TAX AND THE GRIM REAPER
"Our new Constitution is now established, and has an appearance that promises permanency; but in this world, nothing can be said to be certain, except death and taxes." – Benjamin Franklin, 1789
Benjamin Franklin would no doubt be appalled, but not surprised, to see how those two certainties have come together to put an onerous burden on countless American families.
The estate tax, or death tax, hits people when they are down. It breaks up family farms and businesses. It slows the economy by diverting resources that would otherwise be available for investment, and it stifles job creation.
Bad economic policy aside, there's no getting around the fact that the estate tax is confiscatory. Assets subject to this tax already have been taxed -- first when the money is earned, and again when it is invested.
The result of this very selective double and triple taxation is troubling: only 30 percent of all family-owned businesses are passed down to a second generation, and only 13 percent reach a third generation, because the current tax law forces owner-heirs to sell the farms and businesses, whole or in part, to pay the tax. One study found that 77 percent of family businesses that entered bankruptcy had failed after the unexpected death of the founders.
We've all heard the sad stories about sons and daughters who have had to sell their parents' family farms in order to pay the death tax. But Texan David Langford's family history illustrates another downside to this tax: how it can stymie environmental conservation efforts.
This is a story seldom told, but one that unfolds all across Texas many times in any given year. Mr. Langford, who is executive vice president of the Texas Wildlife Association, calls the estate tax the "No. 1 destroyer of wildlife habitat in this country."
Before his mother died, she and her son did everything they could to protect and conserve their land in the Texas Hill Country. At the same time they paid a small fortune to accountants, tax attorneys and estate planners to avoid catastrophe.
But all the planning in the world couldn't help when the tax man came calling.
Mr. Langford's mother died 1993. Because the land had increased so much in value, he had to sell nearly everything she owned, including her house, and nearly everything he owned, including his house, to pay the estate taxes and keep part of his family's land. But even that wasn't enough. He and his wife had to take out a 35-year loan from the Federal Land Bank to pay the rest of the taxes. By now, the value of the land has increased so much that, if anything happens to him, there is no way his children will be able to keep the family property that is left. They would inherit the 35-year debt while being asked to pay another round of death taxes -- as much as 55 percent of the value of their assets. The land, he concludes, "...would become a subdivision."
"Private land stewards all over the country are being ravaged by the estate tax," Mr. Langford writes. "We aren't a bunch of fat cats trying to hoard our assets. We are private citizens trying to preserve an irreplaceable resource for the enjoyment and benefit of generations to come."
Mr. Langford's story is just one part of a bigger, more disturbing picture. The death tax is an all-round losing proposition. Congress' Joint Economic Committee reports that, "...the costs imposed by the death tax far outweigh any benefits it might produce. This century, the tax has reduced the stock of capital in the American economy by $497 billion."
While family farms are among the hardest hit, there are other victims paying the heavy price of this tax. It is wiping out family-owned newspapers and putting family-owned radio stations on the auction block all over America. In 1910 there were 2,100 independently owned daily newspapers in the United States. By 1999, there were only 300.
Among the many ironies the estate tax presents is that, while it brings in less than 1 percent of total federal tax revenues, its enforcement costs the government 65 cents for every dollar received.
Since I've been in the Senate, the administration has rejected repeated efforts to end this tax once and for all. But the tide may be turning. On June 6, the House passed a bill ending the death tax by a large, bipartisan majority, and the Senate is expected to take it up soon. We are going to keep on trying until the estate tax is nothing more than an unhappy chapter in American history.
June 21, 2000