Tuesday, November 27, 2007

Estate Taxes, part 2

My earlier post on estate taxes omitted some important observations. I want to provide further thoughts on this interesting topic (no, really - it is) and then move on to more local discussions.

My original statement that some form of estate tax is not bad, especially in that it encourages charitable giving, still stands. I'm not defending a tax-and-spend mentality, I'm just observing that this one by-product is positive for our society.

With that said, there are a few things wrong with our estate taxes that cannot go without pointing out:

1. As it stands today, our planned estate tax exemption amounts for upcoming years are a bit of a joke. Through 2008, the exemption is $2 million. In 2009, the exemption increases to $3.5 million. In 2010, there are no estate taxes. And in 2011, without further action by congress, the estate tax exemption would revert to $1 million ongoing. The message? Choose carefully when you die. This needs to be changed.
2. An exemption is absolutely critical, and the exemption amount should (in my opinion) be at least $3 million, and should be indexed to inflation, just like minimum wage should be. Without indexing, both topics predictably become political footballs every few years.
3. Certain small businesses, such as farms, should have a creative exemption. Passing a small business to heirs is not so much giving them wealth, but rather giving them a mechanism for wealth if they are willing to work hard. There could always be a "lookback" period to ensure this stipulation isn't abused.
4. As i mentioned earlier, I'd like to see this shifted from being an "estate" tax on the person dying to an "inheritance" tax on the receivers. Death shouldn't be a taxable event, but you could argue that receiving a windfall of $3 million or more might be.

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