The Death Tax: Another Obama Tax Hike Target

by Curtis S. Dubay

WebMemo #2489

President Barack Obama recently unveiled yet another round of tax hikes. This latest one, which would increase the death tax on family farms and small businesses, would raise $60 billion more over 10 years for the reserve fund to help pay for the President’s massive health care spending. This troubling trend is likely just the beginning of higher taxes as far as the eye can see. President Obama will want even more revenue to reduce massive projected deficits and fund government expansion into areas like health care reform and the environment. With no indication that he plans to restrain spending, higher tax burdens for all Americans are inevitable, despite the President’s repeated claims that he will not raise taxes on anyone making under $250,000 a year. President Obama should stop hiking taxes and restrain spending immediately. The economy is in a precarious position and cannot afford the damage tax hikes will inflict. Death Tax the Newest Target Under current law, the death tax expires for 2010 but comes back in full force for 2011 and beyond. President Obama’s budget assumes that Congress will not let the death tax die and will extend it permanently at 2009 levels–a 45 percent rate and $3.5 million exemption. President Obama then targets tax increases through the death tax in two ways: Disallowing recipients from claiming higher basis costs. Under current law, when recipients of willed property eventually sell inherited or gifted items, they can claim a higher cost for them than the donor estate claimed when paying the death tax. This provision lowers the capital gains tax liability for the recipient. A recipient’s base cost of property transferred at the donor’s death, or by gift, should equal the value of the item at the time of the donor’s death or when he gave it as a gift. Closing this loophole and equalizing the values is sound tax policy, but the additional revenue should be used to lower other taxes; it should not be a revenue raiser. Since the additional revenue would go into the health care reserve fund and not to lower other taxes, it is nothing more than a revenue grab. Increasing taxes on family farms and businesses. Current law allows the recipients of certain assets–such as family-owned businesses or farms–to discount those assets’ value to account for the fact that it is difficult to sell them in order to pay the death tax. The Obama Administration would disallow this discount and force families to pay the death tax on the full value of the assets, even though there would be no new cash generated to pay the tax. Disallowing the discount of difficult-to-sell property is a burden on families that cannot raise the necessary money to pay the death tax on those assets. Instead, Congress and the Obama Administration should re-institute the discount and allow families to spread the cost of the death tax over several years. Closing loopholes in the death tax would be unnecessary if Congress rightly repealed this harmful tax. It stifles economic growth because it discourages saving and investment and undermines job creation and wage growth.[1] Rather than dealing with real and perceived loopholes individually, Congress should abolish them by killing the death tax for good. Tax Hikes Really Add Up On top of the death tax increases, President Obama has signed into law a tax hike on cigarettes, which falls hardest on the poorest Americans. This legislation increased the tax on a pack of cigarettes from $0.39 per pack to $1.00 and broke President Obama’s pledge not to raise taxes on anyone making less than $250,000 a year. The tax could raise $33 billion over the next four-and-a-half years.[2] The President has also proposed several new tax hikes in his budget: Tax hikes for high-earners. President Obama would raise the income and investment taxes of those making over $250,000.[3] Energy tax. He would also create a cap-and-trade program that would raise the taxes on energy for every American and inflict substantial damage on the economy.[4] Tax hikes on international businesses. President Obama targeted U.S. businesses operating internationally by proposing to raise the taxes on the income they earn overseas. This tax increase would severely damage the international competitiveness of U.S. businesses.[5] When President Obama originally released his “Budget Blueprint” in February, it increased taxes by $1,368 billion over 10 years.