Congress voted today on the repeal of the estate tax, and if I’m not mistaken, they voted to repeal it… but the president may veto that.
I’m wondering why this is a priority for congress. I think that of all the taxes, estate taxes are some of the least onerous. The person who has to pay them no longer has a need for the cash, and to the people who would otherwise receive the cash, it’s unearned income: they really haven’t done anything to deserve it.
There are some cases where the estate taxes may be more harmful, though, like family farms and small businesses (sorry I’m not clear on the laws, but I think if you leave property like a farm to your heirs, the gov’t still makes you pay the tax… so you may have to sell the farm just to pay the tax on it!), where I think there should be exceptions.
But where it’s just cash that’s at issue, I’d much rather have the gov’t tax estates than take a larger bite out of my earned income. What do you folks think?
The reason that congress wants to ditch this tax is because too many family businesses and farms had to be sold in order to pay off the estate taxes. No estate taxes and the business stays in the family. It is one of the better ideas that congress has come upe with in a while.
Eliminating the estate tax would just be furthering the interests of the upper class. I think that a 100% estate tax, minus funeral expenses, would strengthen meritocracy in America and thus be much more fair. The superior education and connections that the children of the wealthy recieve should be enough of an advantage.
Most attorneys I know that practice probate and estate planning say “the only people who pay estate taxes are those that want to.” ie if you plan correctly, you won’t lose out when it comes time to pay estate taxes.
Also, IIRC, the current federal estate tax exemption (which is obviously what congress is thinking of repealing) is $675,000 with an increase to $750,000 in the near future. I believe most states have the same exemption (talk to a local attorney or state statutes for the correct straight dope). So if your estate is worth less than $675,000 (typically not including life insurance benefits, unless paid to the estate) you don’t pay estate taxes.
once again, take this with a grain of salt, I’m remembering this off the top of my head from a Wills and Probate class that meet at 8am.
The limit at which estate taxes kick in:
$675,000 for individuals. Current law increases this threshold to $1 million by 2006.
$1.3 million for couples, farms, and small businesses. Current law increases this threshold to $2 million by 2006.
Estate taxes are graduated like income taxes and top out at 55%.
Of the 2 million annual deaths in America only about 2% (43,000) exceed the current thresholds and pay any estate taxes. Of the estates taxed in 1997, the richest 2,400 (~6%) with assets above $5 million paid half of all the estate taxes collected that year (about $3.4 million per estate). Estate taxes represent around 1.5% of the total federal taxes collected.
The bill (H.R. 8, which passed the Senate today by a vote of 59-39 and passed the House back in June) will drop the 55% top rate (paid by only the very wealthiest estates) immediatly and eliminate the estate tax entirely by 2010. The cost of this measure is expected to total $855 billion by 2020. Clinton has promised to veto the bill and the Republicans don’t have enough votes to override. The Democrats tried to pass a measure to raise the exemptions to protect small businesses and family farms but the Republicans overrode this measure.
Estate taxes date from 1916 and were pushed by Republican President Teddy Roosevelt who sought to “preserve a measurable oppurtunity for the people” instead of preserving, “those fortunes swollen beyond all healthy limits”.
My own comments on estate taxes:
The GOP is playing election year politics and is expected to try to pass further tax cuts before their convention later this month to force Clinton to veto them. They know this bill has no hope of passing under the Clinton administration or under Gore if he is elected, only a Bush victory would allow such a regressive tax to pass.
The intent of the tax was to diminish the wealth and power of the heirs of the very rich. If you know the history of the Guilded Age (1890’s) as Mark Twain dubbed it, then you know that America once had a hereditary aristocracy (such as the Vanderbuilts). This country does not need a hereditary aristocracy. There are already enough loopholes in the tax laws to insure that no one who does estate planning will ever have their estate taxed. That is, if your parents are rich they can give you an expensive education, a start in business, numerous invaluable contacts in the business world, and a famous name without paying any estate taxes. They can also pass on their wealth to their heirs before they die to avoid the high estate taxes and only pay lesser income taxes. The thresholds for estate taxes should be raised to protect small businesses and farms, but the estate tax itself should never be repealed.
Great, so the government gets to keep the family farm when Pa dies. Hey, I’ve heard of something along those lines…what was it called? Oh yeah, Communism.
But mommy, it’s not fair. People with inheretences get an unfair advantage.
Hey, that little bitty trust fund from my grandparents was a nice surprise and the timing couldn’t have been better. No, I’m not upper class, but I play one on TV… People who hate trust funds just don’t have one.
My parents, faced with the horrible possibility that they might leave something to their children & grandchildren when they die, looked into gifting portions of it away while they are still alive. I believe this can be done with property & cash, up to a certain percentage or amount each year. Start early enough, and at 10% a year, the house (or whatever) could belong to the kids before a death tax can touch it.
We in the middle class must come up with all the little tricks we can, just to keep up.
The idea about “the family farm” or “small business” having to be sold to pay off the estate tax is BS*. I used to DO income tax (not estate taxes, but those guys were a cubicle away), and the only time I heard of this was when some dude died intestate (ie no will), and by the time the Lawyers, Relatives AND Uncle Sam finished “fighting over the carcass”
then the Business had to be sold. But a HUGE chunk went to the attorneys (and a reasonable amount to the tax preparers)
The moral is- two words- “estate planning”. Unless the estate is in the “filthy stinking rich” category, with proper planning you will pay a reasonable amount up front to the CPA’s and Attorneys who set up the planning, and nothing to the Government later.
And to those who say: “Why does a small businessman have to plan his estate anyway?”, its for the same reason a good businessman just doesn’t just add up his gross income and send the Gov’t 40%.
