US Wealth Taxes: Once again, Congress wants to go back in time to steal your money

By the early 13th century, beset by endless wars with France, internal rebellion among the royal family, and a costly fight with the Church, England was heavily in debt and running out of funds.

To bring in some quick cash, King John demanded that his nobles pay a much heftier tax rate. And if they didn’t, he threatened to seize their lands.

But in 1215 the barons reached their breaking point. Fed up with the king’s demands, they marched their combined armies to London, took over the city, and forced King John to sign a groundbreaking document which laid out strict rules for the king to follow.

This document came to be known as the Magna Carta.

And even though it only applied to landed nobles at the time, the contract still marks a huge step forward for individual freedom.

One of the important innovations of the Magna Carta is that it enshrined ye olde due process so land owners could not be deprived of their property without a fair trial.

It also specified what happened to their property when they died.

Inheritance taxes, or ‘death taxes’ were one of the specific issues the barons raised in the Magna Carta.

Since all land belonged to the Crown, the King routinely collected a painful tax whenever property passed to an heir upon a nobleman’s death.

Quite often these death taxes were extremely high, so the barons sought to limit this tax in the Magna Carta:

“If any earl, baron, or other person that holds lands directly of the Crown, for military service, shall die… the heir or heirs of an earl shall pay £100 for the entire earl’s barony…”

This passage essentially fixed an inheritance tax of £100, worth a little over £200,000 (about $275,000) today.

That’s pretty low tax rate considering many of these barons’ estates typically included several castles, farms, and huuuge tracts of land worth tens of millions of dollars in today’s money.

So it’s quite ironic that the barons’ revamped, medieval death tax is actually much more attractive than what Congress is now considering.

The proposed legislation is called the “Sensible Taxation and Equity Promotion” Act of 2021, or STEP for short. Wonderful! Another catchy acronym for yet another destructive law.

This one takes aim at the estate tax, and it is filled with stupidities.

Based on current US federal estate tax law, if someone dies today, his/her assets are exempt from federal tax estate tax up to $11.2 million, or $22.4 million for a couple.

That’s a hefty exemption that covers more than 99.9% of the population.

But I’ve written about this before— most recently back in a February article in which I wrote, “estate and inheritance taxes remain a perennial favorite of bankrupt governments who are in need of cash.”

I’ve often suggested that estate tax rates would increase, exemption levels would fall, and they’d come up with all sorts of other stupid ways to steal people’s wealth.

That’s pretty much what this bill does.

If it passes, the value of a newly deceased person’s estate will be valued at Fair Market Value.

Then, any unrealized capital gains would be taxed based on that person’s original cost basis (so no more ‘step up in basis’).

Essentially they’re treating you as if, on the day that you died, you sold all of your assets and had to pay capital gains tax.

But they’ve dropped the exemption all the way down to $1 million.

Just about every asset is included, ranging from real estate to a small family business. They even specifically included collectibles like art, gold, and rare coins.

So imagine someone passes away who owns a small business. The business has promise, but had a tough time last year from Covid.

The business is deemed to be worth $2.5 million. That’s $1.5 million in excess of the exemption, which means that the heirs essentially have to pay capital gains tax on that $1.5 million… roughly $300,000… even though the business is struggling and has limited funds.

This could really put people in a jam.

But the government doesn’t care. To them, it’s all about fairness.

An even bigger isue in this bill is that it would eliminate many estate planning strategies involving trusts.

Currently, you can transfer shares of a small business, cryptocurrency, or real estate into a trust, which can then grow free of estate tax.

But this bill would subject certain transfers into trusts to immediate unrealized capital gains taxes.

They even want to make this rule RETROACTIVE to January 1st of this year, meaning they’re willing to go back in time to steal your money.

Now, this particular legislation may not pass.

But it’s pretty obvious that what I’ve been writing about is going to come true: they want your money, and they’re going to keep coming up with destructive ways to grab it.

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