There are some things in this life that are looked at as being "good things". (Just for the record, I said "that's a 'good thing'..." for years, way before Martha Stewart made it her tag line.) In my opinion, "good things" are things like marrying someone you love and respect; bringing a baby into the world surrounded by a loving mother and father; buying a home to provide a stable living environment for your children; staying in and working at a committed marriage; buying and running a stable business that provides for your family's needs, the needs of your employees, and the support of your community; being able to save for a retirement phase of life that won't require you to live off your children or eat cat food (although I'll bet the crunchy kind could probably help keep the tartar build-up off your teeth); being remembered fondly when you leave this mortal coil.
Yes, I know that's a fantasy for some. I also recognize that some people will be able to do some, but not all, of these things (for example, my retirement planning is woefully short for many reasons ... I think I'll be buying stock in Purina soon). I also know that these kinds of things are the goals of many.
What happens, though, when you're able to reach all these goals and the unexpected happens, robbing you and your family of all you've worked for? No, I'm not talking about a "Great Depression" (although I'm sure one would set in for the family if this happens), and I'm not talking about the emotional, psychological, societal and economic impacts of something like another 9/11 or a major, wide-spread terrorist attack.
What I'm talking about is an attack by our own government by an insidious weapon ... the Death Tax.
Congress is currently debating the repeal of this tax, which has caused many businesses to close, robbing their communities of jobs, the local governments of contributions to the tax base, and forcing families into foreclosure and bankruptcy. In the June '06 Bulletin No. 36, the Cato Institute addresses this issue. I found the item posted in the TaxMama newsletter I receive every week, and was glad to see it so clearly discuss why the Death Tax must die.
To quote Terrence Jeffrey's June 7 column at Townhall.com, "In 2001, the "estate tax" (as the government calls it) was steeply progressive. A family could exempt $675,000, and faced a top rate of 55 percent for estates valued over $3 million. This year, thanks to the Bush tax cut, the exemption is $2 million, and the rate is a flat 46 percent. In 2010, the tax goes away. But in 2011, it snaps back to a top rate of 55 percent for estates over $3 million, with an exemption of $1 million."
Do you know who has taken out an insurance policy on you? Tax cut legislation enacted in 2001 modestly reduced the estate tax rate and increased the exemption amount between 2002 and 2009. Currently, the top estate tax rate is 46 percent and the exemption is $2 million. Thus, if the owner of a small business with assets of $3 million passed away this year, the heirs of the estate would have to pay federal estate taxes of about $460,000. Under the 2001 law, the estate tax is fully repealed in 2010. But the tax is then resurrected in 2011 with a top rate of 55 percent and an exemption of $1 million. If you are in poor health in 2010 and you own substantial personal or business assets, your heirs might favor your prompt departure.
Do you know who has taken out an insurance policy on you?
Tax cut legislation enacted in 2001 modestly reduced the estate tax rate and increased the exemption amount between 2002 and 2009. Currently, the top estate tax rate is 46 percent and the exemption is $2 million. Thus, if the owner of a small business with assets of $3 million passed away this year, the heirs of the estate would have to pay federal estate taxes of about $460,000. Under the 2001 law, the estate tax is fully repealed in 2010. But the tax is then resurrected in 2011 with a top rate of 55 percent and an exemption of $1 million. If you are in poor health in 2010 and you own substantial personal or business assets, your heirs might favor your prompt departure.
According to a PricewaterhouseCoopers survey of the top 50 countries, at 46% the United States has the third-highest estate tax rate. I don't know about y'all, but to me this seems like a big double dip. This money has typically been taxed as corporate income and the distributions to shareholders has been taxed as regular income. It seems patently wrong and offensive to tax it yet again ... just because it's there ... and that's how it seems to me.
It seems to be a punishment to people for being entrepreneurial, willing to take the risk of provide a good or service, and unwilling to rely on the government for hand outs.
Chris Edwards, author of the article says the Death Tax "is probably the most inefficient tax in America. It has a high marginal rate and is very difficult for the government to administer and enforce. It has also created a large and wasteful estate-planning and avoidance industry." Yep, it appears to help anyone is in the industries that help people deal with the monster ... the lawyers and accountants in big firms that make their livings filling out the forms, filing the motions and law suits, doing business valuations and appraising assets, and creating all the "other entities" like trusts and foundations into which people try to divert their money so they don't lose half of it when they die. (For me this won't be a problem ... it will be finding the funds to pay off the mortgage.) "Alicia Munnell, a member of President Bill Clinton’s Council of Economic Advisers, estimated that the resources spent on avoiding estate taxes may be as large as the amount that the tax collects."
Now, this is not to cast aspersions on all CPAs (I make no such distinction with lawyers, mind you). I've worked with some very good CPAs who have nothing but their clients' best at heart ... I've also worked with a few that are out to make the client's bill pile up so their cut and prestige within the firm goes up. I've also worked with a few that didn't do any of the clients' work, rather letting the lower-ranking accountants do it and writing down the lower-paid employees' time while writing up their own.
(I mean really ... charging a flat half-hour charge of signing time "in case you have to talk to the client" when they pick up their return because you're supposed to do them the courtesy of actually talking to them when they bring business in your way ... and then always being "too busy" to talk to them when they come in ... sorry ... tangent of past bitterness ... sorry.)
