CovOps
 Location : Ether-Sphere
Job/hobbies : Irrationality Exterminator
Humor : Über Serious
 |  Subject: Goodbye, Cruel State - The evil thieving feds create an incentive for suicide and euthanasia  Mon Jul 19, 2010 5:24 am | |
| Too Rich to Live?
The estate tax is set to come roaring back in January. That sets the stage for a perverse calculus: End it all – or leave a massive bill for your heirs to deal with
It has come to this: Congress, quite by accident, is incentivizing death.
When the Senate allowed the estate tax to lapse at the end of last year, it encouraged wealthy people near death's door to stay alive until Jan. 1 so they could spare their heirs a 45% tax hit.
Now the situation has reversed: If Congress doesn't change the law soon – and many experts think it won't – the estate tax will come roaring back in 2011.
Not only will the top rate jump to 55%, but the exemption will shrink from $3.5 million per individual in 2009 to just $1 million in 2011, potentially affecting eight times as many taxpayers.
The math is ugly: On a $5 million estate, the tax consequence of dying a minute after midnight on Jan. 1, 2011 rather than two minutes earlier could be more than $2 million; on a $15 million estate, the difference could be about $8 million.
Of course, there is a "death incentive" whenever Congress raises the estate tax. But it hasn't happened in decades; the top rate has held steady or fallen since 1942, according to tax historian Joseph Thorndike of Tax Analysts, a nonprofit group. In fact, the jump from zero to 55% would be "the largest increase in a major tax that we've ever seen," Mr. Thorndike says.
That possibility presents a bizarre menu of options for wealthy older people – and their heirs. Estate planning was never cheerful, but now it is getting downright macabre, at least for the tax averse.
"You don't know whether to commit suicide or just go on living and working," says Eugene Sukup, an outspoken critic of the estate tax and the founder of Sukup Manufacturing, a maker of grain bins that employs 450 people in Sheffield, Iowa. Born in Nebraska during the Dust Bowl, the 81-year-old Mr. Sukup is a National Guard veteran and high school graduate who founded his firm, which now owns more than 70 patents, with $15,000 in 1963. He says his estate taxes, which would be zero this year, could be more that $15 million if he were to die next year.
Advisers say the estate-tax dilemma is especially awkward for heirs. "At least in December 2009, people wanted to keep their relatives alive," says Ronald Aucutt, an estate-tax attorney with McGuire Woods in the Washington area. Now he and others are worried that heirs may be tempted to pull plugs on Dec. 31. Economists might call the taking of a life to reap a tax advantage a "perverse incentive." District attorneys might call it homicide.
Taxpayers trying to cope with such surreal situations need to understand how they came to be. The roots go back to 2001, when Congress cut the estate tax rate to 45% from 55% and increased the exemption gradually over a decade. From its 2001 level of $675,000, the exemption rose to $3.5 million per individual by 2009.
Thanks to legislative sausage making, the rules got extreme after that: The tax disappeared altogether in 2010, but was programmed to revert in 2011 to a $1 million exemption with a top 55% rate.
Few Washington insiders expected Congress to allow the tax to snap back so sharply next year. So why, with nine years to act, didn't it fix the problem? Political wisdom holds that estate tax changes can't happen in election years for fear of angering voters, and Hurricane Katrina derailed a 2005 opportunity. Late last year, the House of Representatives passed an extension of the 2009 estate tax, but the Senate didn't act.
Compounding the problem, lawmakers didn't hammer out a fix early this year, as many had expected. Extending the 2009 law retroactive to the beginning of 2010 would have made a seamless transition and resolved issues taxpayers are now facing. Instead, the estate tax has been in limbo all year.
Senators are divided among three possible solutions. Some favor the pre-Bush rate of 55%, while others advocate a 35% rate (with a more generous exemption). A third group prefers the old 45% rate.
http://www.lewrockwell.com/spl2/too-rich-to-live.html |
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