After a brief hiatus, the death tax is back. article source
Republicans failed in a last ditch effort to repeal the Estate Tax. The aptly named ”death tax” which has been declining since the year 2001, and is not in effect in the year 2010, is going to be reset to pre 2001 levels. This tax is a double tax. It is a tax on a deceased American citizen’s estate. A tax on assets that the decedent has been paying in state, local, municipal, social security and healthcare (among other) taxes on for their entire life. What happens when they die? For estates worth more than 3 million USD, “Uncle Sam” is entitled to more than half, or 55%.
Senator Jim Demint (R) tried to eliminate the tax by creating an amendment in the Small Business Jobs bill. The proposal failed, despite several democrats having signed on. Demint suggests that “Washington could get over half of family estates, farms and small businesses, a greater inheritance than the children of the deceased.” In essence, you could work your whole life building wealth, only to have half of it stripped away from your heirs due to taxes.
Furthermore, analysis by prominent figures in the tax and budget (sections) found that if the US government permanently repealed the death tax, it could create 1.5 million jobs. In a day and time where the government is struggling to create jobs, and boost the economy, and lower the debt, will overtaxing their citizens accomplish the exact opposite?’
Republicans are not the only political party opposed to a death tax. Democrats have also suggested some solutions. In the past, it was suggested that the death tax apply at USD3.5m for an individual (USD7m for a married couple) and the maximum tax rate of 45%. This change was approved by the House of Representatives but was never voted on by the senate.
Contrast this to the British inheritance tax, where estates valued as less than 325,000 GBP pay nothing, and estates over this amount owe 40%–a vastly smaller amount that what is being imposed across the pond in America.
It’s clear that the US has amassed tremendous amounts of debt, and the deficit is growing to epic proportions each year. Most see the solution to this problem in one of two avenues: increase taxes, or decrease spending. However, when will the tipping point come where rich Americans say enough is enough, and take their residency and hard earned cash elsewhere? The government may ultimately end up losing out.
Opponents to this argument would argue that Americans are here to stay no matter what, and renouncing one’s citizenship would be unconscionable. However, 743 US citizens renounced their citizenship in 2009, contrast that number to 235 renunciations in 2008. source
One might wonder where the tipping point is where the government taxes the affluent and rich to an extent that they say “no more taxes” and up and leave to a low tax country without excessive amounts of debt to pay back. Perhaps this is not the forecast, but one thing is for sure; the US government (and state governments for that matter) need to cut spending or increase taxes, two things that most politicians or taxpayers will never support.
