There is an oft-repeated quote attributed to Ben Franklin that reads, "Certainty? In this world nothing is certain but death and taxes." Mr. Franklin, I suspect, would be stunned to learn that in America today, he could face both certainties at the same time, his death proving to be an unexpectedly expensive proposition.
The reference is, of course, to the estate tax--aptly called the death tax. Initiated in 1916 to fund the war effort and later embedded in the tax code to prevent concentrated accumulations of wealth by the already-rich, this antiquated law has not fulfilled its intended purpose for some time. It now imposes an undue, unfair, and frankly, un-American burden on families, farmers, and entrepreneurs.
The death tax, which collects up to fifty-five percent of the value of estates when the owner passes away, hinders economic growth and disproportionately hurts those at the bottom of the economic ladder--not just the ‘wealthiest Americans,’ as critics of the repeal are so quick to claim. Often, the death tax forces employers and businesses to downsize, laying off mid- and lower- income workers. And although some businesses in America may be able to endure this tax, for many small businesses, this untimely tax rings their death knell—no pun intended. You would be hard pressed to get even the most outspoken of opponents of repeal to argue that a policy which encourages the failure of small businesses benefits average Americans.
This tax can also destroy family owned farms, the lifeblood of our agriculture industry. These farming families are what we call land-rich but cash-poor—while their estates may be large, all their worth is tied up in land. To pay the exorbitant death tax, many families are forced to sell land or equipment, often crippling their ability to farm at all. Worse still, many farm families borrow to pay off the death taxes owed, only adding to the difficulty of running a sustainable farm operation. Does the United States Senate believe the burdens of rising land prices, volatile markets for their products, and the unpredictability of the weather are not enough for farm families to bear?
And it is not just large-scale operations that are squeezed by the death tax. In Lancaster County, Pennsylvania the average farm is 103 acres, with the land valued at roughly $8,000 per acre. That makes the average farm worth over $800,000 in land alone. Add a house, a barn, livestock, and the necessary equipment, and that farm is worth well over the $1 million deduction that the estate tax will revert to in 2011 if the Senate fails to act. To demand that a family dissolve its livelihood simply to pay an unfair tax is bad policy at best, callous governance at worst.
The death tax also stifles competitiveness in the U.S. economy. Small businesses drive our economy, creating the majority of America’s new jobs. Often, these businesses are owned by families and passed down through generations. Yet this tax punishes the entrepreneurial spirit of the initial owner and creates disincentives to take forward-looking, responsible risks in the marketplace. With a dwindling number of family owned and operated businesses, only the giants in the marketplace will be able to survive. Besides being inherently unfair to family farmers and small business owners, the death tax is simply not sound economic policy.
Finally, contrary to some claims, the death tax is also not an important source of government revenue. Some analysts estimate that up to two-thirds of all revenue collected by the death tax is spent on collecting and administering the tax itself. Others estimate that the costs of the tax are equal to any revenue the tax collects. The Wall Street Journal has reported that repeal of the death tax would actually yield additional government revenue immediately.
Right now, families expend large amounts of money on "estate planning" services just to keep their business afloat, rather than investing in the business itself. Repealing the death tax would end this practice and keep capital where it belongs—in the marketplace. With reasons aplenty and logic on our side, the Senate should take the House’s lead and repeal the death tax.