The Mis-Estate

In 1955, one little store opened in my town.  As all single stores start, it began as a family owned business.  It expanded to 2, 5, 10, kept grown slowly and remained a private company.

Slowly over the years, they got a bit bigger, not skyrocketing like the big box stores, that wasn't their style. It remained a private company.

When some other companies expanded quickly across the nation, ladening themselves with debt during the great economic times, the "local" company grew more slowly, they resisted the urge to make a quick buck.

It stayed a family owned business up until 3 years ago when they went public. That one single store has grown to over 250, starting to take over more and more across the nation in their industry. Several of the national chains went out of business during these hard economic times. The little store took advantage of buying up their real estatex at a time when real estate was now cheap and they continued to open stores only with profits rather than big debts.  The little store has maintained a 20% growth rate in the worst of economic times and the big national chain competition that has remained in business is becoming more agitated when the little store began to occupy space close to them. 

So, here's the moral of the story.

Prior to becoming a public company, this tiny store which had grown slowly over the last 50 years stayed as family owned company. They employed 3,000 people over several midwest states.

Being privately owned, profit from the company was taxed as income to the family owners each year. Those 3,000 people they employed payed taxes on the income they received from the "little" company.   Add those taxes being paid each year by all involved and you will come up with some fairly large amount of revenue coming into the state and federal governments.

The family that opened the little store in 1955 had no plans to become multi-millionaires, they just wanted a little bit of the American Dream. 

Again, remember that in 2001, this was a family owned company, mainly owned by the father. The Estate Tax Reduction (some of the "Bush" tax cuts" we are hearing so many bad things about) was enacted in 2001 with an expiration in 2011. Prior to the limited time for estate tax break, the inheritated tax rates were staggering.  Check below for the rates that are about to become law again.

For amounts not greater than $10,000, the tax liability is 18% of the amount.
For amounts over $10,000 but not over $20,000, the tentative tax is $1,800 plus 20% of the excess over $10,000.
For amounts over $20,000 but not over $40,000, the tentative tax is $3,800 plus 22% of the excess over $20,000.
For amounts over $40,000 but not over $60,000, the tentative tax is $8,200 plus 24% of the excess over $40,000.
For amounts over $60,000 but not over $80,000, the tentative tax is $13,000 plus 26% of the excess over $60,000.
For amounts over $80,000 but not over $100,000, the tentative tax is $18,200 plus 28% of the excess over $80,000.
For amounts over $100,000 but not over $150,000, the tentative tax is $23,800 plus 30% of the excess over $100,000.
For amounts over $150,000 but not over $250,000, the tentative tax is $38,800 plus 32% of the excess over $150,000.
For amounts over $250,000 but not over $500,000, the tentative tax is $70,800 plus 34% of the excess over $250,000.
For amounts over $500,000 but not over $750,000, the tentative tax is $155,800 plus 37% of the excess over $500,000.
For amounts over $750,000 but not over $1,000,000, the tentative tax is $248,300 plus 39% of the excess over $750,000.
For amounts over $1,000,000 but not over $1,250,000, the tentative tax is $345,800 plus 41% of the excess over $1,000,000.
For amounts over $1,250,000 but not over $1,500,000, the tentative tax is $448,300 plus 43% of the excess over $1,250,000.
For amounts over $1,500,000 but not over $2,000,000, the tentative tax is $555,800 plus 45% of the excess over $1,500,000.
For amounts over $2,000,000 but not over $2,500,000, the tentative tax is $780,800 plus 49% of the excess over $2,000,000.
For amounts over $2,500,000 but not over $3,000,000, the tentative tax is $1,025,800 plus 53% of the excess over $2,500,000.
For amounts over $3,000,000, the tentative tax is $1,290,800 plus 55% of the excess over $3,000,000.
Additionally, estates of decedents that die after December 31, 2010, will be subject to a 5% surcharge on the excess of their estate over $10,000,000.

If the store's "ol dad" had passed away prior to 2001, the no-longer-little store would have become part of his estate. 

The little store heirs would have had to pay over $25 MILLION dollars in estate taxes alone.

It isn't that hard to imagine what would have happened, is it?

To pay the inheritance tax would have closed down the no-longer little store because now this family was  considered "wealthy".  As has been said many times, how many people are hired by the poor?

If that scenario had happened, the growing enterprise would have had to shut the doors to pay an estate tax on a company that had already been paying the income tax by the owners and the employees.

Along with that, 3,000 people would have been unemployed and they would not have been paying tax on their income.

Due to the estate tax reduction and the store now being a public company, a death in the family will not close the store that is growing fast and safely and hiring 100's of employees each month in the new areas they are now "invading" from the big retailers.

When I was researching this post, I was shocked and I do mean shocked at the estate taxes reductions that could very well likely expire this year.

Last week we finally went to talk with an estate planner. 

Let's get this straight.  We are NOT wealthy.  But we have worked hard, have plenty of life insurance that is considered part of the value of the estate for determining rates (but not taxed) and I looked on what taxes could be due if we both die after December 31, 2010. 

It's shocking, shocking.   So we are a bit like the little one store shop that just worked hard over all of our lives and didn't do stupid spending that wasn't necessary.  (Well with the exception of us NOT being multi-millionaires.)

Now is there any wonder why there are alot of people like us that do not agree with raising the tax on the "wealthy"?

The majority of the wealthy are business owners that employ millions of people.  Taxing the wealthy puts more and more people out of work and the wealthy remain wealthy.   And history has proven that when tax rates go up LESS revenue comes into the federal government because growth is stiffled and there is less income to tax, much less income.

I hated Economics in college, and this makes me realize why.  There are so many people that just don't get it.

So in case you missed it, you and your spouse need to die this year or the govenment will likely take away 50% of your net worth from your heirs. 

Or we can contact our "representatives" in the government and complain like hell to extend (it should permanently extend) the estate tax cuts "for the wealthy".  You'd be surprise to learn the government thinks even you and I are wealthy, especially when alot of our "wealth" is nothing more than a decent life insurance policy.