Ring out the old estate tax, ring in the new
- December 28, 2009
- 1 comments
- Posted in Latest Posts, Taxes
I never thought it would happen. On New Year’s Day, the estate tax goes away. If it stays away, as Republicans want, it will cost the taxpayer $1.3 trillion, over the 10 years starting in 2012. That’s 55 percent more than the Senate health care bill is expected to cost, and benefits only the uber-rich.
It makes you think. Conservatives didn’t worry about the huge deficit cost of cutting taxes for the wealthy. But try to pass health care for the uninsured? Ooooo, we can’t afford it. Too bad for the sick. If they don’t hire lobbyists, what can they
But before the wealthy pop open the champagne, I have bad news. A broader, more extensive inheritance tax takes effect next year and it’s going to affect a lot more people than the old tax did. Wealthy Americans will be worse off than if the current estate tax remained in place.
Your estate is what’s left for your heirs after all the bills and taxes have been paid. In a brilliant piece of rebranding, opponents renamed it the “death tax,” making it sound as if everyone would have to pay. In truth, more than 99 percent of estates escape tax free. Only the uber-rich are hit. So when Congress cut the tax in 2001, it wasn’t eager to disclose how much it would add to federal deficit in the years ahead. In a budget gimmick, it cut the tax through 2009, repealed it entirely for 2010, and brought back the old, higher, tax in 2011, which made the gift to the rich look smaller than it really was. That led to stale jokes about throwing Granny from the train in 2010, to collect your inheritance tax free. In truth, that train was never expected to leave the station. By 2009, tax opponents expected to make the repeal permanent.
That didn’t happen, and now you’d better put Granny back on life supports. In another budget gimmick, Congress imposed a new inheritance tax for 2010. That, too, was supposed to be repealed but, lo and behold, it takes effect on January 1. Believe me, if you’re in the cross-hairs, you’re not going to like it.
The new tax hits inherited capital gains that formerly passed tax free. This is best explained by using an example. Say that, years ago, your father bought a stock at $10 and it’s now worth $100. If you inherit that stock and sell right away, you owe no tax on the capital gain. Under the new law, however, you’ll be taxed on the $90 in gain earned during your father’s time. The law allows $3 million in gains to pass to a spouse tax free, and $1.3 million in gains left to other heirs. That eliminates most estates, but not as many as go tax free under current law.
Abolishing the estate tax is always presented as something essential for small farms and businesses that otherwise would have to sell out to cover the taxes due. That’s bunk. Only about 100 such estates would face a tax if the current law were extended into 2010, and around 5,500 estates of all types. By contrast, the new law will tax about 71,400 estates, the bulk of them—yes—small businesses and farms.
Chuck Marr expects that none of this will actually happen. Next year, Congress will probably extend something like the current estate tax, making it retroactive to January 1. Conservatives still hope to make the tax smaller than it is today. Deficits, shmeficts, when the paymasters call.
Tags: estate tax
Love your articles. Retire the greedy hypocrites!