The death tax is set to rise significantly...thoughts?

[belcherboy]

Ranchers, farmers brace for 'death tax' impact | Fox News

with that tax set to soar at the beginning of 2013 without some kind of intervention from Congress, farmers and ranchers like Kester are waiting anxiously.

"There is no way financially my kids can pay what the IRS is going to demand from them nine months after death and keep this ranch intact for their generation and future generations," said Kester, of the Bear Valley Ranch in Central California.

Two decades ago, Kester paid the IRS $2 million when he inherited a 22,000-acre cattle ranch from his grandfather. Come January, the tax burden on his children will be more than $13 million.

The quote below from an "anti death tax" site, so maybe it is exaggerating. But if it is accurate, it seems pretty harsh. Couldn't this be thought of as double taxation?


What is the Death Tax? |

What is the Death Tax?

The death tax (a.k.a., the federal estate tax) is a tax applied to the transfer of a person’s assets at death. It is defined by the Internal Revenue Service as “a tax on your right to transfer property at your death.”

Under current law, the tax is temporarily set at the rate of 35 percent with an exemption of $5 million. On January 1, 2013 the estate tax is set to return at a top marginal rate of 55 percent (with an additional 5% surtax for certain estates) on all assets above a $1 million exemption amount.

Often times family businesses and farms are caught in the death tax trap – if the family is forced to sell all or part of the business or farm to pay for the tax, employees and payrolls must be slashed. Additionally, customers lose a place to buy a product or service and suppliers of materials lose customers. Click here to see the history of the Death Tax


What assets are subject to Death Tax?

Everything a person has of any value counts towards the death tax exemption. This means your car, home, stocks, bonds, bank accounts all are totaled together to calculate if you owe the estate tax. Starting January 1, 2013, under current law, if your total estate is over $1 million, you will owe taxes at a 55% rate. Think about all the assets you own:

personal property (such as a home, cars, furniture, artwork)
business assets (property, machinery and inventory)
investments (stocks, bonds and real estate)

Now think about how much that is worth – these days, it doesn’t take much to push you over the $1 dollar exemption, after which all additional assets are taxed at a 55% rate. It is easy to see why nearly 70% of voters want the death tax repealed permanently. The estate tax doesn’t just affect millionaires and billionaires, it affects everyday people and America’s main job creating engine – family businesses.

Even at the current $5 million exemption, family businesses and farmers are susceptible because they are “asset rich” and “cash poor” – the great majority of the value is locked in the land and equipment. If the family doesn’t have the cash on hand to pay the tax, they are forced to sell assets and possibly the entire business or farm.

[pfife]

But if it is accurate, it seems pretty harsh. Couldn't this be thought of as double taxation?

Have the heirs ever paid taxes on these assets before?

I've never paid a cent of taxes on my parents' assets

[belcherboy]

Have the heirs ever paid taxes on these assets before?

I've never paid a cent of taxes on my parents' assets

But haven't your parents paid taxes on their assets?

[4hzglory]

But haven't your parents paid taxes on their assets?

It is definitely double taxation on most assets. The only exceptions are the appreciated gains that haven't been taxed - for example on a home that rose in value, or business that rose in value more than the earnings. All other assets and investments are already taxed. IRA's/401ks are taxed as income by the heir when they start withdrawing $. Otherfunds are valued at the time of death and included on the final income tax return. Individual stocks are taxed when sold, or as dividend income is paid.

[TheCouga]

It's called the estate tax, not the death tax. Republican pollsters like Frank Luntz" came up with the idea of calling it the "death tax" to make it sound more eeeeeevil. You can play along with their juvenile game if you want--I see Fox is already doing so.

98% of the people affected by this are not "farmers and ranchers." They're people like Mitt Romney--extraordinarily wealthy families who mostly didn't earn their money except by shady investment deals, etc.

