Singapore has steered away from estate taxes since the law change in 2008 but we are observing more talk of wealth taxes, property capital gains taxes and estate taxes.
So how effective is it to declare an estate tax and see meaningful inflows?
Data from the Internal Revenue Service (IRS) in the US provides some insights. It also provides some data points on how rich America’s rich are.
The modern estate tax was introduced in 1916 to help counter the growth of dynastic wealth.
- In 2018, the IRS collected more than $20 billion in estate tax from nearly 5,500 families
- In 2020, the IRS collected $9.3 billion in estate tax from 1,275 wealthy families
That is a dramatic fall of nearly 50% in the collection and a 77% fall in the number of wealthy households taxed.
Eventually, only 0.04% of dying Americans paid estate taxes.
IRS attributes this greatly to the tax overhaul enacted by Republicans in the 2017 Tax Change (the last change was in 1986). In this tax overhaul, the amount the wealthy can pass to heirs without triggering a levy was doubled.
Now that the tax is slightly less than $10 billion, estate tax represents 0.25% of the US$4 trillion tax collection in the last fiscal year.
Here are some other data:
- Last 5 years, US billionaires have doubled their collective net worth to $5 trillion (Bloomberg Billionaires Index)
- More than 20% of the estate-tax payers lived in California, 13% in Florida, 9% in New York, 6% in Texas
The general tax avoidance technique centres around how much wealth can be transferred out of the estate. With the Tax Cut and Jobs Act change in 2017, married couples can now transfer $23.4 million over their lifetimes tax-free.
$9 billion is a big sum but for a wealthy country like America, that is probably not good enough.
This is something for implementers such as Singapore to think about. I think California will face a more wealthy exodus to places like Texas and in the future, this may be reduced further.
If they find it so tough to extract money out of Americans, how easy would it be to extract from overseas people?
I invested in a diversified portfolio of exchange-traded funds (ETF) and stocks listed in the US, Hong Kong and London.
My preferred broker to trade and custodize my investments is Interactive Brokers. Interactive Brokers allow you to trade in the US, UK, Europe, Singapore, Hong Kong and many other markets. Options as well. There are no minimum monthly charges, very low forex fees for currency exchange, very low commissions for various markets.
To find out more visit Interactive Brokers today.
Join the Investment Moats Telegram channel here. I will share the materials, research, investment data, deals that I come across that enable me to run Investment Moats.
Do Like Me on Facebook. I share some tidbits that are not on the blog post there often. You can also choose to subscribe to my content via the email below.
I break down my resources according to these topics:
- Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
- Active Investing – For active stock investors. My deeper thoughts from my stock investing experience
- Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
- Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
- Free Stock Portfolio Tracking Google Sheets that many love
- Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
- Providend – Where I currently work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works
- Cryptos are still very correlated with Equities for now. But what are the less correlated stuff? - January 23, 2022
- Why Would My Robo Cash Management Account Have Negative Returns? - January 22, 2022
- What Valuation Will Make Software/Tech Business Look Like Great Investments? - January 17, 2022