Just when we think we have driven a stake through the heart of efforts to repeal the “Death Tax,” the House of Representatives, with too much time on their hands, has managed yet another attempt to appease a group of the nation’s wealthiest families. Once again, the Family Business Estate Tax Coalition has rallied its members in an effort to do away totally with the estate tax which, over a decade, is normally estimated to raise roughly one trillion dollars. By one estimate, a handful of families have spent over $200 million in lobbying effort and political contributions to accomplish their goal. Just what we need --- a nation of more Downton Abby’s (a reference to the PBS show about British aristocracy).
My favorite tax has always been the estate tax, and even back when the exemption was down in the million-dollar range, I looked forward to having to pay it someday. Of course, it would have required my so-called “the hand out of the grave” to sign that final return. But, it’s the only tax I may ever pay for which I personally will not be writing the check.
There was one year recently when there was no estate tax, but that just complicated estates because there was no stepped up basis for heirs to use when calculating future capital gains taxes on the sale of assets. The original cost basis extends to perpetuity and would have continued indefinitely if the estate tax --- albeit a watered down version --- had not returned. The new tax excuses anyone from having to pay anything on the first $5,430,000 or $11,860,000 for a married couple. That spares virtually all would-be heirs of real “family farms” and “small businesses” from a fate worse than death.
The American Farm Bureau is one of the most strident proponents of the argument that family farms are being lost to estate taxes, but Pulitzer-prize winning journalist, David Cay Johnston found this claim to be completely bogus. Hoping to interview such a victim, Johnston’s request to the Farm Bureau could not produce a single family that had lost their farms.
It only makes sense. The days of a farm requiring a large family to operate as an economic unit pretty much ended with my mother’s generation. The youngest of seven children, she brought up the rear of a family of workers who toiled on her parent’s farm in a Finnish community in Vermont. The “kids” all elected to sell it because they had all gone to college and had moved on to other careers. David Cay Johnston’s research indicates that the same thing has happened today across the country. Most farms sell because heirs don’t want to run them. Having worked on a farm myself, I can tell you that it is extremely hard, physical work.
Further research suggests that farms reporting incomes large enough to have a net worth (after mortgage and other debt) of something beyond $10 million all appear to have down-town city addresses on their tax returns. This would imply that they are corporate farms as opposed to “family” farms like my mother’s.
Finally, why do we expend so much political effort to rescind a tax that is largely voluntary? All manner of techniques can be used to minimize, or at least spread out over ten years, the cost of estate taxes. For example, farms can issue two classes of stock that divide the farm between the value of the property and the operating company. They can transfer ownership through something called a “private annuity --- a sale to heirs where they promise to make payments for the remainder of the parents’ lives, etc. They can insure it with life insurance that delivers a tax-free windfall. They can own it in a family foundation. The list of alternatives goes on and on.
But congress doesn't want to hear any of this. In the end, the obsession of linking estate taxes with family farms has little to do with the latter. It’s all about going through the motions of pandering to hugely wealthy Americans who don’t want to pay taxes or give those multi-billion dollar estates to charity. Politicians have to play a role even when they know that the effort they wasted a few weeks ago will never get past the Senate --- much less the President’s veto power. Maybe the “do-nothing” House of Representatives would have served us better by doing just that --- or better yet, by moving on to the more substantive issues that we pay them to resolve.