The best way to respond to this is just to call out their BS. In the 1990s, when Republicans controlled the house and Clinton was President, Republicans decided to engage in theatrics. They had some guy in a tractor drive up to the White House and deliver an estate tax repeal to Clinton personally. Clinton took it and just said to the press, "There are almost zero farmers and ranchers that will benefit from the estate tax repeal. Most of the people who will benefit from this have never seen a tractor in their life. In fact, if we had a tractor drivin' contest between them and me, I bet you I'd win."

[pfife]

But haven't your parents paid taxes on their assets?

Yes. Similarly, my company paid taxes on the revenues they put in my paycheck which is also being taxed, so by that criteria my income tax is double taxation.

[belcherboy]

It is definitely double taxation on most assets. The only exceptions are the appreciated gains that haven't been taxed - for example on a home that rose in value, or business that rose in value more than the earnings. All other assets and investments are already taxed. IRA's/401ks are taxed as income by the heir when they start withdrawing $. Other stocks/funds are valued at the time of death and included on the final income tax return.

But why are things like real estate taxed upon death, and not upon the sale of the asset?

I don't know what to think about this whole thing, but I don't understand why the government is entitled to 55% of the value of your assets upon death if you are worth more than $1 million. It seems like that would destroy/significantly hurt businesses as $1 million isn't a whole lot these days IMO....when you are talking about businesses and real estate.

[chasfh]

To give you an idea of the scope of the estate tax, aka "death tax":

Most returns filed in 2009 were for people dying in 2008 when the estate tax exemption was $2 million. About 2.4 million people died in that year; of those, only 1 in 73 generated an estate tax return and only 1 in 166 had to pay any estate tax. (Source)

So, when the exemption was $2 million, only 0.6% of all estates had to pay any estate tax at all. 99.4% of all estates paid no tax.

In 2013, the exemption becomes $1 million. That will increase the percentage of people paying the tax, but by how much? It depends on how many households have net worth of $1 million to $2 million, versus $2 million or more. I can't easily find that, but let's be generous and say twice as many people have net worth of $1-$2MM than have $2MM or more. That would triple the number of estates that would pay the estate tax upon death.

This means that for 2013, with an exemption of $1 million in force, 2% of all households would pay estate tax. That is, 98% of all households would pay no estate tax.

I want to repeat that because it sounds vaguely important.

Even with the exemption lowered to $1 million, 98% of all estates will pay no estate tax at all.

Which leads to my $64 question:

Why do middle class people even care about this issue, since it won't cost them a penny either way?

[pfife]

It is definitely double taxation on most assets. The only exceptions are the appreciated gains that haven't been taxed - for example on a home that rose in value, or business that rose in value more than the earnings. All other assets and investments are already taxed. IRA's/401ks are taxed as income by the heir when they start withdrawing $. Other stocks/funds are valued at the time of death and included on the final income tax return.

But not taxes paid by the same person twice, right?

Is it really an argument that a particular dollar shouldn't be taxed more than once, even if each instance of the taxes is paid by different people?

[pfife]

But why are things like real estate taxed upon death, and not upon the sale of the asset?

Because its transferred to a new owner

[4hzglory]

But why are things like real estate taxed upon death, and not upon the sale of the asset?

I don't know what to think about this whole thing, but I don't understand why the government is entitled to 55% of the value of your assets upon death if you are worth more than $1 million. It seems like that would destroy/significantly hurt businesses as $1 million isn't a whole lot these days IMO....when you are talking about businesses and real estate.

Other than via the estate tax, they are, but as far as the estate tax goes they are taxed at value at the time of death (or within 9 months after death in Ohio)

[belcherboy]

Yes. Similarly, my company paid taxes on the revenues they put in my paycheck which is also being taxed, so by that criteria my income tax is double taxation.

But if I paid taxes on my $1,000,000 that I've earned, why should I have to pay $550,000 more in taxes on that money to the government when I give it to my kids? Even if that gift happens after my death.

[pfife]

But if I paid taxes on my $1,000,000 that I've earned, why should I have to pay $550,000 more in taxes on that money to the government when I give it to my kids? Even if that gift happens after my death.

you don't pay that tax when you give it to your kids, your kids pay that tax when you give it to your kids.

