Tags: Tax | foundation | estate | income

It Makes Sense to Repeal Estate Tax and Tax-Free Status of Foundations

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Tuesday, 21 Apr 2015 08:01 AM Current | Bio | Archive

There is nothing about the estate tax that provides any benefit to those struggling in this economy. Quite the contrary. The estate tax is a major impediment to small and medium-sized businesses — the ones that are the real employment engines for the country.

The federal estate tax is a net revenue loser to the government. The only reason it still exists is that it is used as a populist political weapon by those pretending they are against the rich.

The truth is that even politicians who claim to be for the downtrodden still get their campaign contributions from the reviled so-called rich or from their alter ego — their income tax exempt foundations.

There have been four estate taxes enacted in U.S. history. All were enacted for the same reason — to pay off war bonds. The first three worked as intended and were repealed when the war debt was paid.

The current estate tax was passed to pay the debts of World War I. Those war bonds have long since been paid, but the estate tax took on a life of its own. It became the poster child for politicians to claim that their opponents who wanted to repeal the estate tax were just doing it to benefit the rich.

The lawyers, accountants, insurance agents, publishers, conference organizers and a whole host of others in the death industry who feed off the estate tax system are more than happy to continue exploiting the system.

The rich can afford estate tax prevention specialists and the intricate strategies necessary to reduce to zero their exposure to estate taxes. At the same time they can also afford income tax prevention specialists who can structure into the strategy the benefit of a major income tax break to boot. The rich can do both and never lose their ability to exploit control of their wealth forever — ad infinitum.

You see, they set up a foundation. The Clintons have one, as does Bill Gates, Warren Buffett, George Soros and virtually every other wealthy person in this country. All because of the interplay between the federal estate tax and income tax.

With an approved foundation they get an income tax deduction for the so-called charitable, educational or scientific contribution, yet the income on the investments in the foundation are exempt from income tax. And, in addition, for generations to come those assets are never subject to estate tax.

Yet, since the same people still control the foundation, they still control and exploit the assets. The only things that changed are that for tax purposes they no longer have to pay tax and they can operate effectively off the accountability radar, so to speak.

There are some lessons that can be drawn from this situation.

The estate tax is strictly avoidable by the rich even though it is a business and estate killer for the middle class. And, besides, there are no World War I bonds to pay off anyway.

On the other hand, a lot of taxes could be raised by getting rid of the income tax exemption for all these foundations.

If rich people decide that they want to give away millions because they don't need the money, then why should all the middle-class taxpayers pay extra income tax because the foundations that are earning millions upon millions of dollars in annual income off their investments are income tax exempt?

Why should rich people complain that earnings on the investment of money they don't want and gave away is going to be taxed?

If the rich want to support some special charitable, educational or scientific purpose, then why should the middle-class taxpayers, who have nothing to do with this decision, be effectively forced to kick-back the amount of income tax that would have otherwise been paid to the government?

It seems to me that what makes sense and would actually be beneficial to the country is that both the federal estate tax and the income tax exemption of foundations be repealed. 

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Kleinfeld
There is nothing about the estate tax that provides any benefit to those struggling in this economy. Quite the contrary. The estate tax is a major impediment to small and medium-sized businesses — the ones that are the real employment engines for the country.
Tax, foundation, estate, income
664
2015-01-21
Tuesday, 21 Apr 2015 08:01 AM
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