House votes to make estate tax permanent

[Auburn85 434]

http://news.yahoo.com/s/nm/20091204/pl_nm/us_tax_estate

By Kim Dixon Kim Dixon

WASHINGTON (Reuters) – The U.S. House of Representatives passed a permanent extension of the federal estate tax on Thursday, but the measure, which taxes estates at rate of 45 percent after exempting the first $3.5 million, is likely to be changed in the Senate.

The current tax is due to expire on December 31 but return in 2011, when it will exempt just the first $1 million of an estate while taxing the remainder at a rate of 55 percent.

Keeping the current rate would cost the government $234 billion of revenue over 10 years, according to a congressional tax committee.

The bill passed 225 to 200, drawing all its support from Democrats.

"The estate tax is critical to prevent a permanent aristocracy from arising in this country," said Jared Polis, a Colorado Democrat who said, as one of the wealthiest members of the House, he would pay the tax under the bill.

Republicans blasted the bill and called for complete repeal of the tax. "Death in and of itself should not be a taxable event," said Dave Camp, a Michigan Republican.

Preserving the 45 percent rate and the $3.5 million exemption indefinitely will be much harder in the U.S. Senate because of the cost. In addition, Senate lawmakers are consumed by the healthcare reform bill debate, which could continue into January.

Given the price tag, the bill is "pretty much a non-starter" in the Senate, analyst Anne Mathias at Concept Capital said.

A likely compromise in the Senate is a one-year extension of current law, which would raise some money because of the 2010 phase out.

The estates of about a quarter of one percent of Americans would be subject to the tax under the House bill, according to the Brookings Institution-Urban Institute Tax Policy Center.

The non-partisan Congressional Budget Office reported in 2005 that fewer than 2 percent of all estates have had to pay estate taxes in recent years.

Republicans warned Democrats would suffer at the ballot box if they extend the tax, citing Americans' general dislike of any new taxes.

Democrats countered by citing prominent estate tax proponents, including investors George Soros and Warren Buffett, who has argued the tax helps keep America a meritocracy.

BUSINESS GROUPS SPLIT

Business groups are divided on the legislation.

The Chamber of Commerce has long called for the abolition of the estate tax, although recently said it was willing to back a continuation of the current law.

"The uncertain nature of the estate tax regime over the next two years is a major concern for business, many of which are struggling in this current economic downturn," Bruce Josten, a lobbyist for the Chamber, said in a letter to lawmakers on Wednesday backing the Democrat's bill.

The National Association of Manufacturers urged rejection of the bill, saying its members pay tens of thousands of dollars in fees for estate planning.

CAPITAL GAINS RELIEF

The House bill contains capital gains tax relief for those inheriting estates by repealing so-called carry-over basis rules.

With no action, those inheriting estates after December 31 will have to calculate capital gains taxes based on the original price paid for the property.

"People will be stuck with large tax bills forcing liquidation if they were forced to pay a capital gains tax on a 1959 basis," said Polis, the Colorado lawmaker. "Do opponents truly believe making families pay capital gains is better?"

The American Farm Bureau, the nation's largest agricultural group representing all sizes of farms, opposes any estate tax but backs the portion of the bill that repeals the cost basis rules. The group had no data on how many of its members would be impacted by the tax.

(Editing by Steve Orlofsky and Tim Dobbyn)

[Justin5 20]

By every measure of law, this legislation was a tax cut.

[Tiger Al 0]

"Death in and of itself should not be a taxable event," said Dave Camp, a Michigan Republican.

What about inheriting $10M in income?

[AURaptor 1,137]

"Death in and of itself should not be a taxable event," said Dave Camp, a Michigan Republican.

What about inheriting $10M in income?

Wealth is not 'income'. Libs confuse the 2.

[Tiger Al 0]

"Death in and of itself should not be a taxable event," said Dave Camp, a Michigan Republican.

What about inheriting $10M in income?

Wealth is not 'income'. Libs confuse the 2.

If it didn't belong to you and then suddenly, it does...that's income.

[TigerHeat 9]

"Death in and of itself should not be a taxable event," said Dave Camp, a Michigan Republican.

What about inheriting $10M in income?

Wealth is not 'income'. Libs confuse the 2.

If it didn't belong to you and then suddenly, it does...that's income.

Yes, the family far is income. You should have to sell it when you are 25 years old because your father passed away unexpectedly. Otherwise the greedy dems can't spend your family's money on have-nots votes.

[arnaldoabru 11]

"Death in and of itself should not be a taxable event," said Dave Camp, a Michigan Republican.

What about inheriting $10M in income?

Wealth is not 'income'. Libs confuse the 2.

If it didn't belong to you and then suddenly, it does...that's income.

Yes, the family far is income. You should have to sell it when you are 25 years old because your father passed away unexpectedly. Otherwise the greedy dems can't spend your family's money on have-nots votes.

The family far is worth more than 3.5 million?

[Tiger Al 0]

"Death in and of itself should not be a taxable event," said Dave Camp, a Michigan Republican.

