Sunday, January 02, 2011

Most Dishonest Headline of 2011

So far: New Estate Tax Law Exposes 65,000 Small Businesses and Farms to Estate Tax

Now, when you go to the original article, you see that when the author says exposes or makes "susceptible to", he means the number of estates that would pay the tax if everyone with a big estate died in the same year. That's not going to happen. That's like saying that that current U.S. health care exposes 310 million Americans to death because everybody will die eventually. Technically true, but not helpful.

He then claims that "8,500 households will owe estate taxes in 2011", a much smaller but still dodgy number.

In 2007, 14,700 households paid estate tax..

Estates must file tax returns within nine months of the decedent’s death and taxable estates usually wait as long as possible before filing. Thus, most returns filed in 2007 were for people dying in 2006 when the estate tax exemption was $2 million.

In 2009, when the exemption had risen to $3.5 million, it was estimated that 5,500 tax units paid the estate tax.

Given that the exemption will rise to $5 million in 2011, 8,500 households seems implausibly high.

Next, he estimates that "up to 22,000 farms, 14,000 real estate partnerships and 29,000 privately held corporations will be susceptible to the tax in 2011"

And this is nonsense. For example, he is apparently taking the number of estate tax returns that paid tax, looking at the share that had, for example, some real estate partnership assets, and applying that ratio to 2011 to calculate the "up to" number.

The obvious problem is that the math only works if partnerships have no more than one partner, and corporations only have one shareholder. Which sort of defeats the purpose of having partnerships and corporations.

And the idea that family farms have an average of one owner seems only slightly less stupid.

But that's not all. Privately held corporation = small business? I don't think so. George Steinbrenner seems to have died a billionaire. His assets were in an LLC rather than a publicly traded corporation, but that didn't make it a small business.

We see from this table that out 5,500 estates taxable at the $3.5 million exemption level, 2,6000 have some farm or business assets, but only 380 of them have farm or business assets equal to half or more of the estate. The remainder would include people like George W. Bush and Al Gore, who have some farm and business assets as a sideline, but are mostly invested elsewhere. They could both afford to invest more in their business or farm and still have ample liquid assets to pay their estate tax when necessary, but they choose not too, perhaps because diversification and liquidity are attractive.

Of the 380 taxable estates with mostly business or farm assets, 150 have more than $20 million in assets, and an average of $62 million. Few of these would meet most American's idea of a small business.

1 comment:

Anonymous said...

Even a single household subject to an estate tax is too many.