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Obama and The Fate of your Estate
Posted on December 13th, 2009 No commentsWe are getting closer to some permanency in terms of future estate tax. US Congressman Earl Pomeroy (D - SD) has stated that nearly every family, farmer and small business in America will be exempt from paying any estate tax under a bill passed by the House of Representatives on December 3, 2009.
The Permanent Estate Tax Relief for Families, Farmers, and Small Businesses Act of 2009 (HR 4154), authored by Pomeroy, would make the 2009 estate tax exemption level of USD $3.5m permanent for an individual ($7m for a married couple) and a maximum tax rate of 45%. The bill also maintains the “step-up in basis” tax rules, which protect many heirs from paying additional capital gains taxes on appreciated assets they inherit.
The bill was approved by 225 votes to 200, but must be passed by the Senate and signed by President Obama before it can become law.
Without change, the estate tax is scheduled to enter one year of full repeal (no taxes at all) in 2010 followed by a return of the estate tax in 2011 with much lower exemption amount ($1,000,000m per person or $2,000,000 for a married couple) and a much higher maximum tax rate (55%)…ouch!!!
The one year of estate tax repeal was also coupled with the enactment of “carryover basis” tax rules, which will require heirs in 2010 to pay capital gains taxes on inherited assets based on the decedent’s original purchase price.
Under the step-up in basis rules, continued under Pomeroy’s bill, the value of the asset is calculated at the time of the decedent’s death. It is claimed that preserving the step-up in basis rules will protect small businesses from paying an estimated $34,000,000,000 billion in capital gains taxes so who knows if this bill will make it because they could really use this to pay for bailout and TARP funds.
According to the United States Department of Agriculture’s Economic Research Service, the continuation of the$7m exemption for couples will help the vast majority of family farmers, as the average farm household’s net worth ranged from $586,000 for small farms to $2,200,000m for very large farms in 2008.
“By making the 2009 estate tax level permanent, we will make the estate tax go away for 99.75% of all percent of families, farmers, and small businesses in this country,” Pomeroy observed, concluding that: “It’s time to resolve this issue once and for all, and this bill is the fair way to do it.”
We so desperately need to know the rules of the game so we can start playing to win it again and hopefully Senate and the President can get on board and make this happen.
Untaxingly,
James Burns, Esq.
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“The Sensation with Inflation”
Posted on September 25th, 2009 No commentsThere is a lot of confusion as to where we are headed right now so I thought I would break down the different flations and maybe we can all decide which one is the fit right now.
Inflation is a where your currency buys less due to a rise in the price of goods and services; accordingly, inflation is the erosion in the purchasing power of money. Over time, as the cost of goods and services increase, the value of a dollar is going to fall because a person won’t be able to purchase as much with that dollar as he/she previously could.
What cost $29,900 in 2000 would cost $37031.75 in 2008. Also, if you were to buy exactly the same products in 2008 and 2000, they would cost you $29900 and $24235.11 respectively.
As a harbinger, gold recently rallied above $1,000 an ounce and many experts think that this is partly due to the Fed’s continued money-printing campaign over the past year will cause the dollar to weaken even further than it already has.
That’s putting upward pressure on other commodities. Oil is trading around $71.50 a barrel, an increase of about 20% over the past six months. The prices of sugar and copper have shot up.
Deflation: A decline in price levels caused by a decline in the supply of money or credit. Deflation often includes the side-effect of enlarged unemployment because of the lower demand for goods and services in the financial system.
Stagflation: High inflation and high unemployment occurring simultaneously.
Taxflation: aka bracket creep the gradual movement of income into a higher federal income-tax bracket as a result of wage and income increases intended to help offset inflation. It can also affect the liquidity of an estate by increasing the estate tax burden.
Example – single person with estate worth $5,000,000 and in 2009 that would cost the estate $1,200,000 or represent shrinkage of 24%.
If they pass away in 5 years or 2014- and was growing at 8% per year. The estate will have grown to approximately $7,346,640.38 the federal estate taxes would be $3,893,719 and represent shrinkage of about 53%.
It looks like we have a combination of them all but I would say Taxflation and stagflation are a good fit but it really is anyone’s guess.
