Some voters say they will move to Canada if Trump is elected. Others say they will move if Clinton is elected. People who say they will leave may not be serious, and even if they are, they probably mean a temporary visit. A few Hollywood stars could make a statement, but they will still have to file their IRS Form 1040 every year with the IRS. Unless you renounce U.S. citizenship, you must still report worldwide income to the IRS. And taxes are big this election year.
In fact, some people now claim that even those in the ‘Never Trump’ camp could rethink their positions in light of taxes. Trump sure seems to think so. Donald Trump wants to repeal the estate tax, while Hillary Clinton wants to increase it from 40% to an astounding 65%. Hillary is appealing to Bernie supporters, which seems smart. But the likelihood that most people will face this estate tax rate (even if Congress cooperates and changes the law) is remote. Current law exempts estates worth up to $5.45 million from tax.
Beyond that, you pay 40%. Ms. Clinton previously called for whittling the $5.45 million figure down to $3.5 million, and increasing the 40% tax rate to 45%. But those were modest hikes, and that was then. Now she has proposed 50%, 55%, and 65% rates. The 50% rate applies to estates worth over $10 million per person, 55% for estates over $50 million, and 65% for estates exceeding $500 million. The new proposed estate tax plan makes her prior 40% to 45% hike seem inconsequential.
Realistically, we will probably still have an estate tax for years, and probably with the $5.45 million exemption. Yet there is a good chance the tax could go up and the exemption could go down. As Hillary Clinton proposed in the past, the Sensible Estate Tax Act of 2016 would slash the estate tax exemption to $3.5 million and raise the tax rate to 45%, as detailed here. President Obama also proposed no basis step up on death, hoping to raise approximately $200 billion over the next decade. The President’s simpler and fairer tax code is detailed here.
When combined with state estate taxes, the President’s proposal would yield the highest estate tax rate in the world. Stephen Moore of the Heritage Foundation calculated that by eliminating basis step up, we would end up with the world’s highest estate tax rate. If you add in state inheritance taxes, the combined tax rate could go as high as 68%. This seems to fit in nicely with Hillary Clinton’s proposed 50% to 65% tax.
Trump wants to repeal it entirely. Call it an estate tax, a death tax, or a tax on accumulated wealth. Whatever you call it, it is entirely distinct from income tax. You pay income tax as you earn, but whatever you have left might be taxed on death, again. The idea is to stop dynasties that operate with a kind of royal attitude and bankbook. But does it work, and should it work on top of income taxes?
Most estate planning lawyers will say that the really big estates can find ways around many rules to at least materially reduce their impact. Yet planning to avoid the estate tax is expensive, and requires years of planning. The estate tax succeeds at catching many people unaware. It can be a hardship to family companies and family farms. And in that sense, Hillary Clinton may have hurt herself with her high rate proposals, even if few wealthy people are likely to be impacted.
For alerts to future tax articles, email me at Wood@WoodLLP.com. This article is not legal advice.
via The Tax Lawyer http://ift.tt/2dlUfgx