Here's what millionaires have to say about
estate taxes.
Whether they made $10 million by running their own
businesses or they inherited their millions, one topic that interests
every wealthy American is the federal estate tax.
It's a topic that we as wealth advisers talk about
with nearly every client, and we do a good deal of reading on
the subject.
Recently we came across a survey on the subject.
We'll hit some of the highlights in this column and if you want
a copy of the full report just e-mail us and we'll be happy to
send it to you.
What makes this report so interesting is that the
authors actually surveyed nearly 500 multimillionaires and analyzed
the opinions of different segments of the millionaire population.
For example, the survey found that those who earned
their wealth were more likely than those who inherited their wealth
to support reforming the inheritance tax rather than repealing
it.
The research divided the wealthy into several groups
and found very different opinions. The report split those surveyed
based on total net worth (64 had estates exceeding $20 million
and 138 had estates between $10 million to $20 million).
It also looked at the opinions of those who made
their own fortunes, those who inherited their money, those who
want the federal estate tax repealed and those who want it reformed.
Among tax issues, the estate tax is a high priority
among the wealthy. Of a list of six alternatives to estate tax
reform, only one – reducing federal income taxes –
was considered more important than estate tax reform.
Of those surveyed, 78 percent said income tax reform
was more important, 47 percent said fixing the alternative minimum
tax was more important and 38 percent said increasing school funding
was more important.
But here too, differences were noteworthy based
on wealth: 98 percent of those with less than $10 million thought
cutting federal income taxes was more important, while just 27
percent of those with more than $20 million thought income tax
reduction was more important.
Almost half of those surveyed thought the wealthy
should bear a larger share of the tax burden. About 40 percent
said the wealthy owe the government for living in a society where
wealth is possible.
As for the consequences of change, two-thirds thought
reform or repeal would increase the federal budget deficit, 20
percent said either would increase economic growth, and a bit
under 20 percent thought it would lead to other taxes or fees.
Just 3 percent of millionaires considered the estate
tax a disincentive to hard work and saving – a finding that
seems to refute one of the primary arguments used by advocates
of repeal.
Some of the most interesting differences in the
survey were between self-made millionaires and those who inherited
wealth. For example, among the wealthiest, the inheritors were
the only segment to say the tax code was tilted in their favor.
Three quarters said the affluent should bear a larger
portion of the tax burden and just over three quarters thought
the wealthy owed the government for living in a society where
wealth is possible.
In addition to the survey results, the report discusses
the fascinating political history of the estate tax beginning
in 1797, when a tax was levied on wills to help pay for the country's
naval war with France.
The tax ebbed and flowed until three years ago,
when major changes were made under the Economic Growth and Tax
Relief Reconciliation Act of 2001. Under that law, the exemption
level has been rising and the tax rate has been declining.
Those reforms set the stage for the current debate
in Congress and across the country about repeal versus reform
of the estate tax. Anybody interested in that debate should read
this report.
If you'd like to read the full survey and analysis,
email us at EstateTax@PillarOnline.com
and we'll send you a PDF copy of "The Estate Tax and the
Affluent: A Look at the Impact of the Federal Estate Tax on Those
Most Likely to Pay It," by Prince, Grove and Bavelas.
Christopher G. Snyder and Haitham "Hutch"
E. Ashoo are principals of Pillar Financial Services in Walnut
Creek. Contact them at 925-356-6780.
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