By Tyler Deaton For the first time in a decade, Congress has decided to seriously examine the burden the death tax — also known as the estate tax — places on grieving families and their small businesses and employees.
Last month, the House Ways and Means Subcommittee on Select Revenue Measures heard from a panel of family business owners on the hardships they face planning for and paying off this tax and its destructive impact on their family business. The full committee followed up with a markup of the Death Tax Repeal Act (HR 1105), a bipartisan bill sponsored by Reps. Kevin Brady, R-Texas, and Sanford D. Bishop Jr., D-Ga. The committee endorsed the bill with a 22-10 vote.
While introducing companion legislation (S 860) in the Senate, Sen. John Thune, R-S.D., noted, “Death should not be a taxable event. The federal government has no place forcing grieving families to pay a tax on the loved ones’ life savings that’s been built from income already taxed when it was originally earned.” Thune later introduced an amendment to the fiscal 2016 budget resolution, which passed the Senate by a 54-46 vote.
This flurry of recent activity on this important issue comes ahead of potential floor action in the House and Senate on the Brady and Thune bills that will give members of Congress the opportunity to signal to hard-working Americans that we still value hard work and success at a time when many seek to punish it.
As we saw in a recent proposal from the White House, one death tax is no longer enough. Just before his 2015 State of the Union address, President Barack Obama proposed a new death tax that would impose a capital gains tax at the time of death on the appreciated value of one’s estate, with a lifetime exemption that is less than one-tenth the size of the current estate tax exemption. The president’s latest budget proposes an increase in the capital gains tax rate itself to 28 percent, inclusive of the Obamacare surtax. The existing 40 percent death tax already eliminates jobs, causes family businesses to be sold, boosts life insurance premiums and forces private capital into government coffers. Imagine the damage caused by two of these destructive taxes.
Based on information shared by the administration, who would be impacted by the double death tax? Consider a long-time farmer, who has been working since the mid-1970s, scrimping and saving to take care of his family while operating a low-margin, capital-intensive business. In the late 1990s, he saw the emerging opportunity to switch to organic farming and invested heavily in transitioning his farm from conventional soy and corn to diversified organic fruit. It’s been a great success. His efforts to improve the farm and raise its value are already taxed at a 40 percent rate. Now, with the double death tax, his son will not only be taxed at 40 percent for the absolute value of the farm, but also at 28 percent for the appreciated value of the farm over the last 40 years.
In this scenario, middle-age children (possibly with children of their own in college) are left with massive new tax bills and must struggle to pay huge amounts to the Internal Revenue Service. The most likely outcome is to break up the farm or business that has been in the family for generations.
Rather than seeking to preserve the businesses hard-working entrepreneurs spend a lifetime building, the White House has chosen to attack American family businesses. The administration is willing to break these businesses apart for political benefit. Their policy reaches deep into the pockets of the surviving family members after the death of a family member when they are suffering personal loss and grief. Taxing families to fund more wasteful government spending is wrong.
As the Select Revenue Measures Subcommittee members heard on March 18, Congress should take steps to alleviate the burden this tax represents and allow family businesses to reinvest those scarce resources into growing and creating jobs. Congress has an opportunity for the first time in nearly a decade to vote to repeal the death tax. We encourage lawmakers on both sides of the aisle to oppose the double death tax and instead vote to repeal of the one we already have.
Tyler Deaton is a senior adviser at Each American Dream. The 114th: CQ Roll Call's Guide to the New Congress Get breaking news alerts and more from Roll Call in your inbox or on your iPhone.