December 4, 2012

Death Tax and AMT: Pain for Middle Class Families

In fiscal cliff negotiations, Democrats have insisted on tax rate increases. By taking this position, they are hurting other tax policies for which bipartisan compromises are readily available. These include the estate tax and the Alternative Minimum Tax (AMT) -- two policies that require action before the end of the year. Otherwise, many middle-class families will see more of their money go to Washington.

Death Tax Will Hit Small Businesses and Family Farms Hard

In just four weeks, the estate tax is set to rise from a top rate of 35 percent with a $5.1 million exemption to 55 percent with a $1 million exemption. The number of farms and small businesses hit by the estate tax is staggering. If nothing is done, 21 times more farming estates and 13 times more small businesses will be hit compared to what would happen if we extend current policy.crushed by estate taxSource: Joint Committee on Taxation

The estate tax creates uncertainty in business planning and provides an incentive for families to sell or transfer business assets this year rather than risk the government taking more than half of their life’s work if they pass away in 2013 or later.

The estate tax also has forced families to sell their family business or farm just to pay the taxes Washington charges when a family member died. Farmers and ranchers, for example, hold large non-liquid assets such as land, buildings, and livestock. To pay the estate tax, many who inherit agricultural property end up selling part or all of those assets to settle their tax burden. Families that have farmed for generations are forced to make life-changing decisions regarding their future pursuits, and to do it quickly. Estate taxes are due nine months after the death.

death taxes will soar

Democrats agree that the estate tax compromise passed in 2010 should be extended:

“This particular [estate] tax is inherently unfair.” – Sen. Mary Landrieu (D-LA)

“I really don’t think we should change the estate tax.” – Sen. Mark Pryor (D-AR)

Great Falls Tribune: “Baucus is working to preserve a reduction in estate taxes that exempts the first $5 million of an estate’s value for individuals and taxes the remainder at 35%” – Sen. Max Baucus (D-MT)

AMT to Hike Taxes by $92 Billion

When it was originally enacted in 1969, the AMT was a reaction to just 155 high-income taxpayers who had not paid any income tax two years prior. Despite being “patched” by indexing the AMT to inflation every year, the AMT now hits about four million households. If Congress does nothing, the AMT will hit an additional 28 million taxpayers for $92 billion when they file their 2012 returns next year. This is an average of more than $3,200 more in taxes per filer, hitting mostly workers making under $200,000/$250,000 (single/married).

amt map

Source: CRS  

amt table

Working families are about to be hit hard because the President demands Washington increase tax rates rather than raise revenue through tax reform and economic growth.

Issue Tag: Economy