Fiscal Cliff Imposed Tax Tightening Benefits Large Estates, Disappoints Middle Class

In the waning weeks before the dreaded fiscal cliff was due to wreak its vengeance, thousands of large estate holders rushed to their estate planners to set up separate spousal trusts, expedited next generation gift-giving, or use whatever lifetime gifts were legally allowed. This, before the axe was expected to fall with confiscatory estate taxes on New Year’s Day. Those estate holders who did nothing turned out to be the winners. To everyone’s surprise, the last minute Senate/House deal on estates turned out to be generous for all but the tiny fraction of super-large estate holders.

With a $5 million exclusion for marriage partners, subject to annual inflation indexing for the first time ever, the future permanent estate issue for small business owners and farmers seemed to have been put to rest. Even the 40% tax payment for the residual value seemed not to elicit complaints.

But no such joy has been expressed by either marriage partners above the $450,000 adjusted income tax level, or even the 98% plus that are taxed in the lower brackets. In the final stages of “deal-cutting,” deductions and exemptions above the $300,000 level were severely abrogated, in addition to that pesky 3.8% Obamacare tax, tacked on to IRS filers above the $450,000 joint family income level.

Even the expectant “middle class,” which expected to escape scot-free from the upward revision of the Bush era tax cut will see a return to the 2% additional social security withholding tax, which had been abrogated two years ago.

While capping the restrictions of adjusted incomes in excess of $300,000 will capture additional taxpayers, especially hundreds of thousands of small business owners using personal income reporting through Subchapter S or C corporations, the latest tax agreement will also have an adverse impact on the independent business sector, which hires two-thirds of America’s potential job applicants. There will not only be a lull in hiring and expansion, but a greater dependence on job replacement technology and inventory restraint.

With a new confrontation brewing over the debt ceiling and spending cuts, the New Year’s eve showdown looks like only the dress rehearsal before the next major brouhaha.

For future easy access to my blogs, please use the link below, and bookmark it to your desktop. The old link you may be using is still available. However, an alternate link is:

http://mydesert.com/beschloss