Death but no taxes

[Lynnie]

I think there is still some chatter that Congress will enact the $3.5MM.

Estate tax in limbo - Jun. 18, 2010
Who knows? My estate is no longer worth $3.5MM so I really don't have much to worry about.

From the article:
Optimists still hold out hope Congress will offer clarity before 2011, but the smart money says it won't come before the mid-term elections in November.
Then again, who knows?
Lawmakers shocked the death rattle out of people by actually letting the estate tax lapse this year. Soon after, there was talk that they would reinstate the estate tax retroactively. Wrong again. Now halfway through the year, few expect that will happen.
Next expectation? Lawmakers absolutely, positively will come up with a more lenient version of the federal estate tax for 2011 than the one slated for currently.
Several key senators have been trying to cut a deal for months. Negotiations have stalled on more than one occasion.
"We're almost half a year away from a tax policy that a super majority of senators say they don't support. Yet, we're stuck," Sen. Charles Grassley, R-Iowa, said earlier this week. "This time-sensitive issue has taken a back seat to everything else."
Anne Mathias, director of research at Concept Capital's Washington Research Group, thinks it's a fair bet to assume the new exemption level will fall somewhere between $3.5 million to $5 million.
But she also said if Republicans sweep the mid-term elections, and win at least 60 seats in the Senate, they may push to extend the repeal of the tax.
When Hartnett was asked what he thinks will happen with the estate tax next year, he gave the only answer he and his colleagues can give for many estate tax questions these days: "I don't know."

 

[beachFool]

I used to think the same and we will probably have a lull for a couple of years regarding consumer spending. If you make $100,000, you take home approx $70K. With the sales tax, you take home $100K and pay a proposed 23% on everything you purchase. Do you spend $30K/year as a consumer? Capturing a tax on illegal aliens is very much a positive as well as securing a tax on those who are 'under the radar' and those who cheat on their returns. We do need a strong transition phase, however.

That's the catch.

23% is not high enough

To make up the difference the sales tax rate is over 30%.

Even a single person making 100K doesn't have 30% federal tax liability.

 

[beachFool]

]I think there is still some chatter that Congress will enact the $3.5MM.



I have heard the same talk but just as much to totally exempt estates also.

I don't know.

If they do, hopefully it will be linked to inflation.

 

[Lynnie]

That's the catch.

23% is not high enough

To make up the difference the sales tax rate is over 30%.

Even a single person making 100K doesn't have 30% federal tax liability.

You're right, the tax liability is based upon the AGI. I just used that for simplicity. But, if you make $100K and your AGI is $80K, your tax liability is still five figures making your marginal tax rate 25%. Most states have an income tax as well as a tax on just about everything else. My city/county sales tax is around 8% now, NYC is close to 13%. There is no rhyme or reason to the property tax rate I pay and it's expensive. NJ has a higher sales tax, but no tax on consumable items like food, clothes under a certain price point, etc. MT is the same - and they have no speed limit (just thought I toss that in because I like it).

I think it is proposed that 23% will capture approximately $7TR/yr. and I don't think this includes tourists. In some countries as a tourist, I pay their outrageous sales tax, VAT, etc. Gas in Germany is $15/gal. - most of which is a tax.

There are a lot of variables to make this change, but so far, I like what I am learning from the Libertarians regarding this. This is a good article on the subject. There is also a proposed flat 'progressive' tax, which would benefit those in the current lower tax brackets. We currently have a progressive income tax, which in theory penalizes you monetarily, the more money you earn......which could equate to the 'harder you work.'

The Flat Tax: Simplicity Desimplified | The Freeman | Ideas On Liberty

 

[futurebeachbum]

That's the catch.

23% is not high enough

To make up the difference the sales tax rate is over 30%.

Even a single person making 100K doesn't have 30% federal tax liability.

I haven't studied the Fair Tax, but I understood that it included a monthly prebate to each family based on number of family members that was meant to offset the tax paid on essential services.

 

[beachFool]

You're right, the tax liability is based upon the AGI. I just used that for simplicity. But, if you make $100K and your AGI is $80K, your tax liability is still five figures making your marginal tax rate 25%

But not all your AGI is taxed at 25%.

Depending on filing status, exemptions and deductions you owe 10% on some, 15% on some and finally 25% hence 25% marginal tax rate.

There is a lot of data that suggests the 23% flat tax rate is much too low to replace revenue.

 

[Lynnie]

Yes, Buz, that's why I said, "marginal." For IRS and accounting purposes, you quote 'marginal' as the 'last tax' paid. And, there is a lot of data to suggest that 23% is enough because of all the new system captures. Anyway, I am a novice with the Libertarian's proposal, but I like everything I have read so far.

 

[beachFool]

My point precisely. 25% marginal is not 25% effective tax rate. We are on the same page I think.

Where we differ is on the other. I do not like the current tax code but this will be worse.

FactCheck.org: Unspinning the FairTax

We wrote that the bipartisan Advisory Panel on Tax Reform had ?calculated that a sales tax would have to be set at 34 percent of retail sales prices to bring in the same revenue as the taxes it would replace, meaning that an automobile with a retail price of $10,000 would cost $13,400 including the new sales tax.? A number of readers pointed out that H.R. 25, the specific bill mentioned by Gov. Huckabee, calls for a 23 percent retail sales tax and not the 34 percent used by the Advisory Panel on Tax Reform. That 23 percent number, however, is misleading and based on some extremely optimistic assumptions. We found that while there are several good economic arguments for the FairTax, unless you earn more than $200,000 per year, fairness is not one of them.

 

[futurebeachbum]

Where we differ is on the other. I do not like the current tax code but this will be worse.

The biggest problem with the current tax code is that if you are at either end of the income spectrum you ride on the backs of others. The donors ( investors) who have controlling interest in the Congress and the Administration(s) have seen to that.

If you have enough income you can afford to invest in exotic and expensive tax shelters. Likewise if you are at the very low end of the spectrum. the earned income credit is actually designed to incent you to earn, but to earn as little as possible.

The tax burden then falls on the people in between and this will be amplified even more since the Administration's promise not to raise taxes on people making less than $250k/yr has fallen by the wayside.