The Estate Tax II

A careful search of the web reveals that the main argument advanced is that the tax endangers family farms. But they are not arguing for a greater exemption before the tax takes its bite. They are arguing for total repeal as though a “family farm” might be worth an infinite amount and they use hysterical, false claims to support their drive. Yet, amazingly enough they have found supporters even among main street groups. In 2005, long before the Bush repeal was to take effect in full, the American Family Business Institute and Free Enterprise Fund announced a $15 million campaign. Its radio ad, which ran in Montana, and was to be replicated in numerous other states, including New York, had the announcer intone the following:

“You work hard all your life. You pay your taxes and play by the rules, and, yeah, you're proud of what you've accomplished. You'd like to leave your family farm or business to your kids. It's a legacy, something they can hold onto. It's the American dream, right? But the IRS death tax can turn that dream into a nightmare. When you die, the IRS can bury YOUR FAMILY in crippling tax bills. IT CAN COST THEM EVERYTHING. What's worse, the death tax is a double tax on all you've worked to build. The death tax is wrong. It's unfair. And this year, Montana's family business owners and farmers have joined together to kill this unjust tax, before it destroys one more family legacy.” (Caps added for emphasis)

What is the truth? The likelihood that many who heard that ad would be affected is extremely small.

Less than 3% of deceased adults in 2002 (before any of the Bush tax cuts went into effect) had estates subject to the tax, according to the nonpartisan Urban-Brookings Tax Policy Center and figures from the IRS. As for “Cost them everything,” of the 440 taxable family farm and business estates in 2004, two out of five paid an average rate of only 1.6 percent. These were taxable estates valued at less than $2 million. Very large estates valued at over $20 million paid an average effective rate of just over 22 percent. No one no matter how rich could lose “everything.”

But it isn’t even a matter any more of going back to the quite reasonable tax rates that Bush inherited. Obama’s plan is to set the exemption at $3.5 million per person ($7 million for couples), which means that all but the very wealthy would be exempt from any inheritance tax at all, and the top marginal rate on a graduated basis would only be 45% reducing the average effective rate to well under 22%

But the opponents are not satisfied with such generous reduction in tax. They will settle for nothing short of repeal and they will run the most incendiary and misleading ads to further their goals. Here is a TV ad that ran in 2005.

“Announcer: They freed the world from tyranny, then came home to build family businesses and farms. Heroes in war and peace. They paid taxes all their lives, but now the IRS hits this "Greatest Generation" with an unjust double tax, the death tax.”

(Voice of a supposed WWII Vet) “In war and peace, my generation stood up for what's right. Join us now and help us end the unfair death tax.”
The TV ad featured World War II veterans from the popular HBO series “Band of Brothers,” Actually; of course, WWII vets are not likely to be subject to the estate tax when they die. The estates of veterans and non-veterans alike owed taxes only on amounts exceeding $1.5 million in 2005. How many veterans are likely to have an estate of that size, and under Obama’s plan the exemption would go to $7 million per couple, and then the tax rate would only gradually escalate.

As for the double tax argument, I have already dealt with this in previous discussions. First of all the rich are escaping without paying any capital gains tax at all, because unrealized capital gains escape capital gains taxation when passed onto heirs, and secondly as I have pointed out all taxes are in one way or another double taxation.

But none of this fazes the repeal lobby that represents the very rich such as the Walton family, who own Walmart. They continue to hide behind the phony argument about family farms. For instance deltafarms.com posted this on the web in November of 2008.

“To exemplify how this can affect a family farm, look at how the varying estate tax rates over the next three years impact a 2,500-acre farm valued at $2,500 per acre. With structural improvements and equipment accounting for an additional 15 percent of value, the total estate would be worth $7,187,500.”

I don’t know about a family farm of 2,500 acres. I wonder how many family farms are that large, if any. But Obama has even taken the wind out of their sails. An exemption of $7 million per couple would take care even of this very wealthy estate.

So the Estate tax as now proposed effects only the very richest at the top of our increasingly stratified society. It seems self evident that the Obama plan is far too generous to those who want to build and maintain a permanent aristocracy in America.

Finally we need to focus on the effect of a repeal. According to the Center on Budget Policy Priorities the estate tax encourages billions of dollars in charitable donations each year since donations substantially reduce the tax on large estates and its repeal would cost more than $1 trillion over the first ten years, 2012-2021, in which its cost would be fully felt.

Given these facts it is incredible that there are those who still would advocate this drastic radical idea.