Without Congress’ intervention, the federal estate tax will return in full force next year with a top rate of 55 percent on taxable estates valued at more than $1 million.
In 2001, President George W. Bush signed major reform legislation that reduced estate taxes over eight years, until by 2009 estates worth more than $3.5 million ($7 million for married couples) were taxed at 45 percent. Then in 2010, the law repealed the tax entirely. But the legislation expires in 2011, sending estate taxes back to their 2001 levels.
U.S. Rep. John Shimkus, R-Collinsville, sees the estate tax as triple taxation on his constituents, some who have family farms or small businesses.
“The taxpayer paid tax when the income was earned, paid tax again on dividends or interest when that after-tax income was later invested and then the estate has to pay tax on the assets purchased with that previously taxed income before those assets can be passed on to the taxpayer’s heirs,” Shimkus said.
Attorney Todd Sivia, who owns Sivia Business & Legal Services, P.C., and does considerable estate planning, views the possible change in estate tax in the coming year as the biggest tax increase in U.S. history.
“Right now, there is no estate tax. In 2001, when they created what were called the Bush tax cuts, the intention was to eliminate the estate tax,” he said. “If you look at estate tax, every time it is created it is to create revenue for the government. If Congress doesn’t do anything by the end of the year, it goes up automatically.”
Sivia said $1 million in an estate today is much different than it was in 2001. He said people who would feel the estate tax increase the most are small business owners and farmers.
“In a hypothetical situation, let’s say a farmer bought land in the 1960s for $20,000 or $30,000 and now the property is worth $3 to $5 million. If it is $3 million, that is over $1 million in taxes the heirs have to come up with upon the death. They would either have to sell or something would happen to the farm.”
Sivia recommended that people consider a revocable living trust where you can put land into a corporation and work with asset allocations to get in the best position for paying taxes.
“We want to leave money for our children and for charities,” he said. “We all have where we want to leave our money, but if the IRS (Internal Revenue Service) is taking half our money, that is huge. My passion is to protect people’s assets and look at any way of keeping the assets with my clients, whether it is a small business owner or individual.”
Sivia said about 25 percent of his law practice is estate planning.
“I don’t believe the estate tax changes that will happen are fair,” he said. “Those who have worked for their money should not have to pay at a rate of 55 percent. The $1 million figure impacts most Americans. You hear a lot about taxing the top 1 percent or 10 percent of the American population, but with this, you are taxing Main Street. You are taxing the individuals who have businesses, small businesses and have worked hard to build up their businesses.”
One point Sivia made is that every time there is a war, the estate tax comes back with a vengeance.
“In 1797 when we first established the estate tax, we used it to arm our Navy and the second time we established it was in 1862 during the Civil War. It was abolished in 1870 and in 1898 it funded the Spanish-American War and was abolished in 1902. It came back in 1916 during World War I and has continued since then.”
If Americans are lucky, Congress will do something to prevent the estate tax from going back to the pre-2001 date, Sivia said.
“It’s very serious,” he said. “If nothing is done by January, I’m not optimistic about an estate tax reversal until at least 2012.”
Shimkus said he thinks people are starting to wake up on their view of government and how it should operate.
“I am hopeful for a one-year extension of the Bush tax cuts,” he said. “How many times do we tax the same income? If the death tax goes through back to the pre-Bush tax levels, it would be devastating.”
U.S. Rep. Jerry Costello, D-Belleville, said he prefers a specific approach to the tax situation.
“I continue to support extending the tax cuts targeted at the middle class and permanently repealing the estate tax,” he said in an e-mail response to a question from The Telegraph. “Discussing how to proceed on these issues will be our first order of business as Congress reconvenes next week.”