With Congress failing to come to a budget compromise over and over again, the American people are becoming frustrated. Young people, in particular, begin to feel that their government is not working for them and decide to block it out.
Young people cannot afford to not care. Literally.
As my colleagues and I begin to graduate from college and enter the workforce, we have grand, ideological plans of creating or joining successful companies. We dream about creating and building something that will be able to support our future families for generations to come.
If our plans and dreams remain the same, we need to be aware of the state of the estate tax in this country because it kills family and small businesses every year.
Estate tax is a tax collected by the IRS when the owner of a private company dies. This tax must be paid by whoever inherits the company within a few months of the owner passing. Under the 2010 Fiscal Cliff negotiations, there was an exemption for companies whose assets totaled to less than $5 million and then every dollar over that was taxed at a 35% rate. Now the Obama administration recently introduced their budget which calls for a $3.5 million exemption and a 45% tax on every dollar over.
A young (and kinda broke) person might look at these numbers and scoff, wondering why someone who has $3.5 million would be so distressed to pay this tax. The problem with that logic is that the $3.5 million is not liquid money. This worth is tied up in assets, which allows a company or farm to operate. This includes land, equipment and merchandise. If the owner dies unexpectedly, the family is put in a bind where they need to liquidate their assets very quickly in order to pay the IRS. This leads to fire sales and the families very frequently end up losing all or most of their company to a less than fair price. It also creates unanticipated and sudden unemployment for many employees.
Another problem with the current system is the very rich simply do not pay this tax. Those who have the means, put their money away in one or several nontaxable trusts to avoid paying this tax all together. This tax was meant to tax the super rich, but ends up just hurting small family companies and their employees.
It is a mess. But there is a solution. The ASSET solution.
ASSET stands for Americans Standing for the Simplification of Estate Tax. It is a nonprofit group that organizes in the grassroots and lobbies Congress for comprehensive reform on the estate tax.
The ASSET solution creates a process where death is no longer a taxable offense, but also maintains the revenue that the federal government does need in order to keep many important programs running in our country. Instead of paying a tax when the owner of a company or farm dies, the family is able to inherit tax-free and pay the tax when there is an economic event—not a death. A capital gains tax would be placed on the company when and if the family decides to sell. This process would actually generate more revenue for the IRS than the current one, and it is far less complicated. In order to remain revenue neutral and ensure that the IRS is not losing any revenue, the ASSET solution includes a temporary annual transition tax will be reduce proportionately until it is completely eliminated.
The ASSET solution is a bipartisan solution. Young people should be invested in comprehensive reform for estate tax because the policies that are implemented now will have a direct impact on our future.
About Elizabeth Virga: Ms. Virga is an undergrad student from the University of Maryland College Park pursuing a degree in government. Former intern from the Maryland House of Delegates and Americans Standing for the Simplification of the Estate Tax.