[6] But when he released the full details of his budget in May, it increased taxes $1,779 billion even after tax cuts are factored in.[7] Thus the Obama Administration has increased its tax hikes by $411 billion in just three months. After factoring in the cigarette tax hike, the tab totals $1,812 billion over the next 10 years. This means that under Obama’s tax plan, every household in America would face $15,359 in higher taxes over the next 10 years. How Much Higher Could Taxes Rise? If projected deficits are an indication of how much more revenue Congress and the Obama Administration might target, the amount of needed revenue could be immense. The Office of Management and Budget estimates the deficit for 2009 to be $1,841 billion.[8] That is more than four times larger than the 2008 deficit of $459 billion, which was then an all-time high. During the entire 10-year span of the Obama budget proposal, the deficit never dips below $512 billion. Using the Obama budget as a conservative estimate, additional tax hikes of $60,237 per household would be necessary to balance the budget over the next 10 years. Taxes would need to increase an additional $21,339 per household just to get the average deficit over the next 10 years down to it previous record high. Tax Hikes Threaten Economy Because of the more than 3 million jobs lost since he made his pledge to create 3.5 million jobs by 2010, President Obama must now create a total of 6.5 million jobs to meet his stated goal.[9] Increasing taxes will only destroy more jobs and make it harder for him close this deep jobs deficit. Congress and the President should stop hiking taxes and instead begin seriously reducing spending and cutting taxes. Tax hikes at any time are economically harmful, but proposing them during this severe recession is irresponsible and threatens to slow, or even prevent, recovery.[10] First, Stop Digging Congress and the Administration should take these actions immediately: Drop their proposals to raise taxes, Permanently extend the 2001 and 2003 tax cuts for all taxpayers–not just for those making less than $250,000, Abolish the death tax, and Lower top rates on income and investments. These steps will provide a needed boost to the ailing economy and actually create the jobs President Obama pledged his recovery plan would produce.[11] Of course, these tax cuts will necessitate deep spending cuts–yet another reason to pass them–and a course correction on President Obama’s spending binge. Curtis S. Dubay is a Senior Analyst in Tax Policy in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation. [1]William W. Beach, “Now Is (Still) the Time to Permanently Repeal Federal Death Taxes,” Heritage Foundation WebMemo No. 720, April 12, 2005, at http://www.heritage.org/Research/Taxes/wm720.cfm. [2]Gerald Prante and Joseph Henchman, “Funding S-CHIP with Federal Cigarette Tax Increase is Poor Tax Policy,” Tax Foundation Fiscal Fact No. 158, January 15, 2009, at http://www.taxfoundation.org/news/show/24208.html (May 11, 2009). [3]J. D. Foster, “Obama Budget’s Tax Proposals: Wrong and Risky,” Heritage Foundation WebMemo No. 2362, March 25, 2009, at http://www.heritage.org/Research/Economy/wm2362.cfm#_ftnref2. [4]William W. Beach, David Kreutzer,Karen Campbell, and Ben Lieberman, “Son of Waxman–Markey: More Politics Makes for a More Costly Bill,” Heritage Foundation WebMemo No. 2450, June 16, 2009, at http://www.heritage.org/Research/EnergyandEnvironment/wm2450.cfm. [5]J. D. Foster and Curtis S. Dubay, “Obama International Tax Plan Would Weaken Global Competitiveness,” Heritage Foundation WebMemo No. 2426, May 5, 2009, at http://www.heritage.org/Research/Taxes/wm2426.cfm. [6]Foster, “Obama Budget’s Tax Proposals.” [7]Office of Management and Budget, “Updated Summary Tables”; U.S. Department of Treasury, “General Explanations of the Administration’s Fiscal Year 2010 Revenue Proposals.” [8]Office of Management and Budget, Updated Summary Tables, Table S-1. [9]J. D. Foster, “Obama Jobs Deficit Grows by Another 563,000,” Heritage Foundation WebMemo No. 2430, May 8, 2009, at http://www.heritage.org/Research/Economy/wm2430.cfm;see also Rea S. Hederman, Jr., and James Sherk, “Heritage Jobs Report: May Report Shows Small Silver Lining,” Heritage Foundation WebMemo No. 2467, June 5, 2009, at http://www.heritage.org/Research/economy/wm2467.cfm. [10]Martin Feldstein, “Tax Increases Could Kill the Recovery,” The Wall Street Journal, May 13, 2009, at http://online.wsj.com/article/SB124217336075913063.html (May 13, 2009).

