Obama’s revisiting the death tax … again.
The government already taxes death at a rate of up to 40%. But under the guise of “closing a trustfund loophole,” Obama wants to force some taxpayers to fork over nearly 60% of their inheritance to the federal government.
His plan would impose a new capital gains tax at the time of death based on how much an inheritance has grown in value since it was purchased. So if John Deer bought land for $10 million that’s worth $50 million when Sally inherits it, she would owe a capital gains tax on that added $40 million.
The new capital gains tax, which Obama would hike up to 28%, plus the current death tax would amount to an effective death tax of 6% for some taxpayers.
Under current law, the feds would charge Sally $17 million for inheriting the land. But under Obama’s proposal, the feds would charge her twice for inheriting the land and collect almost $30 million, leaving Sally with about 40% of her inheritance.
Heirs often have to sell some or all of the family business or farm to pay the current death tax, because they don’t have the cash on hand to pay the tax.
Palmer Schoening, chairman of the Family Business Coalition, told this reporter:
For this administration, taking 40% of the family farm isn’t enough. The President’s budget makes Uncle Sam, who isn’t even a blood relative, the first claimant in line for 60% of the family business at death.
Our family business owners invest every penny they make back into expanding their business and hiring more workers. They do not have the cash laying around to pay 60 percent of their total life’s savings to the government when they die.
Obama argues his proposed tax would almost exclusively affect the top 1%, since he would allow small businesses to wait until the inheritance is sold to pay the tax, and in other cases to spread the payment over 15 years. And between $200,000 and $500,000 would be excluded from the new tax.
The capital gains rate hike and the new tax would save the government more than $200 billion over the next 10 years, according to Obama’s budget, and pay for the bulk of the tax breaks he wants to give to the working class.
It’s only fair, he says, since the loophole lets people escape the capital gains tax they would otherwise pay if they sold the assets. Investors should not be allowed to “disappear” their growing wealth for tax purposes by holding it until they die.
This report, by Rachel Stoltzfoo, was cross-posted by arrangement with the Daily Caller News Foundation.