Research Briefing

As Dems Mull Death Tax Return, Farmers And Small Businesses Fear Disastrous New Tax Burden Next Year

“United For A Fair Economy … Will Host An Event On July 21 With Former Treasury Secretary Robert Rubin And Several Others Calling On Congress To Reinstate The Estate Tax Before The August Recess.” (Jay Heflin, “Ranchers Demand A Fix For The Estate Tax,” The Hill’s “On The Money” Blog, 7/13/10)

DEATH TAX HURTS SMALL BUSINESSES AND FARMERS

Death Tax Will Come Back Next Year With A Vengeance.  “The estate tax lapsed temporarily on Jan. 1 after the Senate failed to extend it last year. If lawmakers do nothing, the tax will resume in 2011 with a 55% rate on estates above about $1.2 million. Last year, estates of more than $3.5 million for an individual were subject to a 45% tax.” (Laura Saunders, "Sanders Estate-Tax Proposal Would Hit Wealthy Harder," The Wall Street Journal, 6/25/10)

“The Estate Tax Can Prevent Small Businesses And Farmers From Passing Their Businesses On To The Next Generation. It Penalizes Saving And Capital Formation. And It Discourages The Creation Of New Wealth By America’s Most Innovative, Pro­ductive Entrepreneurs.” (William Ahern, “The Federal Estate Tax: Will It Rise From The Grave In 2011 or Sooner?” Special Report No. 179, The Tax Foundation, May 2010)

• “The Estate Tax Is Complex To The Point Of Absur­dity, To The Point Where Even A Savvy Lawyer Or Accountant Would Be A Fool To Plan His Own Estate If He Had Substantial Wealth.” (William Ahern, “The Federal Estate Tax: Will It Rise From The Grave In 2011 or Sooner?” Special Report No. 179, The Tax Foundation, May 2010)

The Death Tax “Literally Taxes Family Businesses Right Out Of The Family.” “The estate tax creates a disincentive to expand a business, create jobs, and far too often, literally taxes family businesses right out of the family. Much of the cost of the estate tax occurs before the tax itself is levied. The threat of the tax actually forces small-business owners to pay for expensive estate planning if they want to keep their business in the family.” (“Relief From The Estate Tax,” NFIB, Accessed 7/20/10)

Farmers Are Hit By The Death Tax Because Their Assets Are “Tied Up In Land, Buildings And Equipment.” “Estate taxes are especially harmful to farmers and ranchers because their businesses are capital-intensive with a high concentration of assets tied up in land, buildings and equipment. Estate taxes tend to be more onerous for farms than other small businesses because 80 percent of farm and ranch assets are land-based. When estate taxes exceed cash and other liquid assets on hand, surviving family members may be forced to sell land, buildings or equipment needed to keep the business operating. This has a multiplier effect because rural communities and the businesses they support also suffer when farms and ranches downsize or disappear.” (John Hart, "Estate Tax: Onerous Burden For Family Farms And Ranches, " Focus On Agriculture, 1/11/10)

Steve Foglesong, The Cattle Association’s President, Says Farmers And Ranchers Are Being Handed A “Death Sentence” With The Death Tax. “‘They’re In Essence Handing Down A Death Sentence To Family-Owned Farming And Ranching Operations,’ He Said In Prepared Remarks. ‘Taxing Family Farmers And Ranchers Out Of Business Will Have Serious Impacts On All Americans, Not Just In Our Rural Communities.’” (Jay Heflin, “Ranchers Demand A Fix For The Estate Tax,” The Hill’s “On The Money” Blog, 7/13/10)

Foglesong Says This Is Not A Tax On The “Wealthy Elite” But Farmers And Ranchers. “This is not a tax on the ‘wealthy elite,’” Foglesong said. “The wealthy can afford accountants and estate planners to help them evade the tax. ... Farmers and ranchers are often forced to sell land, equipment, or even the entire ranch just to pay off tax liabilities.” (Jay Heflin, “Ranchers Demand A Fix For The Estate Tax,” The Hill’s “On The Money” Blog, 7/13/10)

AND CONTRIBUTES TO UNCERTAINTY AMONG JOB CREATORS

The Estate Tax Adds Even More Uncertainty To The Economy. “The estate tax differs from the income tax in that it comes due not at a fixed date but rather at an unknown time in the future. Because the returns and assets of an enterprise vary over time, the amount of estate tax due also varies. That variation could be particularly risky for a farmer or business owner: if the estate does not hold enough liquid assets to pay the estate tax, then heirs could be forced to sell the farm or business.” (“Effects Of The Federal Estate Tax On Farms And Small Businesses,” CBO, July 2005)

The Expiration Of The Bush Tax Cuts, Including The Return Of The Death Tax, Is Causing Uncertainty Among Business Owners, Causing Them Not To Hire. “The crunch time will come later this year when Congress tackles the roster of tax cuts that expire Jan. 1. On the list are taxes on income, dividends and capital gains. Lawmakers also have to deal with the estate tax, which went to zero this year and is set to leap to 55% next year unless Congress acts. The uncertainty has many businesspeople sitting on their hands, because they don't know what tax rates will be next year, say business groups and economists. That is suppressing investment and hiring, surveys suggest, contributing to the economy's current sluggishness.” (John McKinnon, “As Tax Cuts’ Expiration Date Nears, Little Consensus,” The Wall Street Journal, 7/15/10)

Moody’s Chief Economist Mark Zandi Says Democrats’ Refusal To Extend Bush Tax Cuts Is Causing “A Great Deal Of Uncertainty.” “Yeah, I think that's a reasonable concern. It's baffling to me that we're not discussing this more. Those tax cuts expire for a everybody at the beginning of next year. That will be very counterproductive. My sense is at the end of the day what will happen is the tax cuts will be extended for longer and then they will be phased -- the tax increases will be phased in for the two upper income groups later in 2011, 2012, 2013 when the economy could more reasonably digest it, so but I do think it's very important for Congress and the administration to nail this down pretty quickly, because it is creating a great deal uncertainty.  It’s one of the reasons people are so nervous.” (CNBC’s “Fast Money” 7/6/10)

Thomas Donahue, President Of The Chamber Of Commerce, Says “What Every Company In This Country Is Worried About Is Uncertainty.” “And we need to be very careful not to increase taxes on the job creators because they're not going to move if they do. So what every company in this country is worried about is uncertainty. What’s the health care thing really going to cost?  It’s more than we thought. What's the capital market going to do to the availability of capital? It's a problem. Are we going to do the things about trade? What's going to happen in the tax bill in a lame duck session? You put that all together; people are sitting on their hands and their money.” (MSNBC’s “The Daily Rundown,” 7/9/10)

Small Businesses Are Fearful Of More Regulations And Higher Taxes. “Mom-and-pop firms, usually the first to resume hiring, are stymied by slow demand, the real estate slump and uncertainty about the future.  ... Adding to the uncertainties for businesses of all sizes are the shaky global economy and the prospects of higher taxes to deal with the federal deficit and higher costs to deal with healthcare and the recent government overhaul of financial regulations. … Joy Staveley of Flagstaff, Ariz., said it was clear to her why people are more scared to take a risk on a new business: There are more regulations, taxes and government-mandated costs — and fears of more to come — with President George W. Bush's tax cuts expiring soon, new healthcare rules and pending legislation on energy.” (Don Lee, “Small Business Sidelined In Slow Recovery From Recession,” The Los Angeles Times, 7/3/10)