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Personal
Snapshots - FORECASTS & STRATEGIES - July
2000
A
Tax by Any Other Name
by Mark Skousen
"Do
they realize that every measure leading to capital
decumulation jeopardizes their prosperity?" -- Ludwig
von Mises
A tax by any other name....
Whether you call it an estate tax, an inheritance tax or a
death tax, it's all the same -- a tax on capital!
Capital is the lifeblood of the economy. It builds and maintains
our roads, buildings, bridges, water systems and other infrastructure.
It educates our youth and trains
our workers. It finances inventions and new technology. In
short, capital is the engine of economic growth and makes
possible a higher standard of living for all of us. In his
1920 best-seller The Economic Consequences of
the
Peace, the economist John
Maynard Keynes hoped to see the day when capital would be
"allowed to grow in the geometrical proportion predicted
by Malthus of population," resulting in an economic nirvana,
with no "overwork, overcrowding, and underfeeding."
Keynes's book warned about one of the greatest threats to
capital formation-world war. But today the biggest threat
to capital formation and economic growth is taxes, particularly
estate taxes and capital gains taxes. Politicians call them
"death" taxes and "profit" taxes, but these taxes
have the same effect. They systematically reduce the pool
of investment capital in the world, the seeds of economic
progress. In 1999, the federal estate tax removed over $30
billion from the capital investment pool of this nation, and
the capital gains tax removed over $100 billion-money sent
to Washington that will never return to the private sector
to be invested. What a tragedy!
I
laud the House of Representatives for taking the "revolutionary"
step of eliminating the federal estate-tax. But while one hand
giveth, the other taketh away. The House also added to their
"radical" bill a provision that would actually do worse-tax
the gains on all inherited assets at the time of death! Under
current law, heirs don't have to pay taxes on capital gains
of stocks and other assets inherited from a deceased loved one.
They automatically receive a "stepped up" basis on all
stocks, bonds, etc.But under the new law, that "stepped
up" basis is eliminated.
So even under the new bill-if it ever becomes law-estate planning
won't go away. Lawyers and accountants don't have to worry
about seeking added work. They will be busy finding ways to
get around the new rules that confiscate capital upon death.
My favorite strategy for avoiding the various capital/estate/wealth
taxes is to quietly, privately and legally transfer assets
to your heirs. In small amounts, this
means investing in gold and silver coins, artworks and other
collectibles, all of which can be easily given away. For larger
estates, the best strategy involves trusts and foundations.
As Larry Abraham says, "There's never been a tax law without
legal loopholes."
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