*Just a while ago, someone posted a hypothetical “small family business” that ended up in deep kimchee, and owed a bunch of estate tax. I showed how that estate would only owe a small amount, and that without any estate planning. With a modicum of plannig = 0. Most "small businesses & family farms will not owe a “crippling” estate tax bill.
One thought that people ought to keep in mind when debating gift and estate taxes: who says you have a ‘right’ to freely pass on property to others without governmental interference?
The movement of money among people and businesses is almost always taxed. There are some limits to the size of the transaction that will be taxed (e.g., gifting less than $10,000 in a year to a person), but the tax exists.
What, therefore, makes an estate so special it shouldn’t be taxed?
Gee, do you have a “I’m spending my kids’ inheritance!” tee-shirt? I probably won’t have much amassed by the time I die, but I do want my kids to get it, not Uncle Sam. I am not wholly against an estate tax, but just taking it all and deeding it over to the government is beyond all reason.
You’ll have to forgive me since most of my knowledge of American history came from Schoolhouse Rock. But, wasn’t one of the reasons for the revolutionary war taxation without representation? Who is representing the dead?
When did Americans become so indifferent to unfair taxes? Everyone who says that estate tax is not a bad idea, would change their tune if the tax was applied to everyone.
Your wording is subfective. You would not be giving anything to anyone. You would be dead. What happens in this world is a question for people living in this world.
Am I to assume that if someone named the government as their heir then you would classify them as insane?
adam yax:
This certainly was part of the propaganda. I would be interested in a thread exploring this question.
Why do they need representing? They are dead.
But to answer your question, I believe that would be politicians from Chicago.
**
This also is subjective. I am asserting that a 100% estate tax might be more fair.
I am not familiar with a general indifference in the USA to taxes, fair or otherwise.
**
This is a bold statement. I say that I would not change my tune.
Am I not included in everyone or am I a liar?
Main Entry: sub·fec·tive
Pronunciation: (")s&b-'fek-tiv
Function: adjective
Date: 07-15-2000 01:35 PM
1 : A combination of subjective and defective.
( Implies that the user is a moron. )
Thanks to the folks who have posted info on how large the estate tax exemption is. I can actually feel the ignorance leaving my body…
Oh, wait, that’s blood. Excuse me for a moment…
It sounds like having to sell the family farm or small business is a red herring; the exemptions sound pretty large. Keeping that in mind, what’s the problem with taxing estates? I’m sorry, adam yax, but rallying around the property rights of the living is one thing, but the property rights of the dead are a much less defensible concept. Egyptian beliefs aside, the dead have no need for property. I still find the estate tax much more preferable to an equivalent tax on the living.
… However, you’re right about taxation without representation. I’ll set up some seances. It sounds like the Republicans have really locked up the necro-American vote this year.
You’ve got that right. According to the data accompanying this article, only 1.9 percent of estates are taxable under current law, and of those, only 3 percent are farms or small businesses. Given that 2.3 million adults died in 1997, that means that only about 1,311 farm or small business estates even had to pay the tax. Presumably the numbers haven’t changed much since then.
In any case, raising the amount of exemption should be sufficient to handle most of those cases, I would think. This whole business of having to repeal the estate tax completely strikes me as nothing more than a tax cut for the richest Americans, in much the way that the “flat tax” was.
Income that you do work for is always taxed. There is a gift tax, because without it the estate tax would have a giant loophole. So the gift tax is just a special case of the estate tax.
Besides for the estate/gift tax and taxes on money you make, other forms of income are not taxed. For example, if someone repays a loan to you, the principle he’s paying back is not subject to tax. The interest is, because that’s you making money.
And Danielinthewolvesden, I’d like to know what the loopholes are that keep people from having to pay estate taxes. I now have an estate that if my wife and I were to die, the gummint would get a nice little windfall. We’re pretty well-read about this kind of stuff, and we haven’t found out how to avoid it. We could give up to $10K a year to people we like, but a) that money would not be ours anymore to save for our retirement, and b) you can’t get rid of much money at $10K a year unless you really like a lot of people.
We’re about to set up a revocoable living trust, but that just transfers the money to our heirs more easily without probate (its delay and high lawyer fees) - it doesn’t avoid any taxes.
The tax is applied to everyone, it just has a very high threshold. All taxes have thresholds, for sales tax its around 5 cents, for personal income tax it’s $7,050/year for a single person, for estate taxes its in the millions, so what?
The estate tax isn’t paid by the dead man who (presumably) earned the money and paid taxes along the way, it is paid by his heirs who (presumably) did little or nothing to earn this money. Think of it this way, if a man dies and an estate tax is levied but is never paid, what will the tax authorites do? Will they dig up the dead guy and put him in jail, or will they go after the heirs. Thus, the tax is on the heirs who are profiting from the death of a rich relative, not on the guy that died. If there is anyone who doesn’t deserve a tax break it is these people. (Side note, the average inheritor is NOT a minor but a middle aged person who shouldn’t need money from Daddy).
Curt: 1 as an enrolled agent I would have to charge you big bux to tell you exactly. 2. I really don’t feel qualified to practice in the estate field. 3. RIA says that with the kind of estate planning you can “do it yourself”, you can easily exempt up to about 1.3>1.5 M, and with good planning (read, “pay a CPA and Lawyer a grand + or so each”), exempt up to about 4>5 M. If your estate is bigger than that you are going to have to shuffle like crazy, and you will probably still owe a good chunk. Unless, of course you do something like Gallo, and get the Gov’t to pass a special section of the Tax code that only applies to your estate.