[11]J. D. Foster and William W. Beach, “Economic Recovery: How Best to End the Recession,” Heritage Foundation WebMemo No. 2191, January 7, 2009, at http://www.heritage.org/Research/Economy/wm2191.cfm.

I believe we will have a slight recovery perhaps late 2009 or early 2010.  However, baby boomers are begining to retire which will strain the economy substantially of this once great nation.   This will create room in employement but only slowly (65 year old engineer can’t be replaced by a 25 year old straight out of college) but in the interm earnings may come back to Wall Street as companies rightsize (downsize or whatever).   However,  I doubt hiring will come back nearly as quickly as I’d hope and often not at all as companies focus on increasing efficiency first.

So, unemployeement will remain high for some time.  Even if you trend out the slowness of the decline in job cuts it will take literally months for this number to flat line and probably years for it to stabalize.  Meanwhile, the government is propping up an already over leveraged society.  This is why we’re  experiencing deflation now capitalism is trying to deflate the over leveraged nature of the economy.    The government is trying to halt deflation.  They are saying capitalism is dead before they even let capitalism do what it is meant to do and deflate when a bubble has gotten to big.  This is a very dangerous policy as capitalism opperates based on human and social nature.  The government has said that what man/nature naturally does is dead and they are stepping in as the State to do what nature shouldn’t be allowed to do (deflate an over inflated bubble).   So instead of letting natural capitalism work and an overleveraged society (business, government, and persons) deflate the government is trying to get an already over spent society to spend. 

Unfortunately we may start spending again.   As we get use to the following three key things:

• The bad news
• Realize unemployment has slowed
• Realize those of us that haven’t lost our jobs are probably ok 

Then we will start to leverage up again.  When this happens WATCH OUT because the foundation has been laid for big time inflation.  Now, the inflation can’t come until the deflation stops and the deflation can’t stop until jobs stabalize  late 2009/2010 (my prediction).  When this happens we will still be at high unemployement with stagnated ecomony.  Inflation is going to hurt bad if it comes in late 2010 and then by 2011 we’ll be hit with another serious depression VERY serious in my estimation.  This is my prediction and there are others out their that I’ve read have made the same prediction so I feel I’m in good company. 

With a government that is already MASSIVELY over leveraged and and is printing money like crazy we might have some serious troubles.  This will be more likely the real financial armageddon.   Further it will be spured as baby boomers continue to massivley pull their money out of the stock market and place it in treasuries and other more secure places.   What is worse is that this does not bode well for liberty and freedom.  Pain and fear will continue to spur the oppressive regimes alreay strongly supporting our government. 

But there are even more concerns.

In recent months, senior Chinese officials have expressed concern that the U.S. financial crisis and efforts by policymakers to lower lending rates by flooding the system with cash would impair the value of its massive U.S. bond holdings.  ~MarketWatch

As people move to treasuries a strong bubble is taking place here.  Something that concerns China as our largest debt holder.  It is something that should concern us here too and baby boomers that move their monies here as well.   Without our ability to take out treasuries the government will be forced into a true monetary crisis due to the serious nature of our now HUGE need for debt to fund this government and the current State power grab.  This is part of the move why so many liberals strongly support the oppression and slavery of the successful working business class with taxes.  If they can enslave us like the Jew or Black man in the past these liberals like Obama will have somebody they can tax to force the stablization of the government.  This is when I fear that revolution will become dangerous.  An indicator of what is taking place is well documented in most financial media today.

Having cut their key rates to close to zero, the Bank of England, U.S. Federal Reserve and Bank of Japan are now buying bonds, essentially printing money to reflate their economies in a policy known as quantitative easing.

“It is clear now that the ECB has set its sights on boosting inflation,” said Brian Kelly, chief executive officer of Kanundrum Research, a commodities and macroeconomic research firm.

“The worry in the market is that central bank tools are notoriously blunt instruments,” he added. “The central banks are trying to write a book with a can of spray paint. Investors are flocking to the soundness of gold in anticipation of a messy manuscript.”

Gold is seen as the ultimate protection against inflation and a better store of wealth than paper money. ~MarketWatch

The rapid expansion of gold prices over the years and recently is an indicator of this.  The fact that gold prices have remained high in a deflationary cycle is a further indicator of the EXTREME level of expectation for inflation and economic difficulty.  Even when the mainstream media continues to be largely bullish dont be fooled.  Fact is bad news sells when it’s not about you but when it’s about the stockmarket that effects EVERYBODY it doesn’t sell.  It’s sort of a strange corallary.  Everybody likes to watch a car crash unless it is a car crashing into you or your car.

