France, Farmers and the Fiscal Cliff

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Many Chalet owners in France are hurrying to sell their homes and estates before year-end while their owners are moving to Switzerland, Belgium and the USA to escape tax increases.

For example, a 2013 budget draft proposal raises taxes on salaries of more than $1.3 million to 75% from 41%. Two million dollars of earned income increases the French tax collector’s take by $238,000. President Hollande of France is an avowed socialist; our trek in that direction is based on class envy and the illusion of ‘protection of the middle class’.

Iowa farmers are selling their farms before December 31, due to tax changes that may be coming as a result of the ‘tax cliff’.  If the politicians in Washington DC put us into free fall, the exemption could be reduced and the balance would be taxed at a higher rate.  Although recent Iowa farm sales have yielded from $6,200 to $21,900 per acre, average sales for the state have been in the range of $5,000 per acre. Similar strategies are almost certainly being considered in every state.

Inheriting land could increase the estate (death) taxes throughout the nation from 35% to 55% and the exemption would fall from $5 million to $1 million. A 1,400-acre spread worth about $7 million bequeathed to a family member could change the tax burden for the legatee from $700,000 to $3,300,000, an increase of $2,600,000.

In addition to land and buildings, investment in animals (stock) and equipment can easily reach millions of dollars. In a high asset, scarce cash environment, this burden could force the inheritor into some other line of work. Because of the uncertainty of weather and market pricing of agricultural commodities, farmers and ranchers are wont to borrow heavily against future (unpredictable) earnings.

Similar problems arise with small business. More than 80% of the 31 million corporations, partnerships and proprietorships are considered small businesses.  Under the new healthcare laws, employers with 50 or more full-time employees must provide health insurance for all employees or pay a fee (penalty). Some restaurants, hotels and retailers plan to make changes that avoid the insurance requirement by hiring more part-time workers. Although the President promised to hold down new regulations that affect small business, more in the coming term will probably follow the 192 enacted over the past 3½ years.

Regarding individuals, although there have been many political statements about avoiding tax increases for ‘middle class’ families, we will pay more. Many of the taxes will be levied on suppliers from whom we buy products and services, but by whatever name these increases are called, the result will be increased costs to consumers. Taxes on dividend income will increase from 15% to as much as 43.4%, depending on the taxpayer’s marginal rate. This is a huge change considering that retirees and investors at all income levels depend on dividend income.

There seems to be a common thread running through many governments, including France and the USA, related to the uncertainty of public spending and revenues. Farmers, landowners, small business people, retirees and everyone cannot make constructive decisions about retirement, hiring and investing in times of unsettled tax policy. Do you suppose it is because politicians are trying to balance vote harvesting with indecision on taxation?

The ‘fiscal cliff’ exists only because our elected officials are unable to reach consensus on long-term solutions to both simple and complex challenges. While the United States of America has the finest form of constitutional government in the world, it is being dissipated by those who are unable to uphold their oath of office and commitment to ‘service’ for ALL citizens.

– Dick Baynton