DEATH TO THE DEATH TAX? WHO WINS?

 

 

President Donald Trump’s one page tax proposal was released on Wednesday morning.  Within this proposal, the Trump administration is pushing for a repeal of something they refer to as the death tax.

What’s the reason for this push, and what does it really mean for you?

Let’s get to it!

 

𝗣𝗥𝗘𝗦𝗜𝗗𝗘𝗡𝗧 𝗧𝗥𝗨𝗠𝗣’𝗦 𝗣𝗢𝗦𝗜𝗧𝗜𝗢𝗡

 

According to the White House’s webpage, “The threat of being hit by the death tax leads 𝘴𝘮𝘢𝘭𝘭 𝘣𝘶𝘴𝘪𝘯𝘦𝘴𝘴 𝘰𝘸𝘯𝘦𝘳𝘴 and 𝘧𝘢𝘳𝘮𝘦𝘳𝘴 in this country to waste countless hours and resources on complicated estate planning to make sure their 𝘤𝘩𝘪𝘭𝘥𝘳𝘦𝘯 aren’t hit with a huge tax when they die. No one wants their 𝘤𝘩𝘪𝘭𝘥𝘳𝘦𝘯 to have to sell the family business to pay an unfair tax.” (𝘌𝘮𝘱𝘩𝘢𝘴𝘪𝘴 𝘢𝘥𝘥𝘦𝘥.)

https://www.whitehouse.gov/blog/2017/04/26/president-trump-proposed-massive-tax-cut-heres-what-you-need-know

 

𝗪𝗛𝗔𝗧 𝗗𝗢𝗘𝗦 “𝗗𝗘𝗔𝗧𝗛 𝗧𝗔𝗫” 𝗥𝗘𝗔𝗟𝗟𝗬 𝗠𝗘𝗔𝗡?

 

What is the death tax?  SURPRISE!  There is no such thing as an actual death tax.

The term is just a clever marketing gimmick for politicians (and critics of the estate tax) to make you despise what is primarily, at the federal level, only an estate tax. (https://en.wikipedia.org/wiki/Frank_Luntz )

Simply put, this is a tax that affects only 0.02% of all estates, or better yet—1 in 500 estates.

So why not just say “estate tax”?  Because taxing an estate doesn’t get people too riled up.  But the specter of Uncle Sam taxing your death—that must surely bother you.

 

𝗘𝗦𝗧𝗔𝗧𝗘 𝗧𝗔𝗫

 

Based on 2017 exemption amounts, the federal estate tax is levied only against a tiny minority of the wealthiest of Americans.  If you are single and have assets valued at less than $5,490,000 at the time of your death (in 2017), then you don’t need to worry about the federal estate tax.  If you are married and have combined assets valued at less than $10,980,000, then you don’t need to worry about the federal estate tax.  (There are 15 states which have a state level estate tax, but those too have exemption amounts which effectively keep the tax from touching most estates.)

 

𝗜𝗡𝗛𝗘𝗥𝗜𝗧𝗔𝗡𝗖𝗘 𝗧𝗔𝗫

 

It’s worth mentioning that there is something called an inheritance tax.  The inheritance tax is not a federal tax. It is a state tax levied in only 6 of our 50 states (and barely so!).

Some people like to include the inheritance tax in their discussion of death taxes as a way to make their case that Uncle Sam is out to get your wallet. Resist the bait. Uncle Sam has nothing to do with the inheritance tax. If we are discussing federal tax policy, any mention of a tax which only exists at the state level (in 6 states!), is just a distraction.

So when the President is referring to death taxes, he can only be referring to the federal estate tax—and nothing more. For this is all that his federal government can legislate upon.

(But just to be clear anyway, if you don’t live in Nebraska, Kentucky, Iowa, Pennsylvania, New Jersey, or Maryland, you don’t need to worry about it.  And in most of those states, the tax doesn’t touch an inheriting spouse.  And in some, even kids and grandkids are exempt from the tax!  Let’s not forget that each state has its own exemption level which basically means that the tax only affects relatively few people in those 6 states.)

 

𝗘𝗙𝗙𝗘𝗖𝗧 𝗢𝗙 𝗥𝗘𝗣𝗘𝗔𝗟 𝗢𝗙 𝗧𝗛𝗘 𝗘𝗦𝗧𝗔𝗧𝗘 𝗧𝗔𝗫

 

Consider that the Joint Committee on Taxation has estimated that a repeal of the estate tax would cost the federal government $269 billion over 10 years. ( https://www.jct.gov/publications.html?func=download&id=4760&chk=4760&no_html=1 )
In all likelihood, that’s $269 billion that will have to come from somewhere else to satisfy the federal budget’s needs.

Does a repeal help at all?

Surely those 𝘤𝘩𝘪𝘭𝘥𝘳𝘦𝘯 Mr. Trump is so concerned with, and those 𝘴𝘮𝘢𝘭𝘭 𝘣𝘶𝘴𝘪𝘯𝘦𝘴𝘴 𝘰𝘸𝘯𝘦𝘳𝘴 and 𝘧𝘢𝘳𝘮𝘦𝘳𝘴— they must be paying astronomical taxes on those estates above the federal exemption amount, right?

Wrong!

Estate taxes only tax the amount over the exemption limit.  This means, the first $5.5 million (or $11 million for married couple estates) is not taxed at all.  Only that amount above the exemption level gets hit with a tax. And the rates vary.  Considering that the highest tax rate is 40%, which applies only against estates that exceed the previously mentioned exemption levels by more than $1,000,000, let’s suppose our imaginary unmarried farmer’s estate is valued at $6,490,000 at the time of his death in 2017, his estate would only have to pay a $400,000 estate tax, which is an effective 6.1% tax rate on the estate.

Not really bankrupting anybody now, is it?

 

𝗤𝗨𝗜 𝗕𝗢𝗡𝗢? (𝗪𝗵𝗼 𝗕𝗲𝗻𝗲𝗳𝗶𝘁𝘀?)

 

So who gains the most from repeal of the so-called death tax?

Simply put– only the ultra-wealthy.  Not your average 𝘴𝘮𝘢𝘭𝘭 𝘣𝘶𝘴𝘪𝘯𝘦𝘴𝘴 𝘰𝘸𝘯𝘦𝘳.  Not your average 𝘧𝘢𝘳𝘮𝘦𝘳.  Not– 𝘵𝘩𝘦 𝘤𝘩𝘪𝘭𝘥𝘳𝘦𝘯— unless perhaps the child’s name is Ivanka Trump.

 

#estatetax  #deathtax  #DonaldTrump  #Trump  #IvankaTrump

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