[belcherboy]

Other than via the estate tax, they are, but as far as the estate tax goes they are taxed at value at the time of death (or within 9 months after death in Ohio)

So if someone had a father that died and left them a $1,000,000 piece of land, they would have to pay $550,000 to the government to keep it. Then if they sold that piece of land later, they would have to pay real estate tax on it as well?

[4hzglory]

98% of the people affected by this are not "farmers and ranchers." They're people like Mitt Romney--extraordinarily wealthy families who mostly didn't earn their money except by shady investment deals, etc.

I'm sorry, but this just isn't true. Without estate planning (read Lawyers) Almost every farmer would be hit by the $1 mil exemption. The vast majority of small business would also be hit by it. Not to mention a significant amount of the population that has saved over the years whether it be via 401K, IRA, etc. It doesn't take much to have your estate be worth $1 mil even if you have never made over $50-60k per year.

[belcherboy]

you don't pay that tax when you give it to your kids, your kids pay that tax when you give it to your kids.

So why don't people give their assets to their kids before their death? Do they not have to pay taxes if they gift it to them before death? (sorry for all the questions, I don't know much about this)

[pfife]

So why don't people give their assets to their kids before their death? Do they not have to pay taxes if they gift it to them before death? (sorry for all the questions, I don't know much about this)

They do, one method is via trusts. There are other methods that probably have taxes included as well.

[belcherboy]

They do, one method is via trusts. There are other methods that probably have taxes included as well.

So isn't it kind of like a double taxation....if taxes can't be avoided?

If I am a millionaire, I can't give my kids my money without the government getting a big piece of it...even if I paid income tax on every dollar earned?

[pfife]

So isn't it kind of like a double taxation....if taxes can't be avoided?

Not double taxation paid by the same person.

[pfife]

So isn't it kind of like a double taxation....if taxes can't be avoided?

If I am a millionaire, I can't give my kids my money without the government getting a big piece of it...even if I paid income tax on every dollar earned?

If you give your kids money, your kids get income, and the govt taxes income

[4hzglory]

To give you an idea of the scope of the estate tax, aka "death tax":

Most returns filed in 2009 were for people dying in 2008 when the estate tax exemption was $2 million. About 2.4 million people died in that year; of those, only 1 in 73 generated an estate tax return and only 1 in 166 had to pay any estate tax. (Source)

So, when the exemption was $2 million, only 0.6% of all estates had to pay any estate tax at all. 99.4% of all estates paid no tax.

In 2013, the exemption becomes $1 million. That will increase the percentage of people paying the tax, but by how much? It depends on how many households have net worth of $1 million to $2 million, versus $2 million or more. I can't easily find that, but let's be generous and say twice as many people have net worth of $1-$2MM than have $2MM or more. That would triple the number of estates that would pay the estate tax upon death.

This means that for 2013, with an exemption of $1 million in force, 2% of all households would pay estate tax. That is, 98% of all households would pay no estate tax.

I want to repeat that because it sounds vaguely important.

Even with the exemption lowered to $1 million, 98% of all estates will pay no estate tax at all.

Which leads to my $64 question:

Why do middle class people even care about this issue, since it won't cost them a penny either way?

Because the way to avoid estate taxes is to set up trusts which require an estate tax lawyer. The lawyers are the one who come out most ahead.

What would happen again, like it did before, is more people will gift the max $ value possible to their heirs before they die. So the heirs will just get it sooner. The primary people that are hurt are not the people with the huge $ as they can afford the lawyers to set up whatever trusts they need to avoid as much tax as possible. It is the small businesses and farms and individuals that can't do so. Or they have to buy enough life insurance to cover the potential taxes.

[4hzglory]

But not taxes paid by the same person twice, right?

Is it really an argument that a particular dollar shouldn't be taxed more than once, even if each instance of the taxes is paid by different people?

Actually it is, because the estate tax is paid from the estate of the person who died before it gets passed on.

[chasfh]

Because the way to avoid estate taxes is to set up trusts which require an estate tax lawyer. The lawyers are the one who come out most ahead.

