Taxes are the ultimate self-interest
But forget the economic theories, and instead consider the very personal impact proposed new taxes could have on your life and that of your children.
—The estate tax: Currently inheritances over $11.7 million (including the value of gifts made over your lifetime) are taxed at a rate that very quickly rises to 40% on amounts above that limit. (Note: Spouses can pass an unlimited amount to each other, and many states levy an additional form of inheritance tax.) Current proposals include lowering that exemption to $3.5 million.
Now, consider the totality of your “estate.” It includes your home, your retirement accounts, the value of any family business or farm — and even the face value of your life insurance if you own it! With the stock market at record highs, along with home prices, lower limits could put many families at risk of owing death taxes.
—The step-up basis: Currently when you die, your heirs inherit your stocks (outside a retirement plan) and your home, and the value of any other assets such as a farm or business, with a new cost basis as of the date of your death. Any gains when they sell those assets in the future are currently taxed with the value on the date of death as a starting point.
Proposals to remove the step-up basis mean that the home you or your parents purchased for $75,000 in 1973, will retain that cost basis when you sell it for $1 million! Similar impacts come from stocks purchased years ago. And they’re pushing those capital gains tax rates higher, too!
—A wealth tax: Review the history of the income tax. “Wealth” is in the eye of the beholder — and the hands of the lawmaker!
America has always been a beacon of opportunity for those who wanted to make money. Along the way, they have created jobs and opportunities for millions of others. Before you decide to impact those incentives, consider the real cost for yourself and your children. That’s the Savage Truth.
(Terry Savage is a registered investment adviser and the author of four best-selling books, including “The Savage Truth on Money.” Terry responds to questions on her blog at TerrySavage.com.)
©2021 Terry Savage. Distributed by Tribune Content Agency, LLC.