Many people that I’ve talked with lately are more optimistic than I am about the possibility of a last minute “deal” to delay Taxmageddon, at least as it pertains to the estate tax. Simply put, they write off any likelihood that the exemption could fall from $5 million per person to $1 million per person. They contend that even if nothing is done this year, a Republican sweep of the House, Senate, and Presidential races may result in the elimination of the estate tax altogether in 2013!
Before people start planning their end zone dance, they should consider what is happening across the nation with online retailer Amazon. More and more states will be collecting sales tax from Amazon in the coming years. See the attached link http://finance.yahoo.com/news/get-ready-to-pay-sales-tax-on-amazon.html. What is noteworthy here is that states like Texas, Virginia, and New Jersey are joining in on all the fun and will begin to collect sales tax in the near future. All of these states have conservative Republican Governors (and one presidential candidate) who ran their campaigns promising their constituents that they would not raise taxes. Why are these so called conservative states doing this? The answer is simple, they need the money. States across the fruited plain are struggling to keep their budgets in the black. Meanwhile the federal budget is an absolute disaster.
Consider the recent commentary by Peter Schiff, author of The Real Crash and one of the few Wall Street guys who accurately predicted the 2008 subprime meltdown: “The current national debt is about $16 trillion (this is just the funded portion. … The unfunded liabilities of the Treasury are much, much larger). The only reason the United States is able to service this staggering level of debt is that the currently low interest rate on government debt (now below 2 per cent) keeps debt service payments to a relatively manageable $300 billion per year.”
Schiff continues: “If the sheer enormity of the red ink were to finally worry our creditors, 5 percent interest rates could quickly rise to 10. At those rates, the annual cost to pay the interest on the national debt could equal all federal tax revenues combined. If that occurs we will have to either slash federal spending across the board (including cuts to politically sensitive entitlements), raise taxes significantly on the poor and middle class (as well as the rich), default on the debt, or hit everyone with the sustained impact of high inflation. Now that’s a real fiscal cliff!”
In other words, we are in deep, deep, deep trouble. The nation is broke and given the current fiscal situation, it is unlikely that those in charge after the 2012 election, regardless of party affiliation, are going to do away with or significantly reduce the estate tax from where it stands today. This is especially true with the estate tax because by and large it is considered a tax that only the “wealthy” pay. The good news is that there is still time to act. Transfers made before 2012 will escape this nightmare scenario. It is time to get busy.