Dave Swenson

Senator John Thune, from my home state of South Dakota, has a degree in business and an MBA.  He knows little of tax math, incidence, or outcomes from what I can tell. Like many mouthpieces on many topics, he doesn’t let facts get in the way of a heartfelt story, though.  And the best story the GOP has spun over the last decade or so is the tale of woe and intrigue associated with the dreaded federal estate tax, which they’ve disingenuously rebranded as the “death tax.”

Thune co-sponsored the just-passed House bill to eliminate the federal estate tax and at that time said:

For too long the federal government has forced grieving families to pay a tax on their loved one’s life savings that has been built from income already taxed when originally earned. Currently more than 70 percent of family businesses do not survive to the second generation, and 90 percent of family businesses do not survive to the third generation.

Without citing one example, Thune intimated that the federal estate tax was destroying or would destroy businesses and was terrorizing grieving survivors.

There are others, our own Senator Grassley said recently to the Des Moines Register that the estate tax “violates the principle of the family farm.” I leave it to you to sort that out.  South Dakota Cattlemen’s Association President Todd Wilkerson said: “don’t tax us out of business.” And Representative Paul Ryan during a House committee meeting said it “… undermines the life work and the life savings of farmers and small- and medium-sized businesses … across the nation.”

It is all hooey.

First, there is no evidence the current federal estate tax has taxed any farm out of business. When pressed, Thune’s staff, according to the Washington Post,

could not identify a single farm that had been sold because of the estate tax, but they [claimed without providing any evidence] that some farms had to sell acreage in order to pay the tax.

The Center on Budget Policy and Priorities (CBPP), citing a joint congressional committee report on the estate tax reported that just 2 out of 1,000 estates would be expected to pay any estate taxes.   Further, the nonpartisan Tax Policy Center estimated that federal estate taxes were paid on only 20 small business or farm estates in 2013 nationwide.  

(all things being equal, then, we could project that Iowa would have either one small business estate or one farm estate paying federal estate taxes just every 5 years on average. Here is the CBPP study http://www.cbpp.org/cms/?fa=vi… )

Second, and this gets back to my original point, people complaining about taxes are often glaringly if not willfully ignorant of actual tax law or tax mathematics.

The federal estate kicks in at 40 percent of the value of a single person’s estate in excess of $5.43 million, in the case of a single-person estate, and $10.86 million for the estate of a married couple.  Estates of those sizes are not small, and the bulk of those estates are not usually composed of incomes that had already taxed, as Senator Thune asserted.  Those estates contain substantial portions that are real properties, stocks, and securities whose capital gains have yet to be taxed.

So, say I’m grocer (or farmer) Fred’s son, his sole heir, and grocer Fred dies.  Dad left me an estate of $6 million, meaning it is now subject to federal taxes. The tax man cometh.  

The entire estate is not subject to the federal tax, just the increment over $5.43 million.   I would owe federal taxes on $570,000, not $6 million, which at the effective rate of 40% would be $228,000.  Further, the federal government would allow me to take as long as 15 years to pay that off with only nominal interest charges.  Paid in a lump sum, my tax would be 3.8 percent of the total value of my inheritance (which, by the way, is completely deductible from my Iowa taxes).  

After taxes, my total inheritance would be $5.772 million.  The tax did not destroy me, I am rich beyond my wildest dreams.

The point is that the ostensibly confiscatory federal estate tax is nothing like the family-destroying monster it has been made out to be.  It is generous in its allowances, and it is by far the most progressive of all taxes in that it aggressively taxes wealth accumulations that are far and above those held by 99 percent of the population.

The beneficiaries of this ruse are the super wealthy, who have never minded exploiting our collective fondness for family farmers or the small businesses as they strive to further line their children’s pockets from beyond the grave.