11/20/2022 0 Comments Government takeover![]() ![]() Since 1974, there has been virtually no inflation-adjusted increase in federal estate and gift tax revenues. Estate and gift taxes account for just a little more than one percent of total federal government receipts. The generation-skipping tax is levied at an additional flat rate of 55 percent on amounts in excess of $1 million.Īs is always the case when government pushes tax rates higher, the taxed economic activity dwindles, and actual tax revenues fail to meet the expectations of government bureaucrats. In addition, a generation-skipping tax is imposed on gifts and bequests to grandchildren. ![]() (The first $600,000 is exempt from taxation.) The gift tax is levied at the same rates as the estate tax, excluding $10,000 per recipient annually. ![]() It is important to understand that this is not 55 percent of income, it is 55 percent of all assets. Rather, business owners possess every incentive to sell their family businesses before death to spare their heirs the costs and burdens of hostile estate taxes.įederal estate tax rates range effectively from 37 percent to 55 percent, plus an additional 5 percent on very large estates. With as much as 60 percent of a business enterprise essentially slated for a government takeover, there remains little incentive for individuals to continue to invest and expand a family business when the owner reaches a certain age. Heavy estate taxation also acts as a disincentive for investment and entrepreneurship, just as onerous income and capital gains taxes do. Perhaps most damaging is that under the estate tax, the government strips a company of much-needed capital at the worst possible juncture-under a change of ownership and oversight. Sixty percent of family-owned businesses fail to make it to the second generation, and 90 percent do not make it to the third generation. Often, estate taxes wind up killing family-owned businesses. Buying insurance to cover the costs of taxation is a clear indication of a tax system gone awry. If estate-tax insurance is purchased, it means that resources have been diverted away from productive, market-driven endeavors. Insurance is not cheap, however, and remains out of reach for many individuals working hard to keep their businesses afloat. Indeed, people even purchase life insurance for the sole purpose of paying estate taxes. ![]() Legions of accountants explore creative ways to shield assets from death taxes. To fend off such government takeovers, family-business owners channel large amounts of resources into relatively unproductive endeavors in a struggle to pass the business on to the next generation. And a primary target for government raiders under the guise of the estate tax are family businesses. After working hard, paying taxes, and building a business over a lifetime, an individual faces the prospect of steep estate taxes-a government hostile takeover, if you will. These takeovers are an integral, healthy aspect of capitalism’s ongoing creative destruction.īut there is another kind of hostile takeover that is distinctly anti-free enterprise in nature and worthy of harsh criticism: the federal estate tax, along with the gift and generation-skipping taxes. In reality, of course, hostile takeovers are a source of dynamism in a free enterprise system-often removing moribund, inefficient management, and finding ways to add value and increase production. Worries about corporate instability, excessive debt, and job losses mount when an individual or firm attempts to seize the reins of a corporation against the wishes of current management. In the history of modern-day capitalism, there have been occasional misplaced concerns regarding corporate raids or hostile takeovers. ![]()
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