What would happen again, like it did before, is more people will gift the max $ value possible to their heirs before they die. So the heirs will just get it sooner. The primary people that are hurt are not the people with the huge $ as they can afford the lawyers to set up whatever trusts they need to avoid as much tax as possible. It is the small businesses and farms and individuals that can't do so. Or they have to buy enough life insurance to cover the potential taxes.

Why should middle class people care about this issue?

Do you have more than $1 million in assets? This is a real question: do you?

[4hzglory]

you don't pay that tax when you give it to your kids, your kids pay that tax when you give it to your kids.

See my other post, actually the dead person pays the tax before it gets passed on to the kids.

[belcherboy]

Why should middle class people care about this issue?

Do you have more than $1 million in assets? This is a real question: do you?

What if they work for someone who does? Or their business benefits from someone who has a business with these type assets?

[4hzglory]

Why should middle class people care about this issue?

Do you have more than $1 million in assets? This is a real question: do you?

My wife and I combined are probably a couple hundred K over that, because of the small business I own. We have a large life insurance policy on me that gets paid to the business to cover estate taxes and debt if I would die, otherwise the business would definitely go under and 35 people would be out of work. The top 20 of those are people earning about $50-70K. All of them would be in the middle class people and would be out of work.

When my father-in-law died 4 years after his wife died, the combined estate was worth a little over $1 mil. He never made over $50K and she had never made over $30K, yet with saving for retirement that they never lived to enjoy they were over that threshold. The estate already had about $60k in state estate taxes (which are completely repealed effective in 2013 for Ohio). All of that money had already been taxed except for the increase in value of their home by about $30K.

[Euphdude]

Fox News is trying to get the 98% of people who will be unaffected by this to care about those who are wealthy enough to be subject to pay estate taxes by using Frank Luntz terminology and presenting their argument in a story that's meant to tug at your heart strings.

[pfife]

Actually it is, because the estate tax is paid from the estate of the person who died before it gets passed on.

So the kids get less inheritance, which means they paid the tax, right?

[ballmich]

Yes. Similarly, my company paid taxes on the revenues they put in my paycheck which is also being taxed, so by that criteria my income tax is double taxation.

That's probably not correct. Your company pays taxes on their taxable income, in general. Taxable income is after deducting for employee wages or direct expenses, such as a contract employee.

[pfife]

That's probably not correct. Your company pays taxes on their taxable income, in general. Taxable income is after deducting for employee wages or direct expenses, such as a contract employee.

ok.

[4hzglory]

So the kids get less inheritance, which means they paid the tax, right?

No, the dead person's estate paid the tax. Then the kids/chuches/other charities get the inheritance. I know it is semantics, if you are going to say it isn't double taxation, I am showing that it technically is. Whoever inherits the estate doesn't pay any tax on the transfer.

[pfife]

No, the dead person's estate paid the tax. Then the kids/chuches/other charities get the inheritance. I know it is semantics, if you are going to say it isn't double taxation, I am showing that it technically is. Whoever inherits the estate doesn't pay any tax on the transfer.

So if the estate paid the tax, is that the same as the dead person paying the tax?

Furthermore, if the heirs don't pay any taxes on the estate, why do they care about this tax? It doesn't impact them?

[ballmich]

Why do middle class people even care about this issue, since it won't cost them a penny either way?

Why would anyone care about anything that doesn't affect them?

[4hzglory]

So if the estate paid the tax, is that the same as the dead person paying the tax?

Furthermore, if the heirs don't pay any taxes on the estate, why do they care about this tax? It doesn't impact them?

Because if you are a family farmer, which there are many around me, and your family has 400 acres of land (which is now going for 6500+/acre let's say $2.6mil total). The father and son both operate the farm. The father dies. Not counting any other assets of the father, the son now has to come up with $880,000 just to pay the estate taxes. Assuming the father lived in a house and had some barns, the estate taxes would easily be over $1 mil. So the son has to sell 150+ acres or go into significant debt to pay the estate taxes. Is the remaining farm enough for the son's family to survive on? Is it too much for 1 person, but to little for 2 to take care of? It clearly impacts generations. The same goes with small businesses.

