‘Death tax’ can kill many businesses
Published 12:00 am Monday, April 9, 2001
This is a story about a farmer and the federal government. But it is not about grain subsidies or the Conservation Reserve Program or any of the other well-intentioned government programs developed to help family farmers. Instead, it is about taxes and injustice.
Joe is a dairy farmer. He runs a hundred head of cattle on his 900-acre farm, grows corn and hay and soybeans, the better part of which is used to make feed for his milk cows. On paper he is, to use the term we used to mark social class in the first grade, rich.
His land, his timber, his house, his barn, his tractors, his milking machines all look nice at cash value on the asset side of his balance sheet. But in reality, Joe is rich only in the sense that he loves his work, his church, his family and his life. He does not live in a big house, does not drive a fancy car. The truck he drives was built in Detroit when I was in the 10th grade. His house is unremarkable; his work boots the discount store variety.
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His life is full, and he is happy. He would not change it. The only place Joe lacks riches is in his bank account.
When he dies, he’d like to leave the farm to his sons. But that is easier said than done. He has paid taxes on every dollar he ever earned. But when he dies, his heirs, through an unjust part of the tax code called the Estate Tax, commonly referred to as the Death Tax, will be taxed again, heavily, on the value of the business.
When a family member inherits a family business after the death of its owner, he does not simply pay taxes for the liquid assets inherited. He must pay the government up to 55 percent in taxes — in cash — on all assets, including land, building and equipment.
Because estate taxes are unreasonably high, many heirs who cannot afford to pay them are forced to sell their business, break up or liquidate their assets. Estates valued up to $10 million pay taxes on a graduated rate system, which ranges between 18 percent and 55 percent. An exemption is allowed for the first $650,000 of an estate’s value. Estates valued over $10 million are taxed at a rate of 55 percent.
A common response to this explanation is that anyone inheriting $650,000 in assets can afford pay taxes on them. But if that heir is a farmer, the value of the land drives up the asset value. And, in a lot of cases the only answer is to sell the land to pay the tax.
Unfortunately, it is a situation many hard working small business owners face today; this situation applies to the asset value of any business, driven up by ownership of a building, machinery, inventory, any asset.
The U.S. House of Representatives voted this week to repeal the Death Tax, phasing it out over 10 years and replacing it with a capital gains tax that would require heirs to pay tax on the increase in value of the assets from purchase to the owner’s death. While replacing an old tax with a new tax is not necessarily my idea of progress, the proposal provides a fairer approach in that it increases the minimum taxable value of the estate to $1.3 million.
The U.S. Senate, now in recess, is expected to consider the bill when members return. As the Senate readies to vote and the president, a vocal opponent of the Death Tax, readies to sign, opponents will scream of another tax break for the rich. Rest assured, those opponents have never milked a cow; driven a tractor; run a family furniture store, or gas station or a body shop; or taught their sons or daughters how to sell a used car at their dealership. Nope, they’ve just never seen a tax they didn’t like or problem they didn’t think government could solve.
Todd Carpenter is publisher of The Democrat. You can reach him by calling 445-3618 or by e-mail at firstname.lastname@example.org.