INHERITANCE TAXES

An informative article on what might be in store for estate/inheritance/gift taxes is given at: https://www.cnbc.com/id/100296248


For the rest of this year, the estate/inheritance tax applies only to estates valued over $5 million and the tax rate on these is 35%; however, if we go over the fiscal cliff, the inheratance tax will apply to estates worth more than to $1 million and be taxed at 55%.

Republicans have been saying that the the tax, they call the "death tax," hurts farmers and small business men.  Some Republicans would prefer to have no estate tax, as it was in 2010, but others will agree to leaving the estate tax what if is in 2012.  In contrast President Obama proposes a exclusion of the first $3.5 million with a tax rate of 35% on those estate exceeding the exclusion sum.  The estate tax raised $10.6 billion in 2012, according to the Tax Policy Center.   At the 2012 rates, they estimate that the estate tax would raise a total of $161 billion by 2021, a 10 year interval.  If the estate tax reverts to the old level, the estimate is a raise of $531 billion.  Obama's plan is estimated to raise a total of $258 billion by 2021.

As to the estate tax hurting farmers, the Tax Policy Center says that fewer than 50 out of the 3,270 paying estate taxes were small farmers and small buinesses, and they paid less than 1% of the total taxes.  "The top one percent of earners, by contrast, paid nearly 80 percent of the estate tax last year. The top 0.1 percent paid nearly half."

The goal is to reduce the Federal budget by $4 trillion by 2021 so letting the estate tax revert to $1 million would raise more than 10% of the total by itself.  We are fooling ourselves if we think that lowering the Federal budget by $4 trillion can be done without pain on inheritance.  So reluctantly, I would prefer to let the estate tax revert to the old level.  It would not affect the poor and probably most of the middle class.

Note:  After writing the above, I found a group of super wealthy people, including Warren Buffet and Bill Gates, who propose a $4 million exemption with a graduated tax rate starting at 45% for fortunes greater than the exemption:
 https://www.cnbc.com/id/100301732