What is of big concern to me is the position our federal government is putting us in as they begin to strengthen and shore up the oppression of the successful business class of our society while they make fascist moves to control segments of our society.  Jean-Baptiste say coined the phrase “supply creates demand”.

Unfortunately this phrase is very misinterpreted. Say is not telling us that when you supply something that demand will arise and consume it. In the case of exploding toilet paper, what demand will exist? There will be none. What Say is telling us is that if you supply something, you now become a demander of all other products in an economy. Say is telling us that our consumption comes from our production; our ability to demand comes from our ability to supply. This phrase outlines the very fundamental nature of trade.

via “Long-Term Bear Markets, Say’s Law, and the Bailout Frenzy” by Travis Steward, FSU Editorial 05/01/2009.

Supply occurs when members of society produce something of value.   Because to produce something of VALUE (that being the key word) they demand other goods.  As the government takes over banks, autos, health care, energy and now disgustingly credit cards and says what society will create they risk forcing us to create something of lesser value or no value (when it’s government beaurcratic paperwork or tax paperwork).  For example, I surely wouldn’t buy a Fiat.  Or they will force loans to be made that don’t have value because of the customers inability to pay.  They’ll push green energy policies that create further bubbles like in Spain.  It is a dangerous path to walk down.  Not only is it dangerous they’re doing it in a dangerous method with absolutely grotesque spending. 

Meanwhile the government is stress test testing our banks which I wrote about previously.   We’ve already suffered a collapse nearly as bad as the Great Depression and the government is testing our banks to see how much worse they can handle.  Nearly half the banks faild this test and most raise further capital which is another way of saying sell their debt and convert it to equity.   Who is holding these big banks debt? The government.  Now the government get’s more stock in the bank as their debt is converted into equity (covert nationalization).    What ELSE does that mean?  Half the banks will fail if things get worse!  But think about what I documented about the stress tests.   They used a 25 to 1 stress liquidity ratio.  During the Great Depression the ratio was more like 12 to 1 and I think things could get worse this time around maybe even 8 or 6 to 1.    Therefore, they made the test twice as easy as the most severe situation in our history which we’ve almost already nearly repeated and are now struggling to recover from.  If inflation comes, if the job market hasn’t recovered, if treasury bubble burst (no more debt), who will bail out the still overleveraged banks, business and individuals of course nobody.  Then who will pay taxes, who will bailout a government with a popped treasury market?  However, not only will nobody be able to be bailed out when the treasury bubble bursts the government will need to be bailed out.   This will be done through further oppression then the current oppressive policies Obama is now taking.

With regard to the way the tax burden is distributed across income cohorts, it is increasingly concentrated on upper-income taxpayers. Federal statistics show that the top-earning 25 percent of income taxpayers paid 73 percent of all federal income taxes in 1980. By 1988, that percentage had increased to nearly 78 percent. By 2000, after the Clinton tax hike, it hit 84 percent. And by 2006, the last year for which the data has been compiled, the top 25 percent of income taxpayers shouldered just over 86 percent of the federal income tax burden.

And Obama doesn’t plan to ease that burden—or so one might infer from the next $1.4 trillion over 10 years tax increase that was included as part of the budget he sent to Capitol Hill. To put it another way, the Obama budget included $3.61 in tax increases for every dollar of so-called tax cuts.  ~ US News

The administration will strive to tighten rules that have encouraged thousands of Americans to open offshore bank accounts in an effort to duck U.S. taxes. The plan would increase information reporting and tax withholding as well as penalties, and make it harder for foreign account-holders to win cases in court. The administration promised new enforcement tools to crack down on tax-haven abuse.

“What we really have is a system that is in many ways broken,” a senior administration official said Sunday, one that “allows people to play games…to almost completely avoid paying taxes on active foreign earnings.”

What does this mean?  Well, basically Companies that operate in the U.S. and abroad will begin to be double taxed.  They will start to pay taxes in the country they opperate in plus U.S. taxes.  This will further destroy our competitiveness overseas as Companies and Individuals will pay taxes on their earnings overseas even if they choose not to repatriate the money.   As those at CATO so perfectly point out.

