Outdated Tax Deserves A Repeal

Posted July 22, 2005 at 2:31pm

We’re familiar with a quote made famous by Ben Franklin: “Nothing in life is certain except death and taxes.”

More than two centuries later, his observation still rings true. As a federal lawmaker, however, I’d prefer these two life certainties were mutually exclusive.

When Teddy Roosevelt advanced a permanent federal inheritance tax with the Revenue Act of 1916, the camel’s nose inched under the tent. Throughout the rest of the 20th century, federal tax policy adopted a confiscatory approach toward the passing of assets from one generation to the next.

As a result, we have federal estate, gift and generation-skipping taxes that weaken the American ideals of entrepreneurship, free enterprise and wealth creation.

Like the Sons of Liberty who acted on principle in 1773 to resist “No Taxation Without Representation” by throwing a tea party in Boston Harbor, I’m for liberating an unfair tax policy that makes death a reason for taxing the next generation.

I doubt the signers of the Declaration of Independence would agree with those who advocate allowing the federal government to usurp more than half of the value of a family-run restaurant, mom-and-pop grocery store or farm before the surviving sons, daughters or grandchildren are allowed to continue operating the family business.

In 2001, as chairman of the Senate Finance Committee, I helped lower the death knell on the federal estate tax, albeit temporarily. The Economic Growth and Tax Relief Reconciliation Act will gradually raise the estate tax exemption by 2009. The tax is wiped out entirely in the 2010 tax year but will resume to its Clinton-era levels if no changes are made to permanently repeal the estate tax, increase the exemption or reduce the tax rates applied to the transfer of family assets.

Today, as a matter of principle and tax fairness, I’m working with others in Congress to soften the blow of Grim Reaper levying taxes on the transfer of a family farm or small business from one generation to the next.

Why? For starters, death taxes say to families who work a lifetime building up a successful business that Uncle Sam stands first in line rather than the next generation. Instead of encouraging economic development and entrepreneurship, the taxes discourage innovation, expansion and investment.

Death taxes also add layers of complexity to the federal tax code and exert an unproductive drag on the economy as families, investors and entrepreneurs expend considerable time and resources to avoid liquidation and protect their assets for the next generation. Instead, policymakers ought to craft policies that capitalize on the collective ingenuity, talent, time and money wasted on estate planning. We should shift gears toward policies that foster job creation, higher wages, economic development and prosperity.

Overall, getting rid of federal death taxes would bring a welcome certainty to the tax code. It would help America’s global competitiveness by creating a tax-friendly environment to set up shop in the United States.

Many Americans already feel taxed to death the way it is, from payroll to wages, sales, property and investment income. Uncle Sam’s death taxes redefine R.I.P. as a RIP-off of family-owned businesses. Straddling children and grandchildren with a hefty tax bill as they take over the reins of the family business is no way for Washington, D.C., to keep the American dream alive and well for future generations.

Some wealthy captains of finance and industry have come out whole-hog in favor of federal death taxes. They emphasize the “loss” of federal revenues and that permanent repeal would “cost” the federal treasury billions of dollars in the next decade. They might make the case Americans aren’t born with a silver spoon in their mouths. They could argue we aren’t a country of aristocrats entitled to inherit wealth. To those well-to-do members of the upper crust who wish to bequeath their life’s wealth to philanthropy or even to Uncle Sam upon their deaths, please feel free to do so. I guarantee the Internal Revenue Service would accept the offer.

We are not a nation founded on hereditary aristocracy. We shouldn’t forget that we’re nation built by hard-working immigrants who in many cases sacrificed everything to come to this country to build a better life for themselves and an even better future for their families.

It’s this enduring promise that keeps our society a beacon of hope for newcomers: the philosophy that each individual has the freedom and opportunity to scale to the highest rungs of the economic ladder.

As the only working family farmer in the Senate, I’m especially vigilant on how federal tax policy affects the transfer of farmland ownership, economic vitality and our way of life in rural America. Roughly half the farmland in the United States will change hands within the next decade or so as aging farmers sell or transfer ownership of tens of millions of acres in America’s Grain Belt.

Bipartisan negotiations currently under way to find consensus regarding federal death tax relief ought to recognize that many family-owned and operated farms and small businesses are asset-rich and cash poor. Congress needs to stop Uncle Sam from harvesting taxes on the assets of America’s family farms and small businesses as they are transferred from one generation to the next.

Sen. Chuck Grassley (R-Iowa) is chairman of the Senate Finance Committee that has jurisdiction over tax issues.