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These kinds of lies simply have to stop. Exaggerations and out right lies about what Obamacare, non-existent tax changes, and other such things are "going to do" (note that it's never about things that have already happened, because it never does) are part of what's holding back our recovery and growth. How does any responsible business owner who hears these things feel confident enough to invest in hiring people and buying equipment?
Last night I ran into one of the worst examples of fear-mongering and exaggeration in politics that I've seen in a long time. I was blind sided while I was having a discussion with someone I like and respect a great deal, but who happens to have a different political viewpoint than mine. He's a successful small business owner in the manufacturing sector trying to keep afloat and keep his employees in a very difficult economy. He's nobody's fool, and that's why I was so surprised to be caught by an issue he brought up that I hadn't heard a thing about. I couldn't argue with what he was saying because I had no information at all -- no idea where it was coming from. He'd been told about changes to the estate tax put in place to pay for Obamacare that would make it virtually impossible for him to pass his business on to his family if he died because it would be immediately subject to a new 55% estate tax, as well as a state tax. When combined, they'd leave virtually nothing left.
The only thing I knew for sure, was that whatever he was talking about had nothing whatsoever to do with the ACA (Obamacare). Where the rest of the information was coming from, I had no idea. I decided to do some research this morning, and it took me a little while to find some credible sources of information. This is because there is no new law here. Behind most of the high spin scare tactics lies some grain of truth that's been exaggerated out of all context and proportion -- and that was the case here.
What is really behind what he heard is just another tangent on the argument over extending the Bush tax of 2001 or allowing it to expire as it was written to do. Along with income taxes, a drastically reduced estate rate was put into law in 2001 by Republicans (who controlled the Senate and Presidency at the time) as part of the "Economic Growth Tax Relief Reconciliation Act of 2001" ( the actual bill ). This was a compromise, because they couldn't get the 60 votes in the senate to repeal the estate tax entirely. This law, passed under Bush in 2001, was set to AUTOMATICALLY EXPIRE in 2010. It was extended by 2 years at that time and is now set to expire.
So what we're talking about is a tax cut law passed by the Republican party in 2001 that was to expire in 2010, and has already been extended once. While this law has been in effect the actual deficit, corrected for inflation has grown from 133 billion dollars, peaking at 1.88 trillion dollars in September 2008, and is now at 1.22 trillion dollars. While the deficit has dropped over the last 4 years, the Debt has not -- because even as we reduce we're just adding less to the amount we owe on the debt, not actually reducing it so the debt goes up and will keep going up unless we can get to NEGATIVE deficits.
Once I realized where this was coming from, I was able to find some credible sources. Here's much of the information I forwarded to him:
Key points of the changes to the Estate law from what I can tell are:
Forbes tends to be a pretty conservative source (so much so that I don't usually care for it) but it was the first source I found for any information. The article is pretty good, and talks about why above the threshold for the maximum estate tax rate there are a variety of exemption options not available to most people. (See the Forbes article). * Generally speaking, the estate tax returns to what it was in 2000, but with a higher level of exemption. This is an increase, but not a historic one, it simply returns to the rates that were in effect prior to Bush and will only effect estates above $3M.
1. Under federal estate tax law for 2011 and 2012, most of the wealthiest 1% of American households are not subject to estate tax liability. This is because of the large estate tax exemption, presently at $5.12 million per spouse. This means that with nominal planning households worth less than $10.24 million could avoid the estate tax.
2. In 2013. Generally, taxable estates over $1 million will be subject to estate tax, and the maximum marginal tax rate of 55% will begin at $3 million.
3. Taxable assets under $3 million are NOT subject to the 55% rate.
4. In the case of a business, it is the net saleable value of the business that is used for the calculation. I have no idea what the market sale value of [his business] is but unless it's over $3 Million dollars, [he is] not subject to this tax rate. Since most business above that rate are incorporated, he would only be passing along the value of his shares of the corporation. If he held 51% of the shares, the business would have be have a net saleable value of $6 million or more before it would take effect.
5. The 55% rate is the same as it was prior to 2001, but it will have almost twice the exemption now as it did then. Here's a great chart showing the changes to the estate tax amounts over time.
6. Due to the options available to the wealthy (those above the 5 million dollar net value point) the reality is that that even with the increased margins the actual taxes paid end up being far lower as a percent value of the estate than even most upper middle class families. (See the Forbes article)
As far as the tie in with the ACA (Obamacare)
1. The first thing I can tell you with 100% certainty is that this bill has absolutely nothing at all to do with the ACA (Obamacare). They are entirely separate pieces of legislation, and no part of the estate tax is considered in the determination made by the CBO that the ACA is in fact budget neutral.
2. The CBO also reports that the Republican bill to repeal the ACA (H.R. 6079) would INCREASE the deficit by $109 Billion between 2013 and 2022. The Republicans have passed this bill 30 times, to make the point that they don't like the ACA. It has cost hundreds of thousands of dollars to pass this bill 30 times. I think they've made their point now. Here is the actual document from the CBO to Rep. John Boehner on 7/24/2012.
We can definitely still have room to argue about the ACA and it's impact on business
source: Wall Street Journal
Here are some facts about the ACA costs to small business from the Wall Street Journal:
Another great source is this PDF from the Kaiser Foundation that the WSJ considers source material:
1. If you have under 50 full time employees, there are no penalties for not providing health insurance.
2. Tax CREDITS actually INCREASE for businesses under 50 full time employees starting in 2014 who provide insurance.
3. If you have more than 50 full time employees, the maximum penalty is $2000 for each full time employee starting at the 31st. This is still less than 1/4 the cost of providing insurance.
4. Part time employees do count -- sort of. For example, 2 half time employees would be the equivalent of 1 full time, HOWEVER, the penalties only apply to full time employees, so in practice a business with 25 full time and 50 part time employees would still have no penalty for no providing insurance.
5. 92% of businesses with 51-100 employees already offer insurance which qualifies under ACA and no change would be required. (97% of businesses with more than 101 workers).
6. Small businesses with existing plans are grandfathered, and are NOT required to change those plans even if they do not cover some of the required benefits.
If you want additional facts from a reliable source about how the ACA will REALLY impact the consumer side (which I didn't touch on), here's a link.
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