Sen. Orrin Hatch calls for end of estate tax as January 2013 'taxmageddon' looms
Sen. Orrin Hatch, R-Utah, took to the Senate floor Thursday to blast the estate tax, which is due to increase as part of the so-called "taxmageddon" that will hit Americans on Jan. 1, 2013 without action from Congress.
The death tax, as it is also known as, currently stands at 35 percent with an exemption of $5 million or $10 million for married couples. For those who die on or after January 1, however, that rate will rise to a 55 percent top death tax rate on estates, and the exemption rate will lower to $1 million. There will also be a 5 percent surtax on a portion of very large taxable estates, according to CNN.
President Barack Obama's proposal would return the estate tax to 2009 levels, meaning estates worth more than $3.5 million would be subject to the tax and would face a top rate of 45 percent.
People may consider the tax an issue that only affects Daddy Warbucks or the Monopoly Man, but Hatch called that a "cartoonish characterization." Instead, he said, the bill will hit the middle class, small business owners and farmers.
"The death tax adds inefficiency to our economy," Hatch said. "It is what economists refer to as a deadweight loss. In other words, it creates another burden on our free market system that prevents the full potential of economic growth. For instance, many small businesses have to purchase insurance in order to prepare for paying the death tax so they do not end up having to sell the business just to pay the death tax. This added cost is embedded into the cost of goods when sold. In other words, American consumers, American workers or Americans looking for work are those who will ultimately pay the death tax."
According to Hatch, who cited a Joint Committee on Taxation estimate, the nation will see a more than 1,000 percent increase in the number of taxable estates, a 2,300 percent increase in the number of farming taxable estates and a 1,000 percent increase in the number of small business taxable estates if Congress does not act.
The solution, Hatch said, is to fully repeal the death tax.
"There is something fundamentally unjust about the estate tax," Hatch concluded. "Contrary to the claims of this president and his most liberal supporters, a person's wealth is the result of his labor. When you build a business, you put your sweat and ingenuity into it. And to then be punished for this — to have it taken away at the moment of death by the federal government — is an assault on personal liberty and freedom."
According to the Urban-Brookings Tax Policy Center, if the exemption level falls in 2013, it will impact 53,000 estates and could raise more than $40 billion. The federal government currently spends more than $10 billion per day.
However, Tax Policy Center estimates suggest that few farms and family-run businesses will have to pay an estate tax, at least under the current rate. Fewer than 50 small farms and businesses — estates with farm and business assets making up at least half of gross estate and totaling $5 million or less — will pay any estate tax in 2011, its Wealth Transfer Taxes report said.
A 2010 analysis by Patrick Fagan of The Family Research Council argued that those "relatively few" small businesses impacted will affect the thousands who benefit from the jobs and charity generated by those businesses.
"Like water and sunlight in an ecosystem, small businesses provide sustenance essential to building and preserving communities," Fagan wrote. "So high is the death tax that a large portion of heirs to small companies cannot afford to pay it after the founder dies, and see themselves forced to sell to giant corporations — which have no personal ties to the communities of their new acquisitions, and thus no incentive to commit to local institutions. What does the death tax kill? The best of American life and civil society itself."
Planning for a boost in the estate tax law is especially important for farmers, Matt Olver, a senior wealth adviser and certified financial planner at Spero-Smith Investment Advisers in Cleveland told USA Today. Without a plan, heirs may face having to sell off part of the farm in order to pay the tax, he said.
On the state level, states like Indiana, Pennsylvania and Tennessee have made recent changes to estate and gift taxes, joining other states that have repealed such laws or raised the exemption rate. However, 22 states and the District of Columbia still impose estate and/or inheritance taxes for 2012.
"Once a few states get rid of the death tax, it becomes an argument in other states in terms of being competitive," Palmer Schoening, director of federal affairs for the American Family Business Institute told Forbes. "Capital is really mobile, and people are too."
- Watch: LDS Church news conference about...
- LDS leaders reemphasize protection of...
- Attorneys want BYU track team testimony...
- LDS apostle Elder David A. Bednar offers...
- About Utah: Utah Valley University fills a...
- Concealed permit holder stopped armed robbery...
- Mom accused of killing 6 newborns considering...
- LDS statement could move Utah...
- LDS leaders reemphasize protection of... 68
- Lawmakers looking to pump up gas tax... 60
- Sen. Mike Lee urges conservative... 35
- Watch: LDS Church news conference about... 32
- Are you willing to pay more for your... 25
- Concealed permit holder stopped armed... 23
- Darrien Hunt's mother pleads not guilty... 20
- Utah residents rank air pollution as... 19