Mike Kueber's Blog

January 8, 2013

The Fiscal Cliff compromise includes a fix to the estate tax

Filed under: Fitness,Issues,Politics — Mike Kueber @ 2:29 am
Tags: , ,

Today’s local paper included an article on America’s estate tax, as revised by the Fiscal Cliff compromise.  The article’s writer tried to humanize the issue by describing a 91-year-old farmer who has been concerned with how the tax would affect the 5,000-acre farm that he has been building since WWII.  Unfortunately, however, she failed to say how the new law, which increased the exemption from $1 million to $5 million while increasing the rate from 35% to 40%, will affect the farm. 

If I guessed that the land was worth $5,000 an acre, the farm would be worth $25,000,000.  And that doesn’t include buildings and equipment, which I’ll guess at $5,000,000.  Based on my calculations, the estate would have paid $10.15 million under the old law and will pay $10 million under the new law.  Now that’s change you can believe in.

The farmer’s daughter probably didn’t create a lot of sympathy in the article by saying, “You don’t really inherit the farm, you inherit a bunch of taxes. … The heirs lose the farm to pay the taxes. And that’s one more family farm that goes out of business.”

In fact, the estate will first pay the taxes and then transfer to her whatever is left.  The farm will still be worth many millions of dollars, even though it will be diminished by the estate tax.  That is a problem millions of heirs would love to have.

No taxes are painless, but they are a necessary evil.  And I can’t imagine a tax that is less painful than that assessed against a rich person’s estate before passing the remainder onto the heirs.

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