Death Tax Repeal Dies in Senate
By George Anderson
Last year when the House of Representatives passed a bill calling for the permanent repeal of the estate tax (AKA the death tax), family-business owners and their representative organizations, such as the American Family Business Institute and the National Grocers Association (NGA), widely applauded the move.
As it turns out, the glee felt by those supporting the repeal was short-lived as the measure in the Senate failed to gain enough votes in that body to be made into law. The Senate vote, 57 to 41, was three votes shy of the number needed to move that body’s version along.
According to a report in The New York Times, Max Baucus, a Democratic Senator from Montana and supporter of the repeal, said, “It appears unlikely that we are going to change many senators’ minds on this issue. We will need time. It will take real effort. It will take real concessions.”
Concessions are not likely heading into the upcoming elections. Republicans are determining if they should push ahead for a compromise to achieve at least a modification of the tax or hold back to use it as an issue (such as the gay marriage amendment) against Democratic competitors.
Senator Judd Gregg, a Republican from New Hampshire, said, “It makes no sense that the United States, which should be a bastion of promotion for entrepreneurship and certainly a bastion that supports the family farm, the family restaurant, the family gas station, the family entrepreneur, is taxing those families at a rate which is higher than the French.” (Editors note: Kudos to Sen. Gregg for bringing the French into another national debate.)
Harry Reid, Senate minority leader and Democrat from Nevada, offered an opposing view. “The estate tax is an extremely costly tax for a wealthy few that comes at the expense of every other American born and yet to be born for decades to come.”
Moderator’s Comment: What are your views on the estate or death tax and its impact on family operators of various types of retail and other businesses?
– George Anderson – Moderator
I’m not in favor of anything that points to double-taxation. The money I have in the bank, or have spent on a house or other assets has already been taxed with income tax and sales tax. Why, then, should it be taxed again just so I can give it to someone else? To me, that’s like having to pay taxes on your previous year’s tax return.
Agree, we need to offset things in the budget. Yes, I’m one of the millions on the bandwagon of not agreeing with how our corrupt politicians survive on a steady diet of pork sandwiches. Until that system is fixed, we’ll continue to pay more in taxes than we should.
What courage to present such a touchy subject to the discussion group. I accept the gauntlet and am prepared to offer my opinion.
I am all in favor of the repeal. With a proviso. And this proviso I offer for all tax cuts…who wants to pay taxes? Whenever the congress wishes to cut taxes, they must offset the lost revenue with appropriate budget cuts. The death tax, according to the budget department, is some $50 billion. How is that revenue going to be replaced? If there are no cuts, maybe the way to replace it is for every person (man, woman & child) pay an extra $200 to cover the lost death tax revenue. Perhaps that can be reduced to $100 per person if congress agrees to no more pork such as the bridge to nowhere.
This is a touchy subject. I for one would like to see the tax repealed, but with an offset.
So you’ve got a savings account….and you earned a big ‘ole chunk of interest this year….a whopping 3%. Your $100 is now worth $103. But…instead of taxing your $3 at 25% (for easy math)….we’re going to tax the $103 at 25%.
Clearly I’m no tax attorney…or accountant for that matter…but whether someone is “worthy” of inheriting a business, or savvy enough to hire a good loophole accountant shouldn’t matter. It’s wrong as income tax on $103 and it’s wrong as an estate tax on $103MM. Once is more than enough.
And the many folks who’ve commented that the rich (whatever rich is) aren’t paying anyway is right on. When are our elected officials going to grow some?
There is little doubt that the Estate Tax is one of the most unfair taxes on the books. It is totally illogical to continue to tax assets that a person has already paid taxes on…after he or she is dead!
In my view, the shot heard ’round the world should be the “tyranny of the minority” that the asinine “60 vote cloture rule” creates. This is a Senate rule, not a Constitutional law. The majority party sets the rules of the Senate, but the Republican majority has not had a leader who has the intestinal fortitude to change the rule.
