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View Diary: The Estate Tax: Tough Questions and Honest Answers (49 comments)

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  •  2 points - Capital Gains & Reality (3+ / 0-)
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    April Follies, elfling, neroden

    First point, estate tax repeal will probably HURT those small businesses and family farms that are valued around 4-12 million, supposedly the "gap" victims of the tax (i.e. too small to have the cash to pay the estate tax and too big to plan around it completely).  The reason is that currently, heirs inherit the property at its historic basis.  If there is no estate tax, then they will have to pay captial gains tax on the step up in basis.

    Second point, let's have a reality check.  Everyone can name a family that has been able to keep vast multi-generational wealth despite the estate tax.  Think Walton, think Kennedy, etc....  

    The public policy purpose of the estate tax is to prevent the sheltered tax-free accumulation of vast wealth that gives families great power generation to generation for no other reason than historical accident.  The accumulation of vast wealth where it is subject to fair tax is fine.

    •  Farms & Small Businesses (0+ / 0-)

      Historically, there have been problems with small businesses and farms being hurt by the estate tax. Even though they wouldn't be hit under current law, that meme survives.

      It is a real issue that a business, especially a farm or a ranch, can have enormous assets under current market value and yet produce a fairly small income. For example, in California, you have families sitting on open ranchland that's been paid off forever and is economically viable in that circumstance for grazing cattle. But those thousand acres - even fairly remote - can be worth tens of thousands an acre if there's access to water. And, at that price, the only viable use is commercial and residential development. The end effect is that even though you have an inheriting family who does not want to sell and a public that might prefer it as open space, a tax liability may force sale of part of the property.

      It's possible, if you're a California rancher, to be making a net income of $25,000 a year while controlling a $5-$10 million piece of real estate and a couple of hundred thousand dollars in cattle and equipment. And in some cases, the kids would like to continue with that lifestyle.

      There are some options for conservation easements and the like, but this is an arguing area where I'd like more facts to back me up. The state Farm Bureaus are a very powerful lobbying force on this issue (and they're totally in the pocket of Big Republicans), so if we can convince rank-and-file farmers that they're not at risk (only their rich brethren), it would be a big help.

      •  A couple of things (0+ / 0-)

        --many small businesses qualify for installment payment of the estate tax under section 6166

        --Farms are also eligible for something called special use valuation under 2032A, which allows farm land to be valued as it is used (Farming) as opposed to its highest and best used, which might be developed otherwise

        --there used to be--and it was repealed when the legislation to repeal the estate tax was enacted--something called the QFOBI deduction (Qualified Family Owner Business Interest) which allowed you to dedcut the value of certain, very narrowly defined, family owned business interets.   The fact of the matter is that it was so narrowly drawn it applied to virtually noone, but Congress could say it did "something" to help family owned businesses.

        In addition, remember that each individual can pass $2.0 million each, going to $3.5 million in 2009.  Most of the talk I've heard is to raise that to $5.0 million per person--so a couple could pass $10.0 million.   With a bit of planning with life insurance, you really an pass more.  

        It used to be that, before the unified credit equivalent was raised and it was at $600,000 having never been adjusted for inflation since 1976, it was pretty easy for a lot of people to get there, and it certainly did sneak up on people who had $1.0 in farm land and annual incomes of $35,000.   But the credit's increased so its hard to see that happening

        There was a study put out by CRS I think that showed that there were less than 100 farms/busineses that went into forced liquidiation due to the estate tax.  Its not the plague that the PR makes it out to be.

        Finally, note that we have provisions, and we can loosen them, or make more, to deal with family farms and businesses.  This is not an argument for a repeal, but is an argument for reform.  Hope this helps.

        •  They couldn't find one. (0+ / 0-)

          When estate tax repeal was originally discussed, the Farm Bureau was unable to find someone who lost a farm due to it.  I have farmers in the family and while there are many threats to family farms, the estate tax doesn't make the main list.

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