Breathing life into the death tax … Obama’s fires first tax increase shot

Summary:  Under the Bush tax plan, death taxes — formally known as estate taxes — are due to expire in 2010.  But, President-elect Barack Obama and congressional leaders plan to move soon to repeal the move and keep the estate tax  at current levels.

Ken’s Take: Except for family owned businesses, this move is mostly symbolic (from the standpoint of tax collection).  Few estates are subject to the tax (especially since the stock and real estate markets tanked) , and there are plenty of tax maneuvers for minimizing the taxes paid.  The impact on family businesses that are being passed along to the next generation are huge.  I don’t understand why they don’t simply get carved out of the tax grab.

But, this news has the potential to move the markets — down, of course.  It’s proof positive that Obama is still intent on cranking up taxes.  It’ll start with the uber-rich, but with trillion dollar deficits, it’ll spread like wild fire. Just watch.

Sidenote: Despite what Team Obama will claim, canceling a programmed tax reduction ai a tax increase ! 

Here are some highlights from the source article.

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Excerpted from WSJ, Obama Plans to Keep Estate Tax, Jan 12, 2009  

The Democratic stance on the estate tax contrasts with Mr. Obama’s reluctance to press forward with his campaign pledge to raise income-tax rates on top earners, which he worries could have an adverse economic impact during a recession.

Under the Obama plan detailed during the campaign, the estate tax would be locked in permanently at the rate and exemption levels that took effect this year. That would exempt estates of $3.5 million — $7 million for couples — from any taxation. The value of estates above that would be taxed at 45%. If the tax were returned to Clinton-era levels, it would exclude $1 million from taxation with the rest taxed at 55%.

In making their case for the restoration, Democrats contend that such a large additional tax break … would increase the deficit … wouldn’t have any impact on the economy … and would help the the affluent who already have benefited handsomely from the Bush tax cuts.

They also reason that if they don’t act now, it will be politically harder to go ahead with their plan to resurrect the estate tax once it has disappeared.

For small-business groups ,,,the emerging Democratic plan marks a stark defeat.

At the level proposed in the Obama policy, all but the largest estates — fewer than 2% of annual deaths — would escape taxation.

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The estate tax was enacted in the early 20th century as a levy on wealth and inherited assets. It was later amended to allow a spouse to avoid the tax.

Initial efforts to repeal the estate tax — cleverly coined a “death tax” — was backed by affluent families such as the Mars candy family, the Gallo wine family and the heirs of the Campbell’s soup fortune. 

But sharp divisions in the coalition emerged between the super rich and the merely rich. Business groups have sought a measure of certainty with an estate tax that is free of graduated timelines or sunset provisions, with the largest possible tax exemption — $10 million, or $20 million per couple. The rate of taxation above that level was of little concern, since virtually every small business would be exempt from taxation.

Yet the super affluent who began the movement wanted the lowest possible rate, since even a $10 million exemption would leave the bulk of their estates subject to tax.

“The very wealthy, in their quest to reduce their exposure, made proposals that threw the small-business community overboard.” 

Full article:
http://online.wsj.com/article/SB123172020818472279.html

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