Good legislation that benefits the country continues to be held up in the Senate by the minority party (Democrats) and some Republicans in name only. It is not a coincidence that the Vice President has the tie breaking vote in the Senate. The early founders realized in a country where the “majority rules,” there could be times when an issue is debated to a “draw”.
If, in the mind of Bill Frist and others, 60% is such a magic number, perhaps Senators should be elected by that majority. States where a candidate fails to reach that threshold would have their Senators appointed by the Governor of the state.
The argument from Frist is that if he activated the so called “nuclear option,” then the Democrats could do the same thing if and when they be they become the majority party. It looks like the Republicans may get a chance to find that out if legislation continues to languish in the Senate because collegiality between Senators is more important than doing their job.
Ironically, this week the minority leader (Senator Reid of Nevada) was complaining that the Senate was wasting time debating same sex marriage instead of working on more “important” issues, YET he doesn’t have trouble using the cloture rule to prevent passage of good legislation…that his party opposes.
We need a majority leader that will bring a piece of legislation to the floor, give a time limit for debate, and then vote the issue up or down by a MAJORITY vote of 50 plus 1. Has any Senator EVER changed his/her vote after listening to the floor debate anyway?
Americans deserve better!!!
Who said that there are two things for sure – Death and taxes? Was it Will Roger’s? Ah, but I digress.
This is the worst type of tax. It is a tax upon already taxed income and assets. It has nothing to do with just the ‘wealthy’. It impacts everyone and, more in particular, small business owners who are the largest job creators – bar none. It has destroyed businesses, harmed families and devastated those left behind. It should never have existed and it should be repealed. Certainly it could be argued that they deserved it because they hadn’t properly sheltered themselves.
This term of the United States Senate is the most disappointing I have seen in my adult life. The only thing more sad about the existing leadership is that the alternative would be devastating to the nation. Even more of these types of punishing taxes would likely be implemented under the guise of punishing the ‘wealthy’ but determined to hurt the least of us so as to maintain their dominance upon us.
On topics of this sort and the existing leadership (of both parties), I highly recommend Peggy Noonan’s most recent column in the ‘WSJ’ and ‘OpinionJournal.com’.
This is classic redistribution of wealth. Let’s simplify the tax code by adopting a national sales tax so we can stop the time, energy, talent, and money that is wasted trying to avoid taxes.
The concept of running the country’s finances is fundamentally no different than managing our own check books. Spend less than you bring in: GOOD. Spend more than you bring in: BAD.
Unfortunately, our “for the people, by the people” elected representatives figured out long ago that they could get away with unbridled spending by asking “we the people” to tighten our belts, typically under the guise of “it’s to help the less fortunate, or the children, etc” and not to worry because we’re going to take it from those mean, nasty “rich” we all envy… I believe rich is now unofficially classified as any family with earnings over $40K.
I have an associate that with his siblings had to sell the family’s 5th generation 1000 acre farm in Iowa after the parents died. This heartbreaking move was required in order to pay the estate taxes on the “re-assessed” value of the land. They were land rich on paper, but just common folks. The Death Tax was the death of a 100+ year old family farm.
“For the people” my eye…
Interesting story in the WSJ (which, by the way – and to the surprise of exactly 7 of its 2+ million readers – supports repeal) on Wednesday about how efforts to avoid estate taxes is complicating the efforts of the (Chicago) Tribune to repurchase its stock: apparently Tax avoidance issues dictated its Board makeup, and they, in turn, are now split along family lines regarding the buyback.
As to the more general question, I have mixed feelings: no doubt there have been, over the years, a great number of family businesses that have been (needlessly) split up due to the Tax; but there are also a great number of businesses that have been “saved” because dim-witted heirs – who otherwise would have driven their legacy into bankruptcy – were forced to sell out. While sale isn’t the goal of the Tax, it can be a (happy) side effect….. and of course we get all that money (!)
So the “family farm, the family restaurant, the family gas station, the family entrepreneur” are all part of the less than 1% of the population with an estate in excess of $2m? In that case, why on earth have we been worrying about them? They obviously don’t need the advice of RW contributors to tell them how to run their businesses.
