It must be acknowledged: The branding of the federal inheritance tax as the “Death Tax” is brilliant.
Death and taxes are the twin scourges of humanity, most people would agree. To combine them both into a death tax is to fashion a monster that connotes nothing positive at all. It’s an idea that can be easily and effectively demonized.
“They’re dead—and now you want to tax them from beyond the grave?” is a typical talking point, one that is skillfully deployed by the very small but very wealthy cadre of behind-the-scenes strategists working to repeal the estate tax.
In a more articulate fashion, it’s the argument offered by Glen Cope, a Missouri beef producer and committee member affiliated with the American Farm Bureau Federation, in a recent commentary on PorkNetwork.com titled, “Should death really be taxed?”
“Farmers are, as the old phrase goes, ‘asset rich and cash poor,’ ”Cope explained. “Unfortunately, when parents pass, the estate tax is triggered because of high land prices, a fact that most people in this country don’t understand.”
The first part of that statement is absolutely correct; the second, not so much.
The point is that the estate tax is not about taxing the dead, it’s about taxing the inherited wealth being passed on to one’s living heirs. Nothing unfair about that.
You earn an income, you get taxed. You claim investment dividends or business profits, you’re taxed on those earnings. You win the lottery, you pay taxes on the windfall. That’s the way the system works.
We can debate ad nauseum—and we no doubt will—the rates and schedules and exemptions built into the tax code. But conceptually, taxes are the price we pay for the services and security only government can provide to all citizens.
Thus, eliminating or circumventing an entire category of taxation, as is endlessly suggested by special interests lobbying to impose capital punishment on the death tax, is inherently unfair. It creates a few winners, while the rest of the population is forced to make up the lost revenue.
Despite its connection to feel-good family farming, anti-death tax arguments are no different than the ones offered in support of other tax-killing recommendations regarding capital gains, corporate profits or top marginal rates.
A trifecta of trouble
Despite Mr. Cope’s eloquence and passion in urging Congress to repeal the estate tax, there are three major problems with the argument:
- First, even under the current rules, the estate tax only affects a small minority of farmers and producers. With an exemption of up to $10 million per couple for family-owned operations, the majority of people who inherit farms and ranches pay no federal estate tax at all.
- Second, there are myriad ways to escape the tax bite, through the use of tax-free or tax-mitigated trusts and gifts and other vehicles that transfer value prior to one’s ultimate demise. If you’re the sole or joint owner of a farm or ranch large enough to be hit with a serious tax bill upon transfer of the property at death—and you’ve done nothing to prepare for that eventuality—your descendants deserve to fork over big time.
- Finally, and this is the key argument that supports an inheritance tax, most opponents only talk about a single generation. They complain that after years of working hard, a farm or business gets severely taxed, and the (presumably young) new owners start out behind the eight ball, financially speaking. Such a scenario does seem skewed.