[pyrotigers]

Death taxes in general are a pretty ridiculous and shameless money grab from the government. The money has already been taxed once and nothing is being done with it.

That said it is completely optional, you merely have to choose not to die and you never have to pay it.

[chasfh]

My wife and I combined are probably a couple hundred K over that, because of the small business I own. We have a large life insurance policy on me that gets paid to the business to cover estate taxes and debt if I would die, otherwise the business would definitely go under and 35 people would be out of work. The top 20 of those are people earning about $50-70K. All of them would be in the middle class people and would be out of work.

When my father-in-law died 4 years after his wife died, the combined estate was worth a little over $1 mil. He never made over $50K and she had never made over $30K, yet with saving for retirement that they never lived to enjoy they were over that threshold. The estate already had about $60k in state estate taxes (which are completely repealed effective in 2013 for Ohio). All of that money had already been taxed except for the increase in value of their home by about $30K.

OK, I completely understand why this issue concerns you. You have a personal stake in it. No one can begrudge you that.

Best of luck to you on your business!

[chasfh]

What if they work for someone who does? Or their business benefits from someone who has a business with these type assets?

Is this question contemplating that this would hurt middle class people who work for a business that would lay them off upon the owner's death, or they would lose business income themselves because their clients would close shop upon the owner's death?

[belcherboy]

Is this question contemplating that this would hurt middle class people who work for a business that would lay them off upon the owner's death, or they would lose business income themselves because their clients would close shop upon the owner's death?

Both, we're my initial thoughts. I don't think a million dollars in assets is hard to achieve in business. I know guys who easily have a million dollars in equipment/real estate (their home and business combined), but we would not consider them rich. Their business would shut down if it was hit with a 55% tax bill upon the owners death.

To me, the million threshold is the biggest problem IMO. It seems way too low.

[chasfh]

Why would anyone care about anything that doesn't affect them?

To my way of thinking, the difference here is that we're not talking about a civil right, like marriage equality or equal access to facilities or equal protection under the law or things of that nature. Civil rights affect us all, so it would make sense that a person not directly affected by a specific civil right would still lend strong support, in the interest of fair application of civil rights for all.

This is about progressive taxation, which does not contemplate a civil right, and which has been established in this country for a century now. The deal being worked on in Washington is likely to include a higher tax burden on the wealthy, and the estate tax affects the wealthy nearly exclusively, so I don't see why that should be left completely off the table. As long as there's general public acceptance of the notion of progressive taxation, I don't get why middle class and lower middle class people would get all worked up over this issue that doesn't affect even a single penny of their own worth.

I have a strong notion that we disagree on the fundamental nature of taxation, and I would prefer to let go of any discussion of that here. I was just answering your question of why anyone would care about things that don't affect them.

[chasfh]

Both, we're my initial thoughts. I don't think a million dollars in assets is hard to achieve in business. I know guys who easily have a million dollars in equipment/real estate (their home and business combined), but we would not consider them rich. Their business would shut down if it was hit with a 55% tax bill upon the owners death.

To me, the million threshold is the biggest problem IMO. It seems way too low.

Sounds like you know people who have a personal stake in it. Perhaps you yourself have a personal stake in it through your own level of wealth, and you are fighting this tax because you yourself would be hurt by it. Like I said before, no one could begrudge you that.

Ultimately, it's going to end up being a numbers game. The question in front of them is, how can they get the revenue needed to address the debt while hurting the fewest people? Increasing the tax burden on the rich is considered by many to be the best way to achieve that because, theoretically, they can increase that tax burden and generate substantial revenue from people who will still be wealthy afterward while maintaining current income and spending power for the middle class on down. The alternative -- maintain low taxes for the wealthy but generate revenue by raising taxes on the middle class while cutting funding for social programs for the poor -- will hurt or even wipe out tens of millions of people while maintaining a small increment of higher wealth for a few thousand.