U.S. House of Reps Votes to Cut Off Estate Taxes (Again)

Pentagon's War Spending Hard to Track - Watchdog
Wed Apr 13, 3:49 PM ET U.S. National - Reuters

WASHINGTON (Reuters) - The Defense Department is unable to track how it spent tens of millions of dollars in Iraq, Afghanistan and elsewhere in the U.S. war on terrorism, Congress's top investigator said on Wednesday.

The department "doesn't have a system to be able to determine with any degree of reliability and specificity how we spent" tens of millions in war-related emergency funds set aside by Congress, Comptroller General David Walker told a Senate Armed Services subcommittee.

Walker heads the Government Accountability Office, Congress's nonpartisan audit and investigative arm. He disclosed the accounting gap as part of a broader indictment of Pentagon business practices.

Congress approved $25 billion in extra defense spending for fiscal 2005, which ends on Sept. 30. Lawmakers were moving to approve $81 billion more this week outside the normal budget process, including about $75 billion for war-related Defense Department operations.

While there was no doubt that appropriated funds were spent, "trying to figure out what they were spent on is like pulling teeth," Walker said, referring to an accounting effort he said was under way for Congress.

The Defense Department had no immediate comment.

Overall, Walker said the Defense Department, which is seeking $419.3 billion for its fiscal 2006 budget, was wasting billions of dollars a year because of ineffective management of its business operations...

remember a few months ago when the they were criticized on Iraqi spending, and the retort was something like "there was a war on! we couldn't hold ourselves to Western Accounting Standards!"

also, i'm reminded of the theory floated around by Lakoff & others that one of the reasons WHY the Reagan/Bush/Bush Admin were big fans of jacking up the Deficit was to put Grover Nordquist's idea into practice: because they didn't really want any of the more domestic(read: social) programs funded, they dumped everything into the army and cops(DOJ/FBI/CIA) so that there wasn't anything else left.

47% is not unreasobable at all.

why this could make things screwier

If, the day before you died, you sold a share of microsoft stock for $100 (its fair market value). yer taxable capital gain on sale of the stock would be $99 -- i.e., the difference between its FMV on the date of sale ($100) and its basis (i.e., the $1 purchase price).

Now, let's assume instead that you DIDN'T sell any of the stock before you died so that you owned all 20,000 shares when you did, and that the stock's FMV on the date of death is also $100. as stated above, yer taxable estate (without figuring for any deductions) would be $2 million (i.e., 200 shares * $100). after subtracting this year's $1.5M exempt amount, your estate would pay an estate tax on $500K. the tax basis of each share of microsoft stock received by the heirs of yer estate would also be $100/share (NOT yer original $1/share basis). under estate tax law, this is called a "step-up in basis" -- it means that whether or not yer estate has paid any estate tax, yer heirs will NOT pay any capital gains tax on the stock's appreciation between the date you got it and the date you die. (they will have to pay any capital gain for any appreciation AFTER they get the stock from yer estate).

all of the above are the rules under the CURRENT estate tax regime. in 2010 -- and, if the estate tax repeal is made permanent, each year thereafter -- the heirs of yer estate will NOT automatically get a step-up in basis, to the stock's FMV on the date of yer death. they MAY get a portion of what is called "modified carryover basis." that is, each estate of an unmarried decedent (i.e., you) will be allowed to allocate up to $1.3 million in tax "basis" to the estate's assets. in my example, this means that $1.3M of the $2M in microsoft stock will FOREVER be exempt from ANY federal tax. however, the remaining $700K gets NO step-up in basis -- that is, the heir's basis of each share of microsoft stock to which the modified carryover amount has NOT been applied will be $1 (yer ORIGINAL basis in the stock) and NOT the $100 FMV on the date of yer death. this means that if yer heir sells the stock immediately after you die (and assuming that the FMV is still $100), he will have to pay capital gains tax on $99/share (i.e., the difference b/w the sales price and the carryover basis in the stock).

the OTHER fly in the ointment here, as i mentioned before, is that allocating the modified carryover amount is at the DISCRETION of the executor (absent any direction by the decedent in his will). right now, the step-up in basis is automatic -- if the estate tax is repealed, it ISN'T. so if an executor of an estate really dislikes one particular heir, he can allocate ALL of the $1.3 million carryover exemption amount to the estate's OTHER heirs and the disliked heir will be stuck with having to pay capital gains on the property that he received from yer estate. (THIS is why i said it may generate lawsuits -- from disgruntled heirs pissed off w/ estate executors or the attorney who drafted a will).

capisce?

The thing about passing money onto heirs in gift payments before kicking it is that that money has to be fairly liquid for you to do so, and anybody can do that - the real estate tax is on non-liquid assets such as, uh, real estate, and that becomes an issue.

My parents have a $1m house in the tennessee mountains. Do I need to "get it?" Or will peak oil make rural hideaways drop in price?

Oh, xpost.

exactly, tombot!

I guess this d oesn't really apply if someone like real suddenly kicks it or something.

...oh i'm sorry, i wasn't listening. i was too busy gloating from earlier when i took on the ENTIRE bar by meself and came in 2nd in tonight's pub quiz(out of 12 teams).

it helped that i knew every castmember on SCTV(except for that Rizoto guy) and that the Feelies' first album was named "Crazy Rhythms".

anyways, you were saying?