Lots of people work hard all their life to put some money away for their retirement and leave behind some funds for the next generation. If they’re prudent with their investments and live within their means, this can total a few million dollars. A few million dollars is nothing to scarf at, but it doesn’t put you in the same league as Bill Gates. Owning a small business, having some real estate and a good retirement plan will often add up over time. The research and consulting firm, Spectrum Group, says that in 2009 there were 7.8 million families with a net worth of $1 million, excluding their primary residences.
Some folks claim these people represent a “privileged” class of Americans, especially during these times of rampant foreclosures and high unemployment. Somehow, success in achieving the American Dream has turned into a bad thing. I wonder what would happen if everyone felt this way and simply stopped working. Then all the naysayers should be happy. Of course, there wouldn’t be any tax money to pay for all the wonderful things that the government does for you, but that’s besides the point.
In 2009, the estate tax exemption was set at $3.5 million. Putting it another way, estates under that amount paid no federal estate taxes. In 2010, when EGTRRA lapsed, there was no estate tax regardless of the size. In 2011, the estate tax exemption returns to the pre-2001 level of $1 million.
Unfortunately most Americans think this issue has no direct impact on them. After all, only 1 in 160 people who die a year owe estate taxes. Perhaps these people should rethink their position.
Because of Congress fumbling the ball, the family of Yankee owner, George Steinbrenner, was able to escape estate taxes estimated up to $600 million. Combined with the deaths of three other billionaires in 2010, it cost the government $6.5 billion in taxes. In a time of economic recovery, letting this kind of revenue get away can not bode well for the popularity polls in Washington.
Secondly, if we return to the $1 million exemption in 2011, small businesses could suffer “liquidity” problems when trying to raise funds to pay the taxes. This can lead to the liquidation of many businesses along with the loss of jobs. I thought Congress said they were trying to create jobs. You don’t do it by closing small businesses.
The likelihood is that Congress will act upon this mess and in all probability will simply extend the provisions of EGTTRA for a couple more years. Of course, they could have done this in the first place and avoided the problems caused by their screw up.
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