Who gets taxed by the estate tax?
In his recent blog post ‘Conceder in Chief?’ from Dec. 31 — see the Update, Paul Krugman bemoans the deal that’s been made on the estate tax, which reportedly keeps the exemption amount the same, at $5 million, and raises the rate from 35 percent to 40 percent.
According to Krugman, the problem with the estate tax “is apparently with the Senate; there are, unfortunately, some heartland Dem Senators who are extremely solicitous of the handful of super-wealthy families in their states, so that Obama’s people don’t think they can get a majority for higher taxes here. It’s bizarre . . ..”
Without a change, the estate tax was due to revert to its old exemption amount, $1 million, and its old rate, 55 percent. A lot of the people who can get hit with an estate tax are farmers, because they own a lot of land. If the estate tax exemption amount had reverted back to $1 million, that would capture a great many families, most of whom would not be ‘super wealthy.’ Some of them might just be scraping by.
Think about it. If a farmer owns 500 acres of land, and it’s valued at $5,000 an acre, that equals $2.5 million. If the exemption amount is only $1 million and the rate is 55 percent, then the inheritors of the land would get hit with an $825,000 tax bill on the land alone.
One could argue that if the land is worth that much, then the land owners are wealthy and should have to pay a substantial tax on it. But if so, would it also be okay for the landowner, often a farmer, to sell the land to the highest bidder? But most farmers would probably like to keep farming their land, or have one or more of their kids take over. Farm land is not just a cash equivalent, it’s a legacy.
This is one answer to Paul Krugman’s quandary.