Those who die between now and the end of the year will be permitted to transfer $5.12 million to their heirs tax free. However, those that die in 2013 will only be permitted to transfer $1.0 Million to their heirs (Source: Treasury Department).
I must tell you that I hate the death tax, and so do most farmers. The value of a property large enough to produce crops and revenue to sustain a family of 4 is likely to have an asset value of $5 Million. As a result, when the patriarch of a farming family dies, the family is forced to sell the farm or part of the farm to pay for the taxes. This tax is an epidemic that tears away at the family fabric of our nation.
This not only happens to farmers, but it happens to small business owners across America. Families have to sell the corner store that has been in their family for generations to pay the taxes. These small businesses do not have cash, they have an asset value. The only other choice that a family may have would be to take out a loan on the business to cover the tax. This is nearly impossible with today's banking standards where a small business is only likely to get a credit line of 10% to 20% of the total asset value. In other words, the loan value of the asset is less than the death tax amount.
The death tax erodes family financial stability in America.
There is a commercial on TV by an insurance company whose tag line is "What's your number?" It begs the question, "How much do you need to retire?" This is a really important question for every household. Today, the working class is paying for healthcare and living assistance for 100 Million Americans that are poor, disabled or retired. The cost is $2.2 Trillion per year. Out total receipts from taxes for 2012 is expected to be $2.4 Trillion. By the way - the nation pays $200B to service interest on our national debt - so before the Federal Government pays for anything beyond entitlements, it is out of money. (Here is a post that summarizes this.)
In my mind, the death tax is the most unfair tax we have. It strips away generations of family savings and destroys small family businesses.
Clearly, taxes need to be raised in America. But that is not all. We need to solve deficit spending by working on two fronts: raising revenue and cutting expenses. We need politicians that have the guts to cut entitlements - Medicare, Medicaid, Social Security ($2.5 Trillion). The rest of the Federal Budget is only $1.3 Trillion (Safety and Defense, Federal Employees, Federal School Funds, etc). In the grim eye of this reality, I do not believe that the threshold from inheritance should be moved from $5 million to $1 million because of the destruction to farmers and small business owners. This is a tax on money that has already been taxed, and that is the worst type.