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Death tax? You ain’t rich enough for the “death Tax”, Mabel

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Marti Oakley (c) copyright 2010 All Rights Reserved

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At the request of several of our readers, and in light of the Republicans holding the unemployed hostage while they attempt to extort the  public on behalf of the uber wealthy…….we revisit this article.  Apparently there are still a large number of individuals that believe they will fall victim to the “death tax”.  In your dreams sweetie!  If the Republicans get their way…you’ll be lucky if you can even afford to breathe!

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Unless that farmer has a net worth…all his income plus real property value, minus all his debt that results in a net worth of 3.45 million or more, there is not a rat’s chance in hell they will be subject to any “death tax”. Simple estate planning can avoid all of this.  And what farmer, after having navigated the market manipulations of USDA, FDA, Farm Bureau and a host of other government agencies intent on depriving him of his life’s work, doesn’t make plans for the untimely event of his passing, making sure his heirs receive the results of that work?  Still, its nice to see someone finally concerned about our farmers.

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You don’t make enough to qualify for special treatment under what is called the “death tax”.  The marketing of the term “death tax” and selling it to middle America as something that would affect them and their annual salaries, and what ever real assets they had accumulated is strictly a Republican disinformation tactic. This bogus marketing campaign has been promoted by Republicans to protect rich donors and their buddies and in many cases, themselves.  More

What makes you think the “death tax” applies to you? (The Billionaire’s Tax)

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Ever hear of the “death tax”?  Sure you have.  Ever hear of the “billionaire’s tax”…maybe not, but death tax and billionaire’s tax are one and the same.  The original billionaire’s tax was a crafty piece of legislation that created massive loopholes for the ultra wealthy, allowing them special privileges not available to people like you and me who work for a living.  Here’s how it works:

 

Let’s say, hypothetically you made $1000 and this figure is a staggering amount compared to Joe Shmo who only made $1 this year. (Remember we are speaking hypothetically).  Joe Shmo will pay about 24cents in individual taxes even after the few deductions he is allowed and will pay Social Security taxes on his total income. 

Mr. Billionaire and those making $102 thousand a year or more will not pay SS on anything above this level.  But what else does Mr. B get?

 

*It should be noted here that Joe Schmo is paying the same prices for food, gas, heat, lights, insurance and medical costs as Mr.B.

 

 

  • First Mr. B. gets to “defer” up to 78% of his income, earnings and capital gains for as much as thirty (30) years.  This means he is claiming only 22% of his actual income for tax purposes. And Mr. B can do this year after year after year…….

 

  • Mr. B used to be taxed at a rate of between 37 and 55% on only 22% of his true income, now he is taxed at about 25% of only 22% of his true income.

 

($1,000 times 22% times 25% equals $55 (5.5% “marginal” rate of tax).

 

(Mr. B. has discretionary income of $945, compared to Joe Schmo’s net of 76 cents.)

 

Because Mr.B is fabulously wealthy and contributes to all the top politicians, this allows him special access to those in government.   Special tax provisions, deductions, write-offs, write-downs, carry over, carry back, special exemptions, tax hedges, tax dodges are all used to legally evade paying anything but minimal taxes, if any are paid at all. 

 

After thirty years or so, Mr. B kicks the bucket.  All of his income deferments are totaled up and the tax is assessed on the estate and is due and payable before anyone can inherit anything.  Right?  Wrong!

 

            Some years back Mr. B bought stock at $1 a share.  The day he died the shares were worth $10 each.  A hefty profit!  But a special provision has been provided for Mr. B’s heirs called the step-up basis.  Instead of having to claim the current real value of the stock, they get to “step-up” and claim only the original stock price of $1 and ignore, write-off and ride away with $9 in profits totally tax free.  But it gets better!

 

If the stock is worth less than the initial purchase price, they get to “step-up” to the diminished stock value and pay taxes on this reduced value, if they pay any at all.  But all of this applies under the billionaire’s tax only so long as the estate is valued at $3.45 million or more, net.  And these are just a few of the high points of the perks of being wealthy. 

 

It should be noted here that the Billionaire’s Tax does not apply to those whose net worth is less than $3.45 million, so it is not a consideration or an application that comes into play upon death of the primary holder of the accumulated assets of all kinds.

 

      Mr. B’s heirs also base the possible taxes on the year the income was deferred, meaning the rate of tax in that year of deferment.  As a bonus, the current value of the dollar can be used rather than the value in the year the income was deferred.  Since the value of the dollar has steadily declined, thirty years can put a big dent in the declared value of an estate, but only on paper.

 

In 2000, the top 549 families with incomes above $58 million paid only 17.8% in taxable rates.  That’s about 7% on average less in taxable rates assessed than the rate Joe Shmo pays with his limited deductions and predetermined tax rate which appears for some reason to be permanently fixed and is siphoned off his paychecks in advance of any determination of taxes owed. 

 

Although we are lead to believe, and there are those who desperately need us to believe, that the rich are being unfairly taxed, I disagree.  Most of the wealth these families and individuals have built up has been created due to the largesse of our country and to the hard work of America’s workforce and a lot of political subterfuge.  Nothing any of these wealthy families has accumulated has been acquired without:

 

·         loans from the government (our tax money),

·         subsidies (our tax money)

·         tax credits (we shift the burden to those who can’t afford it)

·         special financing not available to us

·         special tax breaks not available to the common person

·         lobbying politicians to pass special laws or provisions

·         Allowing the creation of phony business address in tax free havens like the Cayman Islands, avoiding any taxes at all

·         Promoting the idea it is unfair for the wealthy to have to pay taxes on 100% of their earnings, just like those of us who make less than 102,000 a year have to.

 

When politicians refer to the “death tax”…..correct them.  It is the Billionaire’s Tax they are referring to and it affects the ultra wealthy only.  It is a carefully devised system of tax liability reductions and available only to a few. Rather than these estates being comprised of predominately family farms, as is claimed, the bulk of all assets are liquid such as bonds, mutual funds, stocks and cash.

 

The myth that family farms have been, or are being lost to this tax is an outright lie.  When Bush campaigned in 2000, he claimed he had talked to many Iowa farmers who were alleged to have lost family farms to the “death tax”.  He has not to this day been able to produce even one name of any farmer who supposedly had this happen.

 

Focus on Farms Masks Estate Tax Confusion   (article)

“Neil Harl, an Iowa State University economist whose tax advice has made him a household name among Midwest farmers, said he had searched far and wide but had never found a farm lost because of estate taxes.  “It’s a myth,” he said.

Even one of the leading advocates for repeal of estate taxes, the American Farm Bureau Federation, said it could not cite a single example of a farm lost because of estate taxes.” http://www.responsiblewealth.org/press/rwnews/2001/estate_tax_nyt_farms.html

The death tax as it is called, will affect less than 546 families with inheritable estates valued at $3.45 million up to, or more than $58 million; and that is the adjusted value using the special provisions provided to the ultra wealthy.   

 

The repealing of the Billionaire’s Tax (death tax) will end any taxing of lifetime deferrals of income, but will not end the practice of deferring income to avoid taxes to begin with. 

 

People who will never, ever in their lifetimes even know anyone who was the beneficiary of the Billionaire’s Tax (avoidance), which in essence is a drop in the bucket for those to whom it applies, rail against this tax as though it is something unfair and that it somehow applies to them or will in the future. 

 

I suggest they try deferring 78% of their income this year, artificially devalue their assets and income to reduce any or all of their tax liability, then, promise the IRS that when they die they’ll pay up.  Let’s see how far that flies. 

 

© 2008 Marti Oakley

 

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