I’m sure someone will correct me if I’m wrong, but once family businesses get that big, haven’t most of them gone public in one way or another and limited their liabilities so that the family isn’t penalised when the owner dies? I doubt that the vast majority of family businesses wanting to continue trading and pass on down the generations has anywhere near that much money in spite of David’s assurance that “just about everyone has at least one or two million dollars on paper” (which clearly contradicts the less than 1% figure). If that is true, which I find hard to credit, then there are simple compromise solutions based on raising the bar, differentiating between real money and estimated value and taking into account the key issue of continuing to trade rather than simply passing on wealth.
We have similar complaints here from the middle class because the rise in property values means that, on paper, many of us have estates that go over the threshold for inheritance tax (this applies to personal estates, not just businesses). But the richer you are, on paper or otherwise, the more used to pre-empting such taxes you are and the sounder the plans you have in place to make sure your heirs get the house and everything that goes with it.
The Estate Tax should never have happened. Getting rid of it is the least we can do. What’s fair about (no matter the tax) taxing the same dollar over and over and over again? The demonization of the wealthy seems to have worked as too many feel it’s OK to tax and tax and tax some of the those who have worked hard to earn a very good living.
So the question is, how do we pay for it? HOW DO WE PAY FOR IT? ARE YOU KIDDING? Our fiscally unsound government is way too fat, so a little reduction here and there would be good … for a change. More government is never the answer but littler government is.
I see a frog in a pot of water; the heats on but he doesn’t know it.
1) Lowering taxes when the deficit is at record levels is fiscally unsound.
2) This is a transparent political effort to appeal to large campaign contributors.
3) I don’t see many wealthy families (e.g, The Kennedys, DuPonts, et. al.) on welfare.
How about some real solutions to real problems such as spiraling medical costs, social security, energy, the deficit, Iraq, etc., etc.?
With proper estate planning, a lot of estate taxes can be avoided. The wealthy have good accountants and lawyers to help them. But they don’t work for cheap. I’ve noticed a lot of my neighbor’s homes are now owned by trusts to keep them out of their estates. Is this really a problem for the wealthy?
It’s small businesses, family farms, and middle class people who have the most to worry about. With soaring home prices and companies replacing pensions with 401ks, just about everyone has at least one or two million dollars on paper. Small family farms that produce modest incomes could easily have millions of dollars in assets on paper. I don’t think we should repeal the estate tax, but simply raise the threshold so it does not impact small businesses and the middle class.
For the very, very, very wealthy families, 1% or less of the population, haven’t they found the loopholes to pass on the business or family jewels already? This group, over ten years, could cost the taxpayers $1.7 trillion.
So then, why can’t Congress address the families, under XX million dollars, that want to pass on their business, to the next generation, just have an exception for this group, only.
How much more cumbersome can the 20,000 page tax code book get?
In America, everything can be done if both sides could start working together. Hmmmmmmmmmmmmm
Unless someone has an idea on how to keep politicians in both parties from spending money on pork, we need some form of this tax. Have you seen the US current account deficit or the daily bill for Iraq lately?
I agree with Mr. Livingston – simply raise the minimum amount so it has less impact on small business.
I wrote an article on this subject when the repeal legislation first came out “Ding Dong the Estate Tax is Dead – not so fast my pretty” – every once in a while I get it right and it appears I am right in this instance.
Bottom line, when this legislation was put into place the first thing the Feds did was give themselves a raise by eliminating the revenue sharing they had done with the states. The second thing they did was give themselves a raise by eliminating the stepped up basis at death. Then they set a schedule that about this year or next they are effectively at the same rate (after the above mentioned raises) as they were before the legislation.
With one critical difference! They increased the unified credit from $600,000 per person to an increasing number that is currently at $2,000,000 per person. This is what many were asking for all along. The number of people impacted by estate taxes has dropped dramatically thanks to this increase in the unified credit. Some say (USA Today for one) the number is less than 2000 per year but I am uncertain what number is accurate.