An even larger cost of the estate tax is the damage that it causes to saving, investment, and business activity. The need to pay an estate tax bill can result in heirs liquidating or selling family businesses because such businesses are often asset rich but cash poor. The estate tax damages the economy when it destroys ongoing, job-producing businesses simply to fund added government consumption.
Also, consider the impact of the estate tax on an entrepreneur who has struggled to build a small business into a larger enterprise. She may begin wondering why she should keep working so hard to grow her business if the government will take half of all the added wealth that she creates. Productive people in this situation may decide to take it easy, reduce their investment, and increase their consumption. As tax law professor Edward McCaffery notes, the death tax discourages socially beneficial savings and rewards a selfish "die-broke" ethic.
Liberals who complain about "concentrations of wealth" have it wrong. Wealth accumulation by anyone and everyone is good for the economy. Frugal savers who become wealthy are great benefactors to society because their capital increases productivity and is the fuel for growth. The estate tax penalizes savers and investors who attain wealth, while rewarding wealth dissipation through private and government consumption.
What liberals (especially the national-level ones) don't want you to know, because corporations and the rich are so very evil, is that many experts believe that repealing the Death Tax would be good for the country ... and they have compelling evidence to back up that belief.
The winners from estate tax repeal would be average workers who would gain from a larger capital stock and entrepreneurs’ greater job creation efforts. Former chairman of President George W. Bush’s Council of Economic Advisers, Greg Mankiw, noted that as a tax on capital, the estate tax likely reduces U.S. productivity and wages. He concluded that "repeal of the estate tax would stimulate growth and raise incomes for everyone."
Federal budget data indicate that estate taxes will raise $28 billion this year, accounting for 1.2 percent of total federal revenues. However, if the estate tax were repealed, income and capital gains tax revenues would increase to partly or fully offset the loss in estate tax revenues.
If the estate tax were repealed, the nation’s capital stock would grow larger over time, which would produce higher incomes and thus more income tax revenues. Another effect of estate tax repeal would be to end the current tax avoidance strategy of parents shifting assets to their children, who are usually in a lower income tax bracket than the parents. All in all, the estate tax "probably reduces personal income tax revenue by more than the estate tax itself collects, causing a net decrease in total federal tax revenue," according to Harvard University’s Martin Feldstein.
But what happens if Congress does its typical thing and just debates the Death Tax to death ... and doesn't vote to repeal it? In that event, there's at least a chance of a compromise.
Permanently repealing the estate tax would likely spur greater savings and growth. If full repeal does not gain enough support in Congress, Sen. Jon Kyl (R-AZ) has proposed a compromise that would cut the tax rate to 15 percent and increase the exemption to $5 million. That would be a big improvement over current law. But if Greg Mankiw is correct that the estate tax "unfairly punishes frugality, undermines economic growth, reduces real wages, and raises little, if any, federal revenue," why retain any part of this damaging tax?
But why should you give any thought to the death tax being repealed? After all, it probably doesn't apply to all that many people who read this blog with any frequency. We know it will likely never apply to me ... unless I actually do win the lottery (but as I always say, "Ya gotta pay to play, and ya gotta play to win"). To put this into perspective, it helps to "put a face" on the issue. To do that, take a good look at that Terrance Jeffrey column , where you will meet the family behind Hannay Reels in the "small village of Westerlo, NY" (the link is given above ... I'm only including highlights column below).
Hannay Reels employs 150 people and grosses $42 million per year, was started in 1933 by the grandfather of those currently running the company, and has been passed down through the generations at no small expense.
Roger's mother and father both died in 1997. In 1998, he testified in the House Ways and Means Committee about the death tax, and about the hope of his children to take over the family business.
The family's solution has been to buy massive life insurance policies. They now pay about $335,000 per year in premiums. When Roger dies, the insurance money goes to the company, which will use it to help buy Roger's stock back from his wife, Sherley, who must then use the proceeds to pay the death-tax bill. That should allow the fourth generation of Hannays to keep Hannay Reels.
But there are wildcards. At 64, Roger cannot readily increase his insurance coverage, and the business is growing. As the years go on, he says, the "spread widens" between the value of his insurance and his stock.
The Hannays won't take the easy route and accept one of the unsolicited offers they have received for the company. "Actually, I would be better off," says Hannay. "But we ain't going to do that."
Hannay is wary of sounding "too corny and sappy," but his love for his town is clearly sincere. He recalls his children taking the 13-mile bus ride each way to the local high school, and friends who sold family businesses and regretted it. "Our employees are family to us," he says.
"I want to be clear," he adds. "Not every single resident of this village works in Hannay Reels and vice versa. Some of them commute to Albany and have other jobs (which is a 50-mile roundtrip every day). But a lot of folks from the surrounding hills here … a lot of them, directly or indirectly, depend on us. So do some local businesses that we shop with and are vendors of ours. So, yeah, without being too full of ourselves, I say it would make a big economic impact."
But liberals don't want you to know that. They want your money ... no matter how many times it's already been taxed ... no matter if it's going to cause wage-generating, local/state/regional tax-generating, local economy-supporting to evaporate ... no matter what they have to do to get it. And they won't voluntarily give an inch. If the Dems should happen vote along with Republicans to repeal the Death Tax, you know they're going to demand their pound of flesh (wait, we're talking about legislators here ... it will be a ton of flesh).
Death to the Death Tax ... may God be with us all.