President Trump and his kowtowing Congressional Republicans have threatened to repeal the federal estate tax, again. Most recently attempted under President George W. Bush, the estate tax bounced back in 2011 because it was expected to significantly increase the federal budget deficit beyond ten years; the Byrd Rule. If Trump signs a repeal, it will have the same ten year boomerang provision.
CIVILIZATION AND TAXES
The concept of a tax upon the transfer of untaxed wealth has survived since ancient Egyptian times. For over 100 years, the IRS has been empowered to collect the modern day estate tax. Because the tax addresses the end of life transfer of wealth and people don’t usually plan on dying within ten years, it is generally agreed that the tax should not be tampered with too often. Constantly changing the estate tax makes it very difficult to do estate planning.
Estate planning is a complex topic. The tax is comprised of various parts. There is a tax on the value of appreciated assets in the estate. There is a parallel tax on gifts given during a persons’ lifetime. Then there is a tax on transfers of wealth that skip generations. The various parts have to be coordinated or unified to prevent abuse. As complex as it is, today’s estate tax regime works very well to capture taxes that have never been paid.
THE KLEPTOCRATIC OLIGARCHY
For Trump, the estate tax works too well. The rich, powerful and greedy elite who have hijacked our government would have us believe that smaller government is better government. Yet, from executive orders that are personally enriching himself and his loyal followers to the grossly warped Republican party proposing to throw 22 million Americans off health insurance; Trump is creating a world in which extremely rich, conspiracy driven elites are consolidating power at the expense of those of us in the 99 percent who pay taxes.
Nationally, there is over $17 billion dollars per year at stake. That amount of money pays for more than a few government programs. In Hawaii, the IRS 2015 data tables show that we contribute over $23 million federal dollars to the estate tax pot of money. All our contribution would be lost if Trump were to repeal the federal estate tax.
A SIMPLE IDEA
Earlier this year, California’s Senator Scott Wiener (D-San Francisco) proposed legislation (Senate Bill 726) to redirect his state’s $4.5 billion federal estate tax contribution back to his home state. Wiener has an uphill battle against a 1980’s, voter-passed, anti-tax initiative. But his idea is simple.
If Trump repeals the Federal Estate Tax, states should recoup those federally earmarked dollars for their own use.
Here in Hawaii, this simple idea could occur with a simple legislative fix.
In 2015, Hawaii had 47 estates with over $457 million dollars potentially subject to federal estate tax. After allowable deductions, only 21 estates actually paid the estate tax. Keep in mind, these 21 estates represent 2 of every 1,000 people who died in Hawaii in 2015. They were the richest people on our islands. They benefited most from the capitalist-democratic-republic in which they earned and accumulated their wealth. They accumulated hundreds of millions of dollars upon which no tax was ever paid in their lifetimes. This is not the Tutu you knew.
I have nothing against rich people. We all seek to accumulate wealth, to have a healthy retirement and to leave some money for our children when we are gone. Most of us pay tax on the money we accumulate. Sometimes that money goes without tax, such as IRAs, pensions, the appreciation of a home bought 40 years ago, and stocks that were bought for a dollar but can now be sold for $100 or even $1,000 per share.
But more often, between payroll tax, income tax and myriad other consumer taxes, our tax rates are likely to eat away close to 40% of our income. For those Hawaiians who had to pay tax on their accumulated wealth, they paid $23 million on a total of nearly $460 million, most of which had never before been taxed. Their effective tax rate: about 5%.
PAYING OUR DUES
For those of us lucky enough to accumulate some wealth, our federal tax code already provides deductions of nearly $5.5 million (in 2017) to each individual to transfer to our children tax-free upon our death. Couples can double that number. For those of us in the bottom 99%, we pay tax on nearly all of our income. It’s only fair that a small tax comes due for people who have never paid tax. That’s what the estate tax is all about.
The current federal estate tax code is a reasonable balance between a simple tax and a fair tax. Repealing the estate tax would create giant loopholes for the super-wealthy to accumulate more wealth and pay even less tax. All you have to do is realize that Trump is at the helm of this ship. Any repeal of the estate tax will be neither simple nor fair.
Chapters 236D and 236E of the Hawaii Revised Statutes apply to Estate and Transfer Taxes. In general, the Hawaii taxable estate is tied to the value of the federal taxable estate. Should the Trump administration succeed in passing a repeal of the federal estate tax laws, Hawaii will no longer have a basis to compute tax on an estate.
You know that monthly siren you hear at 11:45am once per month? It’s not 11:45am and that alarm is not stopping!
In the event the U.S. Congress passes legislation repealing federal estate taxes, the State of Hawaii should adopt, in full and in addition to HRS §§236D & 236E, all provisions of the Internal Revenue Code of 1986, 26 USC Subtitle B as existed before any repeal of such law.
It should be the intent of this new Hawaii Revised Statute to continue the federal estate, transfer and generation-skipping transfer tax laws explicitly to benefit the State of Hawaii. The new law should, as closely as possible, reflect the rules and regulations of the Internal Revenue Code as of the date of its repeal.
Hawaii residents will not incur a tax increase from this small, preemptive legislation. Rather, we will protect Hawaiian revenue with a replacement of the repealed federal estate tax. The mirror image State estate tax will accrue to the benefit of all Hawaiians for needs here on our islands such as healthcare, housing, education and transportation.
WHEN YOU’RE DEAD, YOU DON’T GET TAXED
Finally, no one pays a “death tax.” In the re-write, both federal and state laws should be purged to dispell the false and politically partisan myth of a death tax. It is an affront to every individual, alive or dead, to perpetuate the notion that a tax is levied upon one’s death. In every instance where a death tax is referenced, such tax should be properly named for the estate, inheritance, legacy, or succession taxes that are actually levied.
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