 35%, came with no such deal.]

“9. Your dismissal of the idea that a lower rate could bring in more money indicates the estate tax debate for you is not really about raising more money. It’s really about ideology. [I’m not trying to raise more money, I’m trying to avoid raising less – and avoid reducing the incentive to make charitable bequests. But I hear you, appreciate the discussion, and even went to look up ‘manichean.’]

☞ If all this gives you a headache, go back up to the top and listen to that song.


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