Commentaries

Fear the Reaper

by ahughey

Fear the Reaper

April 1, 2009

The estate tax, often called the death tax, is a post-mortem tax on all assets transferred to living relatives after a person has died.  Many claim that it only taxes the top two percent of the nation's wealthy while others report that this way of thinking ignores the fact that this tax also adversely effects long-term saving and small business investment.  As a consequence, the estate tax is often overlooked by tax-payers and often avoided by government officials.

In 2001 Congress instituted a tax cut that phased down the estate tax from 55% to 45% this year and then to zero in 2010.  It was set to be re-instated at the 55% level the following year; however, the common political expectation was that it would not return after its brief absence in 2010.  Enter a new president and a new administration.  Faced with an almost insurmountable economic crisis that will balloon the federal budget deficit, President Obama has decided that the estate tax- should not be allowed to go.  The Wall Street Journal recently reported that buried in the President's budget proposal is a footnote (on page 127) announcing that the "estate tax is maintained at its 2009 parameters."  What this means is that all estates will be taxed at the rate of 45% over 3.5 million ($7 million per couple); so don't plan on dying just yet.

NCPA research has found that the estate tax punishes not only the small, family-owned businesses, but also those who are land rich and cash poor, including farmers, ranchers, and forest owners.  According to a 2006 Joint Economic Committee study, death tax "liabilities depend on the skill of the estate planner, rather than the capacity to pay."  Most generational businesses and farms are rich in assets such as land or equipment, but are not liquid enough to "meet their estate tax liabilities."  As such, they must sell off their assets to pay the reaper and in the process lose their livelihood.  According to Pamela Villarreal, senior policy analyst at NCPA, "These estates are taxed plenty while people are living; why should they have to be taxed again at death?"

To hear more on Pam's take on the future of the estate tax to the Alabama Forest Owners Association, click here.

 

Posted: Apr 01, 2009 | Research Topic: Research Topics