Bottom line, here is my humble opinion. First, the small operator can fit within a unified credit of $4,000,000 (using a husband and wife’s current $2,000,000 number) and certainly any increase over this number only helps. Remember, this is a net number and the value for estate taxes can quite easily be managed and reduced on an operating business.
Second, larger operators simply MUST take the time and expense to implement effective plans to reduce or avoid estate taxes – it is a cost of business like income tax planning. A by-product of estate planning is that the same efforts, if done right, will serve in liability protection and succession and control planning – things all business owners need to address anyhow.
Finally, complain all we like but it is not likely to go away permanently. The number of people impacted once the Unified Credit reaches a certain level is so low and the revenue amount is so high that it is politically impractical to really fight this battle once you get beyond the grandstanding generalizations we are and will see in congress in an election year.
My prediction was and still is that we will see a “Freeze” of the estate legislation this year or next – perhaps (hopefully) with the addition of an additional increase in the Unified Credit. The question of this year versus next is a strictly political one – if the Republicans are feeling confident they will push it into next year – if they are not they will do it this year.
And when it is all done both sides will claim to have fought the good fight and won what they could and blame the other side for any failings.
…gotta love politics. 🙂
Reasonably well-run businesses have succession plans. They have development plans for the current junior staff and recruitment plans for positions that can’t be filled from within. Furthermore, any succession plan includes a tax plan. There are numerous simple strategies for estate tax issues, but all of them require planning in advance. Poorly-run businesses don’t plan well. Death comes to all. It isn’t a surprise. And no tax is inherently fair to everyone.
I am second generation in a family real estate development organization. My father, recently deceased, would never address estate family issues despite my pleas. Instead he did the things that smart entrepreneurs do – pay off debt.
Fortunately, the death tax is now delayed until my mother passes, and she is now 77. Our company’s net worth is in the high 8 figures. That means we either have to sell half our holdings, or mortgage our assets, and our financial strength will be a fraction of what it is now.
We employ 120 people. We have ongoing relationships with over 1000 vendors. Guess what happens when we have to sell or mortgage assets? There is no way I can employ the same number of people, so valued associates lose jobs. Many of our vendors will have to find new accounts to replace ours.
And there’s no way I am going to grow the business until I figure out how we pay Uncle Sam.
We are hiring lawyers and financial gurus, looking at buying life insurance, and investigating other ways to hoard cash in the hopes we can raise enough cash during my mother’s lifetime – in essence, we’re gambling on her having a long natural life, perhaps to age 90 as her mother lived.
I have to spend about a third of my time trying to manage the estate complexities, rather than spending this time growing and managing our business.
The cruel reality is that most wealthy families are in the same boat – inadequately prepared, and many don’t even understand what’s in store: freezing assets including checking, savings, and investment accounts for starters. It’s impossible to navigate the estate process without a lawyer – and huge fees rack up immediately.
And the worst part of this is having to deal with all the financial complexities while still grieving the loss of a loved one. This is tantamount to torture, at least emotionally.
There has to be a better way. Increase the corporate tax by 1-5%, or find some other way – period.
Lest you not feel sorry for our plight, or other wealthy families – then remember this: what if it was YOUR job that goes out the window when YOUR company’s owners have to pay the tax. If not you yourself, then perhaps it is your son or daughter, brother, sister, or parents in their pre-retirement years. The death tax has bankrupted many a fine family farm, and countless otherwise lucrative businesses.
My grandmother’s estate was $6.9 million of which $3.3 million was liquid in interest bearing accounts. The $3.3 million was gone the day we paid the taxes, and the estate had to borrow another $500,000 to pay the taxes. Nearly $75,000 was spent in appraisals and legal fees.
If you had not millions, but only $100 to your name, would you want the government to take half for any reason?
Write your congressmen, write letters to the editor, and do everything in your power to abolish this punitive, unfair, and potentially crippling death tax.
It is counterproductive. Let’s pay as we go and not gamble our fortunes. Let’s keep our personal investments sound and growing rather than turn it over to the government to blow as they see fit!