When The Government Says We'll "Freeze it?" Does That Mean A Massive Increase In Death Taxes?

I try to be democratic and open minded on the issue of debating the federal death tax.  I have posted a number of recent editorials and information from both sides of the argument on various proposals and proposed bills and events in the house and Senate.  My personal bias is that the exemption is too small and represents a radical tax increase since 1981 that is unfair to many families who have real esatte or closley held businesses.  I also think that a rate of 42 to 55% is confiscatory and is just too high.  It discourages intergenerational business planning and encourages consumption by each generation - which isn't good for a society.

And for the most part, the readers of this blog feel that the death tax is unfair, a double or triple tax, and/or that it should be limited to very large estates.  The New York Times recently ran a tortured piece on why the death tax is not really a double tax.

Here is an alternative view in a recent editorial.  Salt Lake Tribune Editorial.  This writer cites the New York Times as the source for the argument (a paper with a strong bias against the repeal of the death tax and one that favors taxes generally).

This writer says that most of the businesses taxed are not "small."  Well, that is correct depending on your view of small. Many of the businesses are family businesses that were created within three generations and which are narowly held and often illiquid even though they exceed a few million doallrs in value.  This means that just to pay the tax, families have to borrow or sell and often dillute the value of something that they have created and grown.

Fair?  I do see value in preventing the collection of wealth in small numbers of families or corporations.  The problem that I have is who gets to redistribute this wealth and to whom does it go during redistribution.

Also, the argument in the Salt Lake Tribune (and the New York Times) is flawed becauuse even a hold at $3.5 million rather than a larger exemption would mean a real increase in the tax since the last major change in 1981.  In that year, $600,000.00 was sheltered.  Adjust that for inflation since 1981 and you get a number higher than $3.5 million.  So the government wants to take more now not less.  And, if they also eliminate a valid technique approved by the tax courts (the minority discount)  they will be taxing even more family wealth.

For many of our clients in Pennsylvania and in particular, the Philadelphia area, hasn't your real estate or the value of your business or your personal real estate increased over the last three decades?  Family Limited Partnerships and the minority discount were the solution to eliminating or limiting this very high tax.  If it goes away that's the definition of a tax increase.

Finally, here's an editorial on why the Government's death tax approach punishes the savers.  Is that a good idea?  Fair?  Beneficial?  Click here to read another view on the federal death tax in the Concorde Monitor.

Let me know where you are and what you think.

David M. Frees III