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DAVID KRUSE

Estate tax questionnaire and primer

December 21, 2017
Farm News

1) Which country did the estate tax originate in? A) Japan B) France C) Britain D) Roman Empire

2) Which President first promoted an estate tax? A) Woodrow Wilson B) Howard Taft C) Ulysses Grant D) Theodore Roosevelt

3) What was the top rate for estate taxes in the US this century? A) 100 percent B) 90 percent C) 55 percent D) 77 percent.

4) What percentage of Americans file taxable estate returns? A) 20 percent B) 11 percent C) 3 percent D) .2 percent

5) Which tax is 100 percent double taxation? A) estate taxes B) property taxes C) income taxes D) sales taxes

6) What percentage of Americans polled think that they are or will soon become part of the 1percent? A) 5 percent B) 20 percent C) 30 percent D) 40 percent

7) When did the estate tax first become known as the "death tax"? A) 2010 B) 1979 C) 1984 D) 1992

8) How many states have abolished an estate tax since 1976? A) all B) 4 C) 10 D) 20

9) Since U.S. estate tax law changes since the 1960's, how many fewer American estates will face paying an estate tax? A) 25 percent B) 50 percent C) 85 percent D) 95 percent

10) Of 5200 estates that will owe some estate tax this year, how many will list a farm or small business as an asset? A) 3500 B 2200 C) 900 D) 50

11) In 2015, what percentage of farm estates filed in 2016 owed any estate tax? A) 30 percent B) 15 percent C 3 percent D) .42 percent

In order to keep it simple, the correct answer to all of the questions is D).

The Romans were one of the first recorded to have enacted an estate tax in 6 AD. . . all hail to Caesar!. . .who got a 20th of the inheritance to keep the empire going. Theodore Roosevelt first promoted a graduated estate tax in 1906 which was not enacted until 1916. Roosevelt was concerned about the concentration of wealth and was a different kind of populist than what the current president purports to be today. Roosevelt believed that families owed something back to the country that allowed them to accumulate great wealth.

The top rate for the estate tax was 77 percent in the 1940's as the revenue was needed to finance the U.S. effort to free the world from tyranny. The top tax rate has fallen to 40 percent on estates above $11 mln. Tax planners can typically significantly reduce exposure for large estates. The number of estates obligated to pay an estate tax is a minute .2 percent. As wealth that has accumulated in appreciating assets has not been taxed, the estate tax may be the only tax paid on those assets. Sales taxes however, are double taxation as income tax has already been paid on this source of cash. Americans are an optimistic lot as 40 percent of them believe that they too will someday be included in the American dream of joining the 1 percent, therefore expanding opposition to the estate tax. Not even all of the 1 percent pay an estate tax. According to some studies, the cut-off for being included in the 1 percent of wealthiest Americans is $9 mln. That is under the current $11 mln exemption.

Income and wealth inequality has increased significantly in the US since the 1970's. By 2012 the top .1 percent owned 22 percent of the wealth (note that was .1 percent not 1 percent). A Wall Streeter quipped after a sharp stock market rally "the pitch forks just got closer." The GOP first started broadly describing the estate tax as the death tax which was very effective politically in 1992.

20 states have eliminated their state estate tax while 17 states still have one. A Minnesota subscriber let me know how onerous the estate tax was in his state. We have no estate tax here in Iowa. We have what they call an inheritance tax which is only liable on assets bequeathed to those outside the linear family. In other words, estates can be transferred to children and grandchildren state estate tax-free, but not to non-relatives. The estate tax has been watered down since the 1960's so that 5 percent of those that only would have incurred an estate tax liability back then would do so today.

It is the very wealthy tip of the tail of the dog that owes any estate tax. An estimated 50 estates that owe an estate tax are farm related this year. The .1 percent are using fake facts and false perceptions to manipulate public sympathy by spinning how damaging the estate tax is to farmers because they would be unable to generate public sympathy otherwise to build support for eliminating the estate tax.

I for one, do not like being used by anybody as their poster child that they then hide behind so they can protect great wealth. You know that I am a fan of Theodore Roosevelt and while I do think that he was actually a little overboard on it, there is no reason to change the current law which has resulted from years of compromise over the issue. Some have been willing to concede the stepped-up basis in order to get rid of the estate tax which would really be shooting a hole in our foot. . .both feet for some. How did you score on the test?

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

 
 

 

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