Thoughts of an American Centrist

Saturday, April 16, 2005

Finally, some Bi-Partisan Action on the Estate Tax. The American Centrist Offers his Own Suggestion.

Well it appears that the American Public may get some meaningful action on the Estate Tax after all.

It is far from certain that a compromise can be struck to get estate tax repeal through the Senate. But the fledgling negotiations — between Sen. Jon Kyl (R-Ariz.), a stalwart proponent of repealing the tax, and Sen. Charles E. Schumer (D-N.Y.), tapped by Democratic leaders for the job — are the first sign of movement on the issue in years.

The talks raise the prospect that Congress will summon a rare show of bipartisanship to end the uncertainty that has shadowed estate planning for many families, especially in California and other states where high property values have swollen inheritances.

All along, this issue has had the potential to become a spark for an all out class war. I, for one, applaud the efforts of both Senators Kyl and Schumer working with one another to get a real, commonsense measure passed.

There are really two opposing camps when it comes to the Estate/Death Tax. On the one hand, the people who originally earned this money (the dead ones) have already paid their taxes, so why should their children be taxed again? After all, isn't one of the core principles of the American Dream not just that we can make a better life for ourselves, but for our children as well?

The other camp states that the people on the receiving end of the assets (the heirs) didn't contribute their own work or effort to earn this money, so what right do they have complaining on being taxed on it?

On principle, I'd have to agree with the conservative position, though the liberals have a point that keeps me from being too adamant about it.

When it comes to pragmatism, however, we're talking about a whole new ballgame. The actual cost of a total repeal has been estimated to be between $500 billion and $1 Trillion dollars over the first 10 years of the permanent repeal. That's a lot of dollars to subtract from our already aenemic budget, so I'd then have to say we have a few bigger budget priorities than protecting the inheritance of people like Anna Nicole Smith.

Federal budget aside, what is truly vital here is the prevention of the nightmare scenario so often lamented by proponents of the bill wherein time honored and family treasured businesses that have been passed from parent to child for multiple generations have been forced into sale merely to satisfy the heirs' tax bill. While even the measure's most adamant supporters admit that this situation is rare, we cannot ignore that it does in fact occur in some cases. This reality is an insult to the hard work of generations of tough and resilient Americans, and needs to be stopped at all costs.

Fortunately, your all-knowing American Centrist is right now proposing solution. Allow for an exemption of small businesses (including farms) if the business has provided at least two-thirds of all of the deceased's earned income for the past 3 years. That way, vital family businesses would be protected no matter what the upper limit on the estate happens to be. It could provide a sure-fire safeguard for proud small business owners all over the country.

(On a somewhat related issue, I'd also like all businesses that fall into this category to be excluded from net-worth calculation when deciding a family's contribution to their child's education expenses. I'm sorry, but I don't think someone should get less federal aid for his or her child's education than someone of equal income simply because the first individual owns their own business while the second is employed by someone else.)


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