Beware doomsday taxes of the zombie apocalypse
The clock is ticking down to disaster, we are told by many reliable sources. References to January's "fiscal cliff" — caused by scheduled increases in taxes and cuts in government spending have billowed into lurid warnings of financial catastrophe, Armageddon, Taxmageddom, a death spiral, and we're not exaggerating, even a zombie apocalypse. The U.S. Chamber of Commerce has a countdown clock ticking off the seconds until the nation arrives at the edge of the cliff: Despite all the publicity, Congress has done nothing to prevent the economy from toppling into another recession. Their schedule of lawmaking sessions is not the work calendar of a group worried about catastrophe. The U.S. House is taking a month off for the political conventions. Representatives re-convene Sept. 10, and then take a few days off for Rosh Hashanah. They work a few more days, then slack off a week for Yom Kippur, which blends with a week off for Labor Day.The House returns to work for a week, takes two weeks off for Columbus Day, then two weeks off for Halloween, and eight more days off for Election Day. Representatives return on Nov. 13. They work four days, then take six days off for Thanksgiving, work eight days, take a four-day weekend for Hanukkah, work four days and take the rest of December off for Christmas. A number of factors are in play beyond next year's tax and spending policies. Public debt is growing, and Europe is on the verge of falling apart financially. Congress can't easily fix everything, but there are many, many things it could fix in the few weeks it plans to work this fall. Just consider one, the inheritance tax. It symbolizes much of what's wrong in Washington. Democrats and Republicans can't agree on a sensible policy for how to tax big inheritances. Consider a parent on the verge of leaving an adult child a savings account worth $3 million. The doctor says elderly father could die before Christmas but might live until February. This year the financial difference in time of death is huge. The daughter plans to use the money to buy a building and start a business. Her plan will work fine under existing tax law. If her father dies before Jan. 1, the estate has a $5 million tax exemption, beyond which the inheritance would be taxed at 35 percent. Under present law, she will owe no tax. Next year, unless Congress changes the law, the estate tax exemption falls to $1 million and the rate goes up to 55 percent. The daughter would be taxed on $2 million and owe $1.1 million in inheritance tax. The tax rate is even higher than it appears. Remember, the father already paid income tax on all the money he earned and then saved. And he has paid taxes on his gains. The total rate is outrageous and would be even more painful if the inheritance were a business worth $3 million. The daughter would either have to sell it or borrow $1.1 million. Assume the $3 million inheritance is in the form of a successful company with a profit rate of 5 percent, or $150,000 a year. Not counting interest on the loan, she would have to work for absolutely nothing for more than seven years just to pay off Uncle Sam. This is a disgraceful policy. It and a long list of similar uncertainties already are hurting the nation's economy and dampening entrepreneurial spirit. Crippling cuts loom for the military. Fears of total disaster in January we hope are overblown. Even a zombie-filled Congress should at least be able to agree to extend its own deadlines. Shouldn't it?
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