The last thing that a family grieving a loved one should have to worry about is losing the family business or farm to the Internal Revenue Service (IRS) because of the heavy toll taken by estate taxes. Unfortunately, this is a real concern for many Americans.
Consider the farmer whose mother and father died a few years apart from one another, who had to sell off 480 acres of the family farm to pay the estate taxes. Think about the newspaper owner who has paid more than $500,000 in federal estate taxes in the last five years and, on top of this, has spent large sums in order to plan for future taxes. Although the paper has been in his family for several generations, if he were to die tomorrow it would have to be sold off to pay the death tax.
These are not isolated examples. For years, Congress has been hearing from Americans who are fearful – or just plain angry – about the debilitating tax burden their children could face when they inherit the family farm or business. In some cases, the tax on the property of the deceased can be as much as 55 percent. This is especially offensive, considering that the deceased has already paid a lifetime’s worth of taxes to the government. Americans should not have to endure this sort of double taxation.
Parents who have worked their whole lives to build a business that they can be proud of to pass on to their children and grandchildren should be able to do just that – without worrying about the IRS taking one-third or perhaps one-half of its value.
Aside from the devastating impact the death tax can have on a personal level, its negative effect on the economy is significant. According to the National Federation of Independent Business (NFIB), one-third of small-business owners today will have to sell outright or liquidate a part of their business to pay estate taxes. Half of those who must liquidate to settle with the IRS will have to eliminate 30 or more jobs.
Consider the businesses that could expand operations, hire more employees, and purchase new equipment if they did not have to divert resources into estate planning. The economy would surely benefit if their owners could take the money they spend consulting with attorneys and accountants about the best way to pass on their business and instead invest it in the business itself.
Death taxes also hurt the economy by acting as a disincentive to savings. If people are given the choice between spending more of their hard-earned money and giving more of it to the IRS, they choose spending. On the other hand, if parents have the option of saving their money, investing it in the family business or farm, and passing this on to their children - without saddling them with exorbitant taxes – most of them likely would choose this route.
Some might argue that the government cannot afford to do away with the death tax, but they have not properly weighed its costs and benefits. A December 1998 study by the Joint Economic Committee (JEC) of Congress noted that the estate tax raises very little net revenue for the federal government. As the JEC explains, “the distortionary effects of the estate tax result in losses under the income tax that are roughly the same size as estate tax revenue.” In other words, the government loses money in certain areas because of the negative economic impact of the estate tax, canceling out the money it gains by collecting this tax.
Because of the damage the death tax has done to family farms and businesses, and to the economy as a whole, I cosponsored and voted in favor of legislation that repeals the estate tax within 10 years. This legislation, the Death Tax Elimination Act (H.R. 8), was passed by the House of Representatives on June 9. I urge the Senate and President Clinton to follow suit and eliminate this unfair tax.