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Comment by dcchambers | Hacker News Reader

When seeing it written out like this is simple math, this tax change seems absolutely insane. It would mean some (many?) small businesses will face tax bills that are far higher than any actual cash they have on hand. How did anyone ever think this was a good idea?

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It is insane.

If they don’t fix it a lot of companies (and their owners) are going to go bankrupt.

Only those where CFOs are incompetent. And the owner is not responsible for the company’s debt, usually.

Nope. CFOs are beholden to law as are others.

What could've been done differently with a "competent" CFO?

This is a topic I know very little about but doesn't this type of "absolutely insane" thing happen to other small businesses due to estate taxes too?

For example:

    - Your uncle owns a farm for the last 50 years
    - Over the 50 years the farm's land value has risen to $1,000,000
    - The farm itself only generates $20,000 a year in profit which is spent on living expenses
    - Your uncle has no savings
    - Your uncle dies
    - A 40% federal estate tax is applied onto the farm's current value from your uncle's death (state taxes might also be added)
    - Whoever owns the farm is now responsible for coming up with $400,000+ or you're forced to sell the farm to cover the tax bill

I might be butchering this so please correct me if I'm wrong but this feels like a system that helps larger companies because it prevents a smaller business being able to exist multiple generations.

Assuming your uncle was single and not able to leverage the double estate tax exemption for married couples, the $1,000,000 farm value is only $11.92 million short of the threshold at which estate tax would start to apply, and only to the amount above the threshold, at an initial marginal rate of 18%. It only reaches a marginal rate of 40% on the amount more than $1 million over the exemption threshold.

If, instead of being $1 million, the farm (assuming it was the whole of the estate) was worth $13.92 million, the actual estate tax would be $345,800. Assuming the same ratio of annual profit to value in your hypothetical, the annual profit would be $278,400; so if you had no other assets to pay the tax, you’d probably need to borrow against the profits, but that shouldn’t be too hard given their magnitude.

> Federal estate tax is due if an estate's value exceeds the estate tax exemption amount, which is $12.92 million for deaths in 2023

The numbers are much, much larger than a simple $1m family farm.

Also, remember, that cap is a exemption from the value. If you have a farm worth $14m, you will have to pay approximately $400,000 in estate tax (NOT 5.6 million like you would naively calculate). At that point, if the farm doesn't generate (effectively) any revenue, and it's not mortgageable or you can't secure a personal loan, it's probably best for everyone that it be sold. You certainly wouldn't be able to e.g. pay property tax on a property that size.

The estate tax is the most widely misrepresented thing in the tax code. It's designed to prevent multimillionaires and billionaires from passing down their entire fortune to the next generation intact. It almost never affects anyone but the top 0.5% wealthiest people in the country, and only then if they do absolutely no estate planning whatsoever.

If this is true then the system is clearly made to funnel these lands into the hands of the ruling oligarchs.

Fortunately it's mostly not true.

Thomas Jefferson argued strenuously for the estate tax and for inheritances (without a will) to be divided evenly among the children. In Europe the law of primogeniture put inheritances in the hands of the firstborn male which guaranteed that a dynasty could always be preserved! Ick!

Fortunately he has passed away and can no longer argue this idea with the hagiographic veil of authority.

> it prevents a smaller business being able to exist multiple generations.

In addition to what everyone else says, if you have a multi-generational business the owner should be bringing their child(ren) in as executives and part owners of the business. The estate tax would only apply to the part of the business the original owner still owned at their death, not the part of the business owned by the child(ren).

It was written to fuck over smaller companies. That was the point of it.

Written by whom? What was the original bill?

If it wasn't done by accident, then it was likely lobbied for by bigger tech companies that are already profitable. They stand to benefit the most from this kind of legislation by destroying all the small competition, and by being able to buy them up for cheap.

Answered upthread: https://news.ycombinator.com/item?id=35615264

Republicans. As always they are the enemy.

https://www.nytimes.com/2017/12/19/us/politics/tax-bill-vote...

"the most sweeping rewrite of the tax code in decades"

The amortization change was a deliberate part of the 2017 tax cut. One of the express purposes of the tax changes was to raise taxes on liberals, and I guess they figured that companies that take the R&D credit are run by liberals.

Is the IRS willing to let companies make payments of the tax over years? Would would the IRS want to put companies out of business?

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