Lawmakers work to abolish death tax
April 2, 2015
The federal estate tax is nearly 100 years old. If South Dakota Senator John Thune has his way, it won't get any older.
Under current law, a deceased person's estate or assets must be worth $5.43 million before they are subject to the tax. The tax rate is 40 percent, the fourth highest in the world. Only Japan, South Korea and France have higher rates.
Thune said the death tax is punishing Americans for their achievements–income which was already taxed when originally earned, according to a statement released March 31. "This tax punishes farmers and entrepreneurs for a lifetime of hard work," Thune said.
A total of 27 Republican senators have endorsed Thune's bill, officially titled, "A bill to amend the Internal Revenue Code of 1986 to repeal the estate and generation-skipping transfer taxes, and for other purposes" (S.860) It has been referred to the Senate Finance Committee.
The companion bill in the House of Representatives, The Death Tax Repeal Act of 2015 (HB1105) was introduced by Kevin Brady (R-TX). That one has 135 co-sponsors from both parties. March 25, 2015, the House Ways and Means committee passed that bill, 22-10.
"The death tax unduly burdens American families by taxing assets that are handed down from generation to generation, like family farms or small family businesses," said Mitch McConnell (R-KY), senate majority leader and co-sponsor of Thune's bill. "It is the federal government's final insult to tax your family when you have already paid taxes on your property throughout your life."
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Many Democrats, including President Obama, say $5.43 million is an unfair loophole for the wealthiest Americans.
While many farmers and ranchers don't have a lot of ready cash, they have assets which can total $5 million easily. The most obvious is land.
For instance, in northeastern Oklahoma, many cattle operations have 5,000 acres. These are not the large operations. A fair approximate price for land in northeast Oklahoma is $2,000 per acre. So the land alone, in this case, is worth $10 million.
Todd Wilkinson, an attorney who specializes in ag law and estate planning, was in Washington, D.C. for Thune's announcement of the bill, and spoke at the press conference. "I think there's a disconnect in Washington," said Wilkinson, who is also co-owner of a feedlot near DeSmet, South Dakota. "They're used to people having cash in the bank. While we may have assets on a financial statement, that doesn't mean we've got enormous amounts of cash sitting in the bank to pay the estate tax. If we sell our assets we're out of business. That's the message we're trying to get across to the folks in D.C."
The other element he wants to communicate is that land increases in market value, but that doesn't mean income increases proportionately. "When I bought my first quarter of land 37 years ago I paid less than $80,000. Now it's worth about a million. That doesn't mean the land is any better, it's just worth more. I still need that quarter of land for my business. It doesn't mean I have an asset that's going to equate to that many dollars."
Wilkinson said nearly anyone in the Capitol who has an ag or small business constituency understands, but some are just out of touch. There was talk while he was there of creating an exemption for agriculture. "There seems to be bipartisan support recognizing there's a problem in the ag sector. I don't know if that means we'll end up with a hybrid of what we have now." Wilkinson said he'd like to see it repealed completely, because it's not just a problem for agriculture, but for small business as well.
"Some of those ultra-wealthy can put their money off-shore, or invest in things that aren't so suceptible to tax. You can't do that with a quarter of land. We don't play those games."
Wilkinson helps families with estate planning, which can help offset the costs of the death tax, and he thinks people are starting to plan better. "I think we all realize that our land, cattle and equipment are worth more than in years past. While I say people have started planning, I see people every week who haven't done anything. Unfortunately, if someone passes away, it's too late. It's too bad to see someone who has worked all their life to put together a farm or ranch not be able to pass it on without jumping through hoops."
Last week, senators approved an amendment to the federal fiscal year 2016 budget which backed the repeal of the estate tax. The only Republican senator who did not support this amendment was Susan Collins of Maine. While the vote is not binding, it did get the senators' intentions on the record.
The Death Tax Repeal Act of 2015 would benefit approximately 5,500 families each year.
The battle is uphill because the federal government receives an estimated $270 billion in revenue each year from the death tax.
In an effort to head off a repeal of the death tax, in January Obama proposed changing the estate tax to levy a new capital gains tax on inherited assets totaling $200,000 acquired by couples and $100,000 inherited by individuals.
This week ag producers from North Dakota, including Steve Brooks, Jason Zahn and Jason Schmidt, visited the U.S. Capitol to meet legislators and discuss the issue of the estate tax, among other things.
"They think they've got enough votes for it," Brooks said of the death tax repeal. "I know Senator (John) Hoeven and Representative (Kevin) Cramer are for it." Brooks said his delegation also discussed forest service issues, the Bureau of Land Management and new dietary guidelines while at the Capitol.