Sunday, January 3, 2010
Jeff Jacoby, on one of the government's most odious taxes:
NOT ALL DEATHS ARE SAD. The federal estate tax died at 12:01 A.M. on January 1, an occasion of joy if there ever was one. Allowing it to expire was one of the few sensible things Congress accomplished in 2009. Keeping it dead should be a congressional goal for 2010.
Estate-tax repeal was one element of the tax cuts George W. Bush signed into law in his first year as president. But the legislation was perversely drafted. It phased out the tax over 10 years, reducing the rate from 55 percent in 2001 to 45 percent in 2009, and then eliminating it entirely in 2010 - but only for a year. If Congress does nothing else, the estate tax will reappear in 2011, at the old rate of 55 percent on all assets above $1 million.
Needless to say, this temporary vanishing act is wreaking havoc on estate planning, and many analysts expect lawmakers to revive the tax sometime this year, perhaps even making it retroactive to January 1. But if the goal is clarity and certainty in the tax code, a far better option would be to make the repeal permanent...
$1 million is almost nothing. It's the book value of a mom and pop business. The idea that the government should come in and seize 55% of the excess is so egregious it's the type of thing revolutions are made of. What possible justification could there possibly be for such a thing in a free society? Imagine trying to keep the family business going, and on the death of the owner you are handed a bill in the amount of hundreds of thousands of dollars...for what? This is willful destruction. It should stop.
...Far from affecting only billionaires and pampered heiresses -- inheritance tax supporters love to invoke Paris Hilton -- taxes on estates are mostly levied on small- to medium-sized businesses and family-owned farms. Between 1995 and 2004, the congressional Joint Economic Committee noted in a 2006 report, estate taxes were paid by the owners of more than 37,000 "closely-held businesses," as well as 24,000 farms, 50,000 limited partnerships, and nearly 28,000 other non-corporate businesses. "These data clearly indicate," said the JEC, "that the estate tax has broad and significant costs for thousands of family businesses."
Since many such businesses operate without large cash reserves, a hefty tax bill can leave them with no option but to liquidate valuable assets or sell off the business entirely. The cumulative cost to the economy can be measured in lower growth, lost jobs, and diminished entrepreneurship...[More]
Ok, this is what happens when journalists who understand little to nothing about our incredibly complicated federal estate tax regime start spouting populist talking points. The data Jacoby's citing make it look like the owners of all of these "small businesses" (many of them aren't small at all, BTW) were paying estate taxes at 55% before Congress allowed the tax to disappear Friday at midnight because they were too busy trying to take over health care (among other things). That's not even remotely the case.
Those figures include three years when the estate tax exemption was only $600,000 and the actual top rate could reach as high as 60% (absurd), three more during which the exemption was rising a bit each year up to $675,000 in 2000 and 2001, another two during which the exemption was $1 million and then one year at $1.5 million (still absurd, of course, but almost no one is arguing for an estate tax at that level any more). Even then, it took a few million bucks more per estate to approach that 55% bracket, and that on the NET estate, after discounts and deductions.
There are whole bunches of provisions in the law specifically designed to protect family businesses and small farms, and lots of ways for very very wealthy people to avoid the tax altogether. Back in 2003, roughly 2% of all estates were subject to the tax at all. Last year, that was down to somewhere around 0.2%.
The repeal is going to be repealed, retroactively, somehow. The estate tax isn't going to go away ... at least not until Republicans get a supermajority in both houses again and one of their own in the White House. And even then, I wouldn't bet on it as long as deficits remain on anyone's radar as a factor. Hopefully, these clowns will find a way to reach a reasonable compromise (45% maximum rate with an exemption level of $5 million/ $10 million per couple, e.g.).
I don't think you're far off from what Jeff is saying. A big part of it is how tricky the whole thing becomes. All these silly regulations that everyone weasels around anyway just add more costs in the form of the need to hire specialist paper-pushers and add more stress to already difficult phases of life. Silly, stupid, immoral. It's tough to die and the government even makes that worse.