Currently, all wealth above $5 million is taxed at 35 percent when the owner dies. The penalty can be deferred to a spouse, making the threshold when they die $10 million at 35 percent.
If no deal is made on expiring tax cuts by the end of this year, the taxable threshold will go down to $1 million and be taxed at 55 percent. There will also be no portability to transfer the penalty.
“You can imagine if you are a family business owner, or you are a farmer, and you’re planning for succession of your family farm or family business, you have to plan for a 55 percent tax. And a lot of businesses are cash poor and land or inventory rich,” Schoening said.
“So when it comes time to pay the tax … the IRS comes in and says, ‘Well how much equipment do you have, let’s add up your house, everything down to the last penny in your sock drawer.’ It’s really not tough for anyone who employs ten or 50 people to have over a million dollars in total stuff. Then there’s a 55 percent tax on anything above that million. So if you have $2 million, you need to give a 500,000 tax bill,” Schoening continued.
“The ultra wealthy really don’t pay the estate tax. They can afford expensive estate planning attorneys and they funnel their money into foundations. For example, Warren Buffett is going to give most of his money to the Bill and Melinda Gates Foundation,” Schoening said.
Should the current law expire, estates over $1 million will be taxed at 55 percent. According to one estimate, this will hit 97 percent of all farms.
Sens. Mary Landrieu of Louisiana, Mark Pryor of Arkansas, and Max Baucus of Montana are among the Democrats up for re-election in 2014 who have voted to repeal the estate tax in the past. Baucus is also chairman of the Senate Finance Committee.
“Probably the most likely solution is an extension of the current policy,” Schoening told TheDC News Foundation. The letter to Congress from Buffett and company “just basically to make his [the president’s] position of taking almost half of some one’s property look more reasonable.”
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