What about inheriting $10M in income?

Wealth is not 'income'. Libs confuse the 2.

If it didn't belong to you and then suddenly, it does...that's income.

Yes, the family far is income. You should have to sell it when you are 25 years old because your father passed away unexpectedly. Otherwise the greedy dems can't spend your family's money on have-nots votes.

Material goods have an intrinsic value. Buildings have intrinsic value. Whatever the farm produces and sells has intrinsic value. Land has intrinsic value. If you own none of these things and then you're given those things, then you have received something with an intrinsic value. So, yes, the farm is a form of income beyond $3.5M.

[SouthLink02 8]

"Death in and of itself should not be a taxable event," said Dave Camp, a Michigan Republican.

What about inheriting $10M in income?

Wealth is not 'income'. Libs confuse the 2.

If it didn't belong to you and then suddenly, it does...that's income.

Yes, the family far is income. You should have to sell it when you are 25 years old because your father passed away unexpectedly. Otherwise the greedy dems can't spend your family's money on have-nots votes.

Material goods have an intrinsic value. Buildings have intrinsic value. Whatever the farm produces and sells has intrinsic value. Land has intrinsic value. If you own none of these things and then you're given those things, then you have received something with an intrinsic value. So, yes, the farm is a form of income beyond $3.5M.

Right

How hard is that to understand?

[TitanTiger 20,708]

The problem with that is, the tax rate is determined by the amount of the estate, not by the amount of income each inheritor receives, nor what tax bracket that person falls into. That's not an "income" tax in any traditional sense of the word. And given the way that is determined, it's really a tax on wealth that's been accumulated...which has already been taxed as it was made the first time.

[TitanTiger 20,708]

I will say this though, when you look at a tax rate of 45% it looks pretty eyepopping. But if the first $3.5 million is exempt, on a $5 million estate, you'd pay $675,000 in taxes which is 13.5% of the $5 million total. Obviously that goes up as the estate goes up though. A $10 million estate would pay 29.25% and a $20 million estate would have a rate of 37.125%. At some point, to me, it gets really excessive. I don't think the gov't has the right to 40 something percent of anyone's money they made legally and already paid income and capital gains taxes and such on.

[TexasTiger 13,556]

I will say this though, when you look at a tax rate of 45% it looks pretty eyepopping. But if the first $3.5 million is exempt, on a $5 million estate, you'd pay $675,000 in taxes which is 13.5% of the $5 million total. Obviously that goes up as the estate goes up though. A $10 million estate would pay 29.25% and a $20 million estate would have a rate of 37.125%. At some point, to me, it gets really excessive. I don't think the gov't has the right to 40 something percent of anyone's money they made legally and already paid income and capital gains taxes and such on.

Why are you assuming capital gains tax has already been paid? If a guy buys land for $200,000 in 1945 and dies in 2009 and the land is now worth $7,000,000, when was the capital gains tax paid?

[AURaptor 1,137]

Right

How hard is that to understand?

Clearly, Congress can tax what ever the heck it wants. But my point was that inheritance may or may not be viewed as 'income'.

From Wiki-

Types of income

For tax purposes, income can be divided in a variety of ways. The first division is between ordinary income and capital gains. Ordinary income includes compensation for personal services such as wages and salaries, business profit, dividends from stock shares, and interest income from invested funds while capital gain generally comes from the sale of investment property. Congress has typically shown a preference for long-term investment by having a capital gains tax rate lower than the ordinary income rate. However, only long-term capital gains get preferential treatment; short-term capital gains (from property held for one year or less) are taxed at the same rate as ordinary income. Added complications come from various distinctions within each category. For instance, qualified dividends, which were previously taxed at ordinary income rates (as non-qualified dividends currently are), are currently taxed at long-term capital gain rates until 2011 under the Jobs and Growth Tax Relief Reconciliation Act of 2003, and within long-term capital gains, gains on certain real estate, collectibles, and small business stock each have their own tax rates. The rules for offsetting capital losses with gains (whether capital or ordinary) add further complications. In ordinary usage, when someone speaks of their "tax rate", they typically are referring to their marginal tax rate for ordinary income.

[TitanTiger 20,708]

I will say this though, when you look at a tax rate of 45% it looks pretty eyepopping. But if the first $3.5 million is exempt, on a $5 million estate, you'd pay $675,000 in taxes which is 13.5% of the $5 million total. Obviously that goes up as the estate goes up though. A $10 million estate would pay 29.25% and a $20 million estate would have a rate of 37.125%. At some point, to me, it gets really excessive. I don't think the gov't has the right to 40 something percent of anyone's money they made legally and already paid income and capital gains taxes and such on.

Why are you assuming capital gains tax has already been paid? If a guy buys land for $200,000 in 1945 and dies in 2009 and the land is now worth $7,000,000, when was the capital gains tax paid?

Ok, so what would be the capital gains tax rate? Is it 45%?

[OldNewby 27]

Next thing you know, they'll vote to make death permanent.