Furthermore, the Huffington Post points out, “Obama said that his plan would generate $210 billion in new taxes over 10 years.”  So much for tax cuts huh…  He’s really doing some serious tax increases.  The President will be working with the tax cheat Geithner, of course, to see this get’s done according to Henry Blodget.  Of course as those at Daily Finance point out as follows:

By adding the tax incentives to the program, the administration may find it easier to get this legislation through the Congress. But do expect major business opposition to water down the bill.

In other words the administration can raises taxes while some of the large companies buy off politicians and can rightfully continue to legally avoid oppressive taxes which therefore will further consolidate the current governments power grab from the American individual.

Peter A. Weinberg and Joseph R. Perella are part of a band of Wall Street renegades — “a small group of speculators,” President Obama called them Thursday — who helped bankrupt Chrysler.

That, anyway, is the Washington line.

In fact, Mr. Weinberg and Mr. Perella, with sparkling Wall Street pedigrees, are the epitome of white-shoe investment bankers. And their boutique investment bank, a latecomer to Chrysler, played only a small role in the slow-motion wreck of the Detroit carmaker.

But now the two men, along with a handful of other financiers, are being blamed for precipitating the bankruptcy of an American icon. As Chrysler’s fate hung in the balance Wednesday night, this group refused to bend to the Obama administration and accept steep losses on their investments while more junior investors, including the United Automobile Workers union, were offered favorable terms.

In a rare flash of anger, the president scolded the group Thursday as Chrysler, its options exhausted, filed for bankruptcy protection. “I don’t stand with those who held out when everyone else is making sacrifices,” Mr. Obama said.

via The Lenders Obama Decided to Blame – CNBC.com.

It’s not Obama’s place to dictate what companies get in return when a company is bankrupt.  This is the purpose of a bankruptcy court.  We are a nation of laws and President Obama, a lawyer, should know better!  He’s to busy being a bully to those “evil” hedge funds and lenders that invested in Chrysler in the first place.  (Even if they are our mutual funds, retirement pensions and more in the end Obama just has to have somebody to bully.)

• Spend trillions (9.3 trillion and counting)
• Expand TARP
• Continue Bush’s spending programs
• Lead a pork laden government program and spending bill and call it a Economic Recovery Bill
• Spend more money in the standard OMB spending bill
• Raise taxes on American’s (But lie and say, “They were tax cuts.”)
• Show America’s fealty to a Muslim king
• Act weak on Korea’s missile program
• Join the Hugo Chavez book club
• Apologize to Europe for America’s bad behavior while failing to get European support for Afghanistan
• Call succesful people lucky
• Have horrible troubles getting a cabinet with resignations and the such
• Give bad gifts to foreign dignitaries
• Appoint an idiot Treasury Secretary who is in fact a documented tax cheat
• Pretend that capitalism is to blame for the economic bubble instead of saying it like it is; when it is human greed and government incentive
• Snub his nose at our top allies
• Allow the Department of Homeland Security to label Right-Wing people and vets as potential violent terrorist that should be monitored
• Fire CEO’s in private corporations in line with Fascist economic principles
• Attempt to overload the US & Russian relationship
• Promote abortion globally by using tax dollars to expand abortion in the US and internationally
• Release CIA and military interrogation methods further empowering our enemies
• Bailout poorly run states and locals
• Pretend that our interrogations methods are torture
• Sign blatently Unconstitutional bills of attainder
• Pretend that torture is always wrong
• Slow down military spending
• Act like he is going to prosecute those that ok’d approved torture methods to politicize our military and intelligence gathering industrial complex
• Allow the military to shoot a few pirates
• Spend more money funding illegal immigrants and call it economic stimulus

Well, his first 100 days are now behind us.  What lays in store? More spending, more tax increases, more bad leadership, more erosion of American strength, etc. 

He will also continue to talk and talk, while lying through his teeth, (with the aid of his teleprompter) knowing that the majority of American’s will get their news in sound blurbs and never take the time, like I have, to look at his policies.  Therefore, his approval rate will remain high as we head down this wide path and through the wide gate.  What of Obama’s policies do you like? Which ones do you dislike?  Anything to add?

This is what you voted for it’s time to own it!  You may like these policies or you may dislike these policies; but we as a nation have to own them.

Abuse is rampant in the collection of fraudulent income tax refunds from the IRS, especially by illegal immigrants — according to a new report to be released by the Social Contract Press on April 14.

Hat tip to the Talk Master.