In the 1993 movie “Ground Hog Day” actor Bill Murray plays a weatherman doomed to keep repeating the same day over and over again: ground hog day. The President’s recommendation on the estate tax is like Ground Hog Day all over again. He wants to go back to 2009: 45% rate with a 3.5 million exemption effective in 2016.
Returning to the levels in 2009 will not actually reach the intended target the President hopes to tax, the super rich with large estates. The law allows many of these taxpayers to use vehicles like dynasty trusts to hide their assets when they turn them into liquid. Who’s left to pay the estate tax? Privately held businesses who tend to be better behaved than Wall Street, and family farms and ranches. Is that the intent of the estate tax law?
There is a better way. Give taxpayers another option to pay the estate tax in an orderly, methodical way that stops death from being a taxable event, stops the fire sale of a going concern and stops the loss of jobs that inevitably occur when there is disruption when a founding patron passes away.
The better way that was introduced in the last Congress is the ASSET method. H.R. 5872 wasintroduced by Rep. Andy Harris that allows any tax payer to make a choice about what they will do when it comes time to pay the estate tax. Taxpayers can take a chance on what the rate and exemption levels at the time of their death. Or instead, they can inject certainty by choosing the ASSET method.
ASSET allows taxpayers to pay a percentage of their AGI (between 0.77% and 1%) annually to cover the revenue of the estate tax. When they die, their assets are recorded on an information return, their original basis and the taxpayer who receives them. There is no need for a sale, because the assets will only be taxed if they are sold. That means no fire sale, no tax at death, no job losses. The going concern can continue to pay taxes and employ people.
It’s time for all of our lawmakers to take another look at innovative tax proposals that change the debate from people’s entrenched positions. Ground Hog Day is over, and a legacy of bad tax policy is the wrong shadow to cast for our heirs.
Rob Smith – ASSET