From: nealg@cray.com (Neal Gaarder)
Subject: Re: Change in law re: inheritance tax?
Organization: Cray Research, Inc.
Date: 12 Nov 92 10:50:38 CST

In article <1427800051@igc.apc.org> McAldon International Inc. <mcaldon@igc.apc.org> writes:
>
>|Does anyone know about a proposed change to reduce the
>|estate tax "deduction" from $600,000 to $200,000?
>|I've heard that the bill will go to Clinton the first
>|of January and that the only question is when the new
>|law will become effective (the date of signing or the
>|date out of committee). 
>|Anyway, this is what I've heard from a broker. Can
>|anyone confirm and give me details?
>|Ann Bishop
>
>This is a rumor or possibly a trial balloon to test attitudes. Nothing
>by anybody in a position to affect tax laws has been mentioned.  Some
>advisors have been spouting the dubious wisdom of utilizing the
>lifetime credit of $600,000 now, before the law is changed, without
>realizing that the credit may not be grandfathered in if the law is
>modified.  It has also been rumored that the $10,000/person exemption
>might be altered and this is one that should be utilized if appropriate
>if you are worried, since it would not be affected retroactively.  There
>would be great resistance to gutting the $600,000 credit provision by
>small business people and farmers, whom it was mainly designed to 
>protect.  If it were to be changed downwards, life insurance companies
>selling key-man insurance would benefit greatly.  I would also expect
>to see a surge in incorporations.  DMcKenzie
>
>|    mcaldon@igc.org     | Opinions dispensed herein not guaranteed |
>|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
>

It was part of a Democratic long-term health and nursing care bill 
for about three weeks and has been replaced by a call for $45 
billion of unspecified "broad-based taxes" in that bill.  Quoting 
an editorial in the November 2, 1992, Wall Street Journal:

"Last April, the Democratic leadership, led by Richard Gephardt and
George Mitchell, introduced two companion bills to provide long-term
health and nursing home care for all Americans. Buried in the Senate
bill was a section outlining the new taxes that would pay for it. No
doubt it's coincidence that the new taxes came to $45 billion."

"The most controversial item would reduce the current estate tax 
exemption from $600,000 to $200,000. That's the smae level at which
Governor Clinton's promised higher income tax rates would begin.
Today only 3% of Americans pay any estate taxes.  But lowering the
threshold to $200,000 would mean an estate consisting of 
the health care bill submitted in April by the Democratic leadership
contained 235 lines detailing the tax increases totalling $45 billion.
After three weeks the 235 lines were replaced by a call for 'broad-based
taxes'.  But lowering the threshold to $200,000 would mean an estate
consisting of little more than a house and a life insurance policy
could be taxable.  A $400,000 middle-class estate would be hit with
$67,000 in new taxes. An estate worth $600,000 would pay $138,000. A
Democratic drafter of the bill told the San Diego Union that he put
in higher estate taxes because "if we have helped people with their
long-term care, it is only fair to tax them when they die.

"Other health-care-driven taxes laid out in the Democratic wish list
included an increase of 1% in the payroll tax on all wages over $5,000
a year, a new 2.5% tax on unearned income that would even include
interest from state and local municipal bonds.

"The Democratic leadership soon blinked.  Three weeks after
introducing the bill they announced it was 'an incorrect version.'
They substituted a new bill that dropped the 235 lines detailing the
tax increases, and replaced them with 13 lines of boilerplate calling
for 'broad-based taxes.'  Everyone expects the bill to return next
year.

"A spokeswoman for Bill Clinton says 'he doesn't support higher 
inheritance taxes or taxes on the middle class.' But she declined to
say he would veto a long-term-care bill that included such financing
mechanisms.  The issue here is whether a President Clinton would veto
a bill pushed by the entire Democratic leadership and all of the
party's interest groups.  One out would be to pull a Clinton by
claiming he opposed the taxes 'in principle,' but not enough to scrap
the entire bill.

"The Governor has been promising that only incomes 'over $200,000'
would face higher taxes.  But if that were suddenly redefined to 
mean aggregate wealth instead of income, many Americans who never
thought of themselves as rich might find themselves sending much of
their inheritance to Congress."


This is more than a trial balloon, because a Clinton health care bill 
will be proposed.   A bill may be ready to sign, but the means for
paying for it are no longer spelled out.


Neal Gaarder
Newsgroups: misc.taxes