What is the Estate Tax?

The estate tax is tax that is levied on the transfer of the taxable portion of a deceased person’s estate.  It is levied on the estate as a whole, and is not dependent upon portions given to different individuals.

One of the items that is being negotiated for the current tax cut package is the estate tax.  It’s one of those hot button issues that everyone gets up in arms about, along with abortion and gay marriage.

The thing is, the estate tax doesn’t affect the majority of tax payers.  In 2000 only 2% of estates were levied estate taxes.  In 2010 there was no estate tax. If the proposed changes are approved, the estate tax won’t kick in until $5 million.  If nothing is done, estate taxes come back into play starting at $1 million and with a top rate of 55%.

Why are people against Estate Taxes?

It’s a double tax

This is true.  But then again, so is property tax and sales tax.  You pay for those with money that you earned and already paid income tax on.

It punishes success

Why should you work hard just to give your hard earned dollars to the government?

Why are people for Estate taxes?

It helps prevent a perpetuation of wealth

Wealth that is transferred from generation to generation with no tax just grows and grows, consolidating the wealth of the nation into a  smaller and smaller group.  We see this happening already.  90% of the wealth of the nation is held by 10% of the population.  The estate tax helps (in some small way) slow this down.

It prevents the lack of incentive to work

If someone just handed you a boatload of money, why would you bother to do anything? Why work or innovate?

Something that I ran into while reading about estate taxes are what is known as death elasticity.  This would be lengthening or shortening your life based upon the current estate tax laws.  Would you consider giving up treatments and dying during the current tax year if it would mean your survivors would keep more of the inheritance?  Pretty Morbid.

The median inheritance is $60,000 currently.  It isn’t going to be taxed.  So why do so many people get upset by it?  Do you?

For some reason, this grabbed me in a similar way to the story last year about the health care executive (not a CEO or President, just an executive) who had paid $18 million for the largest yacht ever built, but it was sitting half completed at a bankrupt shipyard.  I had a hard time feeling any empathy.

Yes, she is going to be saddled with that debt for a long time.  Yes, the interest rate is higher than that for a mortgage, but with a mortgage, you have collateral.  What are you going to put up to back a student loan?  And while $300,000 is a lot of money, how much is the house she is going to buy to live in, as a doctor, going to cost?  It seems a matter of scale, a scale that most people in middle America are not going to deal with and maybe since I don’t have any sort of connection, I can’t relate to her situation.

If you don’t want to pay interest on that amount, there are several things you can do, like, say, not borrow.  Plus, she will not have to pay more than 15% of her income towards the loan, and there is talk of lowering that down to 10%.  I think she is going to survive.

NPR — Cost Of Medical School Rises In Recession

Oh, and I adjusted my withholdings again this year.  We’ll see how good my figurin’ and cipherin’ is once again.

So my resolution for March is to post to this blog more.  Which, considering one post in 14 months, shouldn’t be too time consuming!

Well, we got a letter from the bank yesterday saying that the Mastercard Fraud Department had notified them that we were included in a suspected data breach involving card numbers and cardholders names (just like what was stolen from Heartland.)  So we will be issued new cards and have the old ones cancelled.

What a pain.  Now I have to go and figure out what automatic payments are done with that card so I’ll be ready to change them, not to mention the worry that our account will be suddenly empty.  There doesn’t seem to be a way to find out where it was that I used the card that it could have happened, either, so I spend time going over in my mind where I used the card, like that little diner where I stopped for lunch while working away from the office (heartland does CC processing for lots of small restaurants.)  I could kick myself for not having my envelopes with me.

StorefrontBacktalk » Blog Archive » Heartland Breach Hit At Its Unencrypted Point.

There are a couple changes from Rich’s: regular milk instead of organic; I don’t think I have ever even seen organic milk around these parts. The other is I left off the steak. Aldi does not carry steak (at least here,) and we buy all of our meat a half a cow at a time, to save money.

The majority of these prices have stayed the same the last couple of months, according to my unscientific memory.  Most of these items we buy at Aldi, which is obviously cheaper.  No one in the family can tell the difference between the Aldi milk and the “name brand” milk.  We also haven’t bought bacon in a while because we were able to purchase a ten pound box of “irregular” bacon pieces very cheaply.  All bacon looks irregular to me, so it suited me and my frugal ways just fine.

I’ll keep updating these prices so I can see where they are going also.

The part I most enjoyed were the graphs the boys made to track their progress compared to their plan.  I find that the act of writing something down by hand really helps to cement it into my mind, even if I never go back and look at it again.  My hand drawn graph isn’t nearly as nice as those in the film, but I don’t have an art department, either.

The rest of the tips in the film are great, too, about delaying gratification, buying quality, and perseverance.  I strongly suggest you go watch it, and read the post: Your Thrift Habits: Money Tips from 1948 ∞ Get Rich Slowly.

National Average 2007

MSN Money had an article yesterday on how to save $10,000 in 2009.  The article didn’t interest me much (the suggestions are either impractical for us, or we’ve already done them,) but the pie chart of the average spending by familes in 2007 caught my eye.  I decided to make my own pie chart for last years spending and to compare them:

What we earn

• We fall more or less into the Average pretax income.
• Our household size is 5, double the national average.
• We own three cars, though only drive two currently.

What we spend on

Our spending for 2008

• Food at home surprised me:  I figured it would be almost double the average, but we spend almost three times the average!
• Dining out: We were close to the national average, which I guess is ok with double the household members.
• Housing: We are about 75% of the national average, but our housing prices are low in this area, and we bought a fixer upper.
• Transportation: Our costs are about 25% more than the average, but I think I can explain that:  we bought two used cars this past year, and the skyrocketing fuel prices this past year (compared to 2007.)  I also commute 120 miles a day, but this is still cheaper than if we moved closer to my job.
• Health:  We must be pretty healthy, because we don’t spend half the average.
• Entertainment: I wasn’t sure what all to throw in here, so I used our actual entertainment spending (not quite $600) and things like satellite TV, which brought it up close to the average.
• Insurance/Pensions:  we were about 50%, but we are not currently contributing to my 401K until we get out of debt, though a small amount goes into a pension fund for my wife.
• Other: I sort of swagged this one and came up with an number about the average.  Their amounts don’t add up to the total income, and I really didn’t know what to add in here.

So I guess, on the average, we are average, with the exception of our food costs.  Some of it can be attributed to rising costs, but it still seems high.  I’m hoping we can cut back on this by growing more things in our garden this year, and dieting (so I can lose the twenty pounds I resolved in 2009.)  We already buy most of our groceries at Aldi, and don’t buy a lot of pre-packaged foods, so I’m wondering where else we can cut.

How does your spending stack up to the national average?

How to save $10,000 in 2009 – MSN Money.

But here is an image for you: “Think of the bank as the DMV of the future, run by government employees who have little upward mobility,” says Mr. Kaytes.

And I agree with loosening up some lending standards due to pressure to achieve social objectives; but don’t open the flood gates, which unfortunately is what would likely happen.  The government always seems to achieve mediocrity without moderation.  Then again, wouldn’t that be better than the lending free for all we just had that got us into this mess?

The part that really irritates me about this whole banking siuation is that the only people who comprehend these exotic instruments enough to unwind them, are the people who created them.  So they are still valuable.

What to Do When a Bank Collapses – WSJ.com.