Part 7: Stuff you need to know, now that you know everything about investing (cont.)
George died recently. Love him or hate him, everyone can agree on one thing. He was rich. Lucky he died in 2010. Congress forgot to do anything about the estate tax this year.
I won’t bore you with the history or the politics surrounding the estate tax. But the bottom line is that it ran out this year and Congress forgot to do something about that. So George’s sons don’t owe any estate tax to the federal government (states apply their own taxes). The good old US of A lost about $500 million on this one death. On the one hand I’m reading about how we forced Goldman Sachs to pay a settlement of $500 million, of which a lot of that goes to foreign banks. Congress sees this as a big win. Seems like a loss to me. Goldman pays some corporations $500 million, USA loses $500 million on one guy because Congress forgot about the state tax.
What exactly is Congress doing? They spent a lot of time on healthcare reform. They also yelled at BP a lot. These types of actions help Congressmen get re-elected. They even yelled at oil companies who are not named BP to make sure we all know they’re on the job.
What other really important national issues is Congress working on? Chuck Schumer, a NY senator who never saw a sound bite he didn’t like, has written a nasty letter to Steve Jobs about something or other concerning iPhone 4 customers. I’m sure all the other Senators and Congressmen are spending their time on equally important national issues.
Here’s a short column about the estate tax situation. Estate Tax 2010
What’s really happening? I think (and this is a big stretch) that the Democrats, who hate large estates, are purposely ducking the issue this year. If they do nothing, the tax will come back with a vengeance in 2011. The exemption threshold in 2011 is $1,000,000 compared to a threshold of $3.5 million in 2009. The federal tax rate is 55% in 2011 rather than 45% in 2009. This is a winning scenario for the Democrats.
On the other hand, I think the Republicans are happy not to do anything this year. They probably have a plan to force the Democrats in 2011 to increase the estate tax exemption amount and the estate tax rate to something close to the 2009 levels. It’s all politics, my friends.
I guess we’ll have to wait until 2011 to see what develops. In the meantime, George’s sons are probably extremely happy that they don’t have to sell Derek Jeter and A-Rod to pay the taxes on their father’s estate.
What do I think? I’m glad you asked.
I think that if someone struggles all his or her life to amass a fortune, he should be able to protect some of it for the kids. How much? I don’t know. It shouldn’t be so much that all his descendants for twenty generations can live rich, indolent lives.
On the other hand, if someone amasses a fortune during his lifetime, you don’t want to confiscate all of it when he dies. Because then nobody will be willing to do the hard work necessary to earn a fortune. Take my word for it. We need people who are willing to sweat and strain in an effort to get rich. (Exception: Hedge Fund Managers. We don’t need any of them. They don’t add any value to society.) People who strive to get rich are good for the economy, the country, and the world. So you have to find a balance when you decide on an inheritance tax. Take enough from the dead person’s estate so all the descendants for 300 years can’t live like kings. But don’t take too much, or nobody will bother trying to get rich.
I’m looking forward to watching the estate tax debate in 2011. In the meantime, if you have parents with a lot of bucks, encourage them to die before January 1.