Lives Ruined…by a Tax Cut?
It’s an interesting, if macabre, phenomenon: large swings in tax rates can influence peoples’ behavior, even to the point of choosing to die early. It’s not the cut that causes this so much as it’s the end of the cut and the increased rates that brings.
A good example of this has to do with the Estate Tax. It was repealed for 2010, meaning that anyone who died that year wouldn’t have to pay taxes from their estate. This led to a rash of rather suspect deaths, most notably that of Yankees’ majority owner George Steinbrenner III. Due to his death that July, the Yankees passed to his beneficiaries tax-free. If he had died any other year, they would have been forced to sell the team simply to pay the estate tax. Convenient, right? Too convenient, according to some. But no estate tax is no estate tax, and the IRS could only watch in envy as opportunity walked on by in her diamond-studded dress.
This begs the question, though: What about the next few months? If the Bush Tax Cuts, among some others, expire on December 31st, what will the effects be? In a rather tepid economy that hasn’t seen true recovery for years, plenty of people continue to struggle just to pay the bills and put food on the table. A sudden increase in rates could force them over the edge.
On top of that, capital gains rates will rise back up to 20% for long term investments and dividends will be taxed at taxpayers’ ordinary income tax rate. There will be consequences in the stock market in response to those changes, and they’re likely to be less than pleasant for most portfolios.
Of course, the government might (yet again) pull a rabbit out of the hat at the last second. I try not to make value judgments on politics here, but I will say this: I don’t know about you, but I’m tired of being played with like that by either party. I’d rather see a real solution.
So what will people do in response to the changes? I’m far from qualified to point to anything with absolute knowledge, but my guess is that we’ll see, to some degree: foreclosures, bankruptcies, decreased investing, and maybe even additional unemployment as small business owners get socked with higher taxes.
What’s your take?
Thanks for reading,