Readers of this blog may have seen the recent piece about Phil Mickelson's frustration with the California state income tax. He's certainly not the only one complaining, as income taxes have steadily increased over the last several years and certainly seem likely to continue to grow in the foreseeable future. Death and taxes, the two things that are inevitable in this life, as the saying goes, also are the two things that make having an estate plan absolutely essential for people looking to protect their assets and avoid unnecessary taxation.
Income tax is such a ubiquitous part of life in the United States today, but just over a century ago there was no such thing as a federal income tax. For the first 126 years of its existence, the Constitution required that any tax burden be distributed proportionally across the states, depending upon the population of each state.
Income tax was seen as an unconstitutional invasion by the federal government throughout the majority of U.S. history, until the Sixteenth Amendment was passed by Congress in 1913. This Amendment gave the federal government virtually unlimited power to set income tax without regard to proportionality across the states. Though promised as a temporary measure at the time, income tax rates have skyrocketed since the modest 1% tax that the federal government initially proposed on the wealthiest 5% of Americans.
With little chance of stemming the tide of history or making any headway against an ever-increasing income tax, people need to take advantage of every legal opportunity to minimize their tax burden. With the appropriate planning, people can formulate an estate plan to help them and their families keep more of their hard-earned wealth.
Source: IndUS Business Journal, "Let the Income Tax Die at Age 100," David John Marotta, Feb. 7, 2013