Let's assume George and Ethel, two teachers, purchased their Southern California home in 1966 for $45,000. Lets also assume that over the next fifty years, the value of the house increased to $1,345,000. Let's also assume that George and Ethel had four children and each of them went to a private four year college and that George and Ethel continued to re-finance their home to put their children through college and take a few cruises. Today, there is a $1,145,000 loan on the house. With pensions and other savings, the now retired teachers manage to pay their mortgage and live a quiet life.
If George and Ethel were to die today, there would be no estate tax and their children would get $200,000 from their inheritance. Under Mr. Obama's tax plan there would be $168,000 of taxes due as the result of his capital gains tax plan. With the cost of accountants etc., the children would get something less than the $32,000 under the proposal. This couple would see the inheritance to their children essentially wiped out.
If Bill and Mary spent their entire lives creating a service business that had a value of $1,145,000, under current law, there would be no estate taxes. Under the Obama tax plan, there would be an estate tax due of $264,600. While this tax would not be due until the business is sold, it is an estate tax that must be paid. Bill and Mary would have their estate taxes go from zero to $264,600.
The President, famous for using words to mask results, refers to this part of his tax plan as "closing the trust fund loophole."These two examples have nothing to do with the wealthy. The White House indicated that "99 percent of the impact of the President’s capital gains reform proposal would be on the top 1 percent." Although I find it highly unlikely that 99% of the impact would be on the top 1 percent, rest assured that literally millions of American homeowners, small business owners, and savers would be subject to the Obama tax plan.
Perhaps we should think of these American taxpayers as collateral damage.
Year after year, there are tax change proposals made by this Administration that have not been vetted with people who actually prepare tax returns or deal with real people. This Obama tax proposal is dormitory chatter; it is not well thought out legislation. At a time when Congress and the American people want to reduce the time spent with the Internal Revenue Service, enter the Obama tax plan. This Obama tax plan is another accountants and appraisers relief act. Every business worth more than $200,000 would need an appraisal at the time of death, an accountant to work through the payment plan and the follow-up payments over what could be a lifetime. And let's not forget the additional IRS employees and IRS appraisers to monitor what would annually be perhaps tens of thousands of additional tax returns.
Rather than 6500 or so wealthy taxpayers paying estate taxes every year, the Obama tax plan takes this number into at least the tens of thousands. And if one is a bit cynical, the possibility of taxpayers actually filing these tax returns for truly small businesses is not going to be one hundred percent.
Yet again - amateur night with the middle class as collateral damage.