Family Farms, Businesses Hit Hardest by Estate Tax

Should estate tax policy be reformed?

Posted February 12, 2007 at 2:29pm

As members of the House Agriculture Committee and as representatives of farmers, ranchers and family-owned businesses, we know and understand the harsh reality of the death tax.

There are few issues in public policy today where such a discrepancy exists between the will of the American people and the action by Congress than the permanent repeal of the death tax. The death tax, also known as the estate tax, has proved to be a failure of public policy.

The wealthiest Americans, those with estates ranging from $10 million and up, are becoming ever more adept at avoiding the tax. In fact, estate-tax planning has become big business, with large amounts of resources being devoted to finding tax shelters and loopholes in the law. While these wealthiest of the wealthy have found ways to avoid the tax, it is the family business owner and family farmer who are hit the hardest.

As an example, take an average-sized farm. Just the land on a 1,000-acre farm, which easily could be operated by a single family, could be valued around $2.5 million. The machinery necessary to operate that farm would be valued at about a half-million dollars. Add in the value of any buildings on the property, including the family’s home, and this family farm is valued at more than $3 million, none of which is held in stocks, bonds or savings accounts or homes in exotic places that we imagine the “wealthy” to own.

Without permanent repeal, the taxable rate on a $3 million inheritance would be up to 55 percent. When this farmer passes, he cannot simply pass on his farm to his children. Instead, large portions of land would have to be sold to pay the death tax. After a $1 million exemption, the estate would be taxed up to 55 percent on $2 million. At $2,500 an acre, almost half of the land would have to be sold just to pay the taxes. It is hard to believe that this farmer and his children are the ire of death-tax proponents, who claim that we need to close the gap between the rich and the poor.

Think for a moment about a son who would like to continue working the land his family has farmed for generations, only to find out that he must sell off half of his father’s land to pay the death tax. The land he has left is not enough to make a living on, so he is forced to sell off the rest and find a new occupation, losing both his father and his way of life at once.

So while investment bankers and hedge fund managers pay tax attorneys and accountants to find ways to dodge the tax, it is hard-working farmers and family business entrepreneurs who are stuck paying the tax. The message we are sending is this: If you work hard and build your business or farm, instead of passing it along to your children, you may have to dismantle it to sell assets to appease the Internal Revenue Service. One thing is overwhelmingly clear: The American people certainly do not support the death tax.

In poll after poll, the vast majority of Americans have gone on record favoring a permanent repeal of the death tax, in some polls as high as 70 percent. Perhaps these large majorities realize the inherent injustice in taxing income, only later to tax the same assets upon death. Or perhaps they understand that the tax erodes the culture of hard work our nation has been built upon: Work hard and leave something better for your children. It taxes virtue by punishing responsible savings and asset accumulation. It encourages wasteful spending.

Our tax code should be a reflection of our values as a nation. If we do not choose to permanently repeal the death tax, we are saying that hard work, innovation and responsible savings all are punishable offenses. The hard work and innovation of our citizens are at the very root of what makes us great as a nation. This most certainly is not the way to reward those values.

As we struggle to deal with the ramifications of an aging America, our political leaders and investment experts have begun to encourage personal responsibility in lieu of dependence on government programs. We have created tax incentives to save for retirement and save for health care costs. The death tax sends a contradictory message. It seems to say that responsible saving and personal financial security are valued only until an arbitrary point, at which you will be punished severely for your wealth accumulation.

House Members agree with the majority of the American people. Bills have passed the House in each of the previous three Congresses that would permanently repeal the death tax. Each time, a strong bipartisan majority of the Members voted for permanent repeal. However, three bills in six years have failed to gain consideration in the Senate or were voted down after passage in the House. It is our hope that the House will again take up and pass legislation to permanently repeal the death tax. More important, however, is our hope that the Senate will listen to the American people on the subject and abolish this burdensome tax.

This issue need not be a partisan matter. It is a matter of the message our policymakers are sending to the American people. We believe the Members of Congress should listen to the American people and pass legislation that restores the value in hard work, innovation and personal savings.

Rep. Marilyn Musgrave (R-Colo.) is a member of the Small Business Committee and is ranking member of the Agriculture subcommittee on specialty crops, rural development and foreign agriculture. Rep. John Salazar (D-Colo.) is a member of the Agriculture, Transportation and Infrastructure, and Veterans’ Affairs committees.