Wednesday, May 31, 2006

Estate Tax Lunacy

I have written before about one of the greatest cons the republican party has ever pulled on the American people (Link), and the con goes on.

The great fleecing of America I am talking about is the estate tax. Or, for those of you who worship at the alter of Rush, the death tax.

Harold Meyerson wrote a good piece on the continued push by the GOP to create a permanent aristocracy in the country - Estate Tax Lunacy.

The proposed measure would gut another trillion dollars from the treasury over a decade by eliminating the estate tax. A bone headed Democrat from Montana, Max Baucus, is working on a deal that would only plunge us another half a trillion dollars in the hole as a compromise.

According to the Congressional Budget Office, only 19 family farms in the entire country had to sell off any assets to pay estate tax in 2000. There are 2,000,000 farms in this country. Only 94 family owned businesses had to pay estate taxes.

This means the family farms and businesses had to have assets over $3.5 million as a couple or $7 million for spouses in order to get hit with a tax bill.

Let me say this once and only once - if you have over $3.5 million in assets and don't have life insurance (which is business expense deductible) to cover the estate tax, you have absolutely no sympathy from me and you should fire your financial planner post-haste.

As for the non-farmers and non-family business owners - you know, the likes of the Vice President Dick Cheney, the repeal of the estate tax would save him between $16 and $61 million. Donald Rumsfeld would save between $32 million and $101 million. Ex-Exxon Mobil chairman Lee Raymond would save $164 million. The Wal-Mart heirs would save in the billions - to all of these people, who want to pass along money that mostly has never been taxed to begin with, I say:

a) Life insurance. Check it out.

b) If after leaving your heirs million upon billions of dollars and they still can't make it in the world, the world probably isn't missing much.

Look, I am sorry if Paris Hilton would only be able to throw herself a million dollar birthday party instead of a two million dollar party. But, hey, life sucks. I would rather the money be funneled back into education so the kids who actually have something constructive to provide to society can rise to the top.

I have a pretty earning potential over the course of my life. In the end, if I have (inflation adjusted) over $3.5 million to pass along to my children along with a top notch education and evey other benefit I can give them, and they still can't make it - well, then I failed as a parent.


tommy said...

You're advocating taking out insurance in order to pay taxes? Even if it only affects 19 people that doesn't make it right.

The step up or mark up or whatever it's called is stupid but death should not be viewed a revenue event for the government, I don't care how it's configured. Assets should be taxed the same as if the person lived, when they are sold, at the appropriate rate for when that happened.

Dingo said...

but they are not Tommy. They are taxed at a stepped up basis, meaning that when you die, you pass along your posessions at the value at the day you die, not the day you purchased them. If you were to buy $10,000 worth of stock in 1990 and die in 2010 when it is worth $40,000, the heir gets to sell the stock at a base price of $40,000, not $10,000.

Now, if you get rid of the exclusion of $3.5 million (or what ever limit you want to set it at)and make the assets be taxed uniformly, than it really would affect the family farmer and the small business owner, etc.

As for the life insurance, it is a business right off. Say you are one of the 19 companies affected and have a business valued at 6 million, you estate tax liability would be about $300,000. A term policy would run you about $400 a year (depending on age, etc). That is not exactly terrible for a miltimillion dollar business.

tommy said...

I believe the system as it is in place is wrong, that's why I mentioned the step up. I believe the system as it has been proposed to be changed is wrong.

My view is actually fairly simple, death should be revenue neutral for the government.

There should be no step up, and no exclusion, assets should be taxed at the appropriate rate when sold. Cash is cash and should be unaffected.

Dingo said...

I agree that it should be tax neutral, but it is not, and chaning it to have no exception really would screw over the vast majority of the American people.

Say a husband and wife buy a house in 1950 for $20,000. Husband dies in 2000 and the house is now worth $200,000. The capital gain on that is $180,000, half of which is considered to be owned by the husband ($90,000) and lets make the capital gains tax %15. She owe $13,500 in capital gains tax at his death. If she is on a fixed income, whe probably would not have that on hand.

The current plan is by no means perfect. But at least it would not hit the people least able to afford it, and only affects those who's estates are most likely to have non-taxed capital gains (and with a pretty healthy exclusion).

tommy said...

But she should owe nothing on his death, because she would owe nothing if he was alive. The house has not been sold.

When sold, she should pay the tax as due. The law as it is written now is creating a tax on a fictional sale that never occurred.