Senate Nears Deal on Estate Tax.
According to today's Wall Street Journal, Republican and Democratic senators are nearing a compromise that would permanently wipe out estate taxes for all but the very wealthiest Americans.
Negotiations call for the current exemption equivalent of $1.5 million going to more than $3 million after 2010.
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Our firm does a lot of estate planning work, but nonetheless, I very much favor this change. It was part of my platform last summer. Getting the U.S. House of Representatives to go along will be a walk in the park. It has voted several times to completely repeal the federal estate tax (although it is best that this not be done; what the Senate is working toward is best because of something called carryover basis).
Negotiations call for the current exemption equivalent of $1.5 million going to more than $3 million after 2010.
_______________
Our firm does a lot of estate planning work, but nonetheless, I very much favor this change. It was part of my platform last summer. Getting the U.S. House of Representatives to go along will be a walk in the park. It has voted several times to completely repeal the federal estate tax (although it is best that this not be done; what the Senate is working toward is best because of something called carryover basis).
posted by Sid Cottingham | 5:10 AM
2 Comments:
Sid,
I assume carryover basis is what I think it is. If so, then I agree with you. If my grandfather has $200,000 in stock with a $100,000 cost basis and sells it while he is still alive, he will have taxable capital gains income of $100,000.
If he dies, he shouldn't be taxed an arbitrary amount on the whole $200,000 (the current system, albeit with much higher dollar amounts necessary to incur the tax), but I shouldn't be able to sell it for $200,000 and claim no income. I should inherit the $200,000 but also the $100,000 cost basis. Then, like my grandfather, I can decide whether it makes sense to continue with the investment or sell it and pay the taxes at that point.
The whole "family farm" debate is similar. If I inherit a $2 million family farm from my parents, I can't afford to pay $500,000 in taxes to keep it going (and if my parents were still alive in this scenario, they would have to shutter the farm also if they had to pay a $500,000 tax). However, if the cost basis of the farm is $1,000,000 and I will owe approximately $300,000 in taxes if I sell it (leaving me with $1.7 million) I should be able to decide whether it makes sense (is more profitable) to keep operating a $2 million family farm or invest $1.7 million elsewhere.
It seems like the most logical and easy compromise in the world. However, I worked for a supply sider at one point and they are the most dishonest people in the world when it comes to taxes. They will tell you for example that they think everything should be taxed equally or on some sort of flat scale, and then they will tell you they are against any estate taxes. Their true motivation is to eliminate all taxes and every opportunity they get they will push for repeal of this or that tax, which is why it is so difficult to negotiate for a fair compromise in situations such as these.
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