As I said at the end of my last post, this would be “ripped from the headlines” refrencing the recent Supreme Court hearings concerning California’s Proposition 8 and the Defense of Marriage Act, or DOMA. For the time being, let’s try and get past the social implications of the recent Supreme Court hearings concerning gay marriage. I know the social issues are great ones and cannot be ignored; however, if we can look past those for the time being, these court proceedings can have significant implications referencing the Federal Tax Laws, the “Laws”, when it comes to Inheritance or Estate Taxes.
As I stated in my post of Sunday, 03/31/2013, the Federal Tax Laws have grown to 71,684 pages as of the end of 2010, BEFORE the Patient Protection and Affordable Care Act, also-known-as ObamaCare. Depending on when you feel the Tax Laws actually began, 1862 or 1913, it took Congress 1,144 or 83 years to grow the Tax Laws from Zero to 16,845 pages by the end of 2006. At the end of 2010, the Tax Laws had grown to 71,684 pages, expanding by 54,839 pages in just four (4) years. Doing the math (that’s what us accountants do), the Tax Laws grew by .56 pages per day from 1913 to 2006 (83*365=30,295; 16,845/30,295=.556). From 2006 to 2010, they grew by 37.56 pages per day (4*365=1,460; 54,839/1,460=37.561). Does anyone still question the increased rate of regulation in the recent past, and this just refrences the Tax Laws, befor ObamaCare?!? Anyway, the “Laws” cover a quandry of issues; the one I will be referencing here is the Inheritance or Estate Tax.
Congress ratified the first Inheritance Tax in the Act of 1862. There isn’t any way to know what our forfathers were thinknig at the time; however, I believe it would be a safe bet to think their intent was to tax something that wasn’t taxed before. Maybe they were thinknig of residents that brought assets over from England to the new country “free”, so-to-speak; ‘it hasn’t been taxed here yet, so why not tax it now’? Regardless of when or where the assets materialized, someone somewhere had to generate income to give birth to those assets and then put a lot of hard work and possibly more income into growing those assets. In reality, unless the new citizen brought the assets over from England or earned the income from the sale of “goods” (distilled spirits, tobacco, carriages, etc.), then possibly the income that began the growth of these assets in the new country went untaxed until ratification of the 16th Amendment to the Constitution in 1913, when “income” was first taxed; however, that is a very small window in the vast personal wealth in this country, in my opinion. In essence, the Inheritance Tax is a secondary tax on income that has already been taxed, along the same lines of the taxation of Corporate Dividends, taxed as income to the corporation and then taxed again as Dividend Income to the corporate stockholder, but this is another subject for another post.
Now, for anyone that isn’t aware of this, the Inheritance Tax birthed another cadre of code in the Laws: “gifting”. A Gift Tax is a graduated tax assessed against an individual who gives either money or an asset to another individual without receiving a fair compensation in return. This section of the Laws isn’t that old; Congress first limited the giver’s ability to circumvent the Inheritance or Estate Tax in 1976. The amount of each gift is completely tax-free to the recipient and can be tax-free to the giver, up to certain limitations. At the end of 2012, Americans were permitted to gift up to $13,000 without triggering a tax, or $26,000 for married couples filing jointly. Under the 2013 adjusments, this allowance increased to $14,000 or $28,000 for joint filers, with a Lifetime Gifting Limit of $1 Million Dollars. These gifting laws and the increases over the years may benefit business owners who utilize these laws as a succession strategy for passing assets to company associates or relatives. All of this is important, and I don’t mean to try and minimalize it; however, the point that relates to the Supreme Court’s hearings on Proposition 8 and DOMA is there are no exclusion limits given to a spouse on gifts: i.e.: a “spouse” can give to its “spouse” without limit, unless either “spouse” is not a citizen of America. Frankly, whatever led Congress to make a distinction between “married” and “single” folks is a good question, but that is exactly what Congress did when it ratified these provisions (recently “divisiveness” has seemed to become a new art form; however, it appears it began in this country’s politics long before our current President). Now do my followers understand the importance of the Supreme Court’s hearings on Proposition 8 and DOMA, along with the social implications? I am nowhere near an expert in this area, and research will find in IRS.gov/Business/Small-Business-&-Self-Employed/Frequently-Asked-Questions-on-Gift-Taxes, the IRS making it clear: “The laws on Estate and Gift Taxes are considered to be some of the most complicated in the Internal Revenue Code. For further guidance, we strongly recommend that you visit with an estate tax practitioner (Attorney or CPA) who has considerable experience in this field” (emphasis added). So much for the everyday person to be able to do what’s best for themselves when it comes to the Tax Laws!
In essence, our government has been looking for ways to grow tax receipts through the items that may be taxed or the rates that are assessed against these items since 1862, and as I said in my Sunday post, taxation is a necessary evil in order for the government to be able to pay for the services it renders; however, wouldn’t my followers agree that if the government didn’t spend so much money, or controlled its expenditures in a more reasonable manner, it might not need to perpetually be looking for more tax revenue? What about, as I highlighted in my post of Sunday, 03/31/2013, growing employment to grow the tax base, as happened after the end of WWII? Now my followers might ask: “What about paying for significant, unforseen circumstances”, such as the War of 1812, which gave birth to the country’s first taxes, the Civil War, WW’s I & II, etc.? My solution would be a “temporary” tax to support those needs; however, we all know nothing relating to taxes is ever “temporary” in our country, so that might not be viable, thus I refer back to controlling expenses, growing employment and possibly running surpluses to set aside “rainy day funds”. President Obama might not have been all wrong when he said, a couple weeks back, “we don’t have a spending problem in this country”; in fact, we just might have a “management” problem in this country.
For any of my followers that are interested concerning the bike and my “training”, I am nearing the end of my last week on the trainer, the infamous “road to nowhere”. As of Sunday, 04/07/2013, I will be back on-the-road, enjoying the input of many other facets besides the bike and gearing; i.e.: wind, slope, road conditions, etc. … OH YEAH!
My next post for Friday, 04/05: Assets & Taxation. See you then!