By John Stencel
In April the U.S. House of Representatives passed H.R. 8, Permanent Estate Tax Repeal Act of 2005. One Washington columnist calls it the Paris Hilton tax cut, and in fact, the idea of repealing the estate tax was planted in 1992 when heirs to the Mars, Inc. and other very wealthy families joined together to hire a lobbyist to argue their case. Thirteen years later, it appears the investment of the nation’s wealthiest handful of families may be paying off.
So what does this all have to do with family farmers and ranchers?
Often touted as beneficial to family farm operations, in truth very few operations will have to pay at all when passing assets to the next generation. Current law exempts estates worth up to $1.5 million per individual or $3 million per couple, from paying any estate tax. This law would affect only 7,500 of the nation’s richest estates in 2009, the year current law expires. I submit that if any farms are included in the 7,500 estates affected, farming is not the primary source of income. Therefore, it is disingenuous at best and more likely just dishonest to hold up family farms and ranches as the poster child for repealing the estate tax.
However, there is something much more sinister within this estate tax bill. It is the way that capital gains are calculated. Under current law, the tax basis for inherited property is calculated at its value at transfer. Capital gains are paid only on the increase in value between when the property is transferred to the heir and when it is sold. Tax liability is only on assets that exceed the current exemption. Under the estate tax repeal bill passed by the House, heirs would have to pay capital gains (not estate tax) on the increase in value between the time the asset was acquired by their benefactor and when it is sold by them. While an estimated 7,500 estates will be affected by current law in 2009, nearly ten times that amount or 71,000 estates, are estimated to be affected in 2010 when this law adopted by the House would take effect. Many of the farms and ranches that will be passed on to heirs over the next decade have been “in the family” for decades, making the likelihood of a hefty capital gains tax probable for most operations.
Despite the added revenue from collection of more capital gains tax, elimination of the estate tax is estimated to reduce revenue by $290 billion over ten years. As lawmakers face the largest federal deficit in history and begin to consider Social Security benefit reductions for middle class Americans, why is preserving the massive fortunes of a few ultra-rich families a priority?
We are not a country of economic socialism with policies designed to keep all its citizens at the same economic level. Yet, appeal of the estate tax will acerbate the move of our economy further along its current path of dividing Americans into the have’s and the have not’s. Call your senators and tell them to reject this insane legislation.