Friday, September 29, 2017

Kill the estate tax

Last week, President Trump announced his tax reform plan. Among the changes he proposed was an all-out repeal of the estate tax, which taxes individuals on larger inheritances. Currently, it impacts estates in excess of $5.49 million but that amount changes with the political winds of the day. It’s a considerable tax, too, charging heirs 40 percent of the value of the estate.

Key Democrats roundly criticized the proposed repeal, saying that it helps only the very rich, folks with unfathomably-high net worth like Warren Buffet, Bill Gates, and the President himself.

That false narrative ignores the fact that the estate tax in some way or another has a significant impact on many small business owners. Among those are countless farmers across Western New York and others who, like this writer, might own shops and factories.

We farmers and manufacturers aren’t sitting on millions in the bank -- or even thousands of dollars for that matter -- like the Buffets and Trumps of the world. Instead, many small business owners are cash poor yet wealth rich due to the assets of the business itself (property, plant and equipment).

Consider what farmers hold in land alone. Large dairy farms abound on the Niagara Frontier, many having 300 to 1,000 cows. To make such an enterprise work they need considerable acreage to allow the cattle to range, to grow the feed for the cows, and to raise crops that allow the farm to ride out the financial roller coaster that is the milk market. It is not uncommon for those dairymen to have at least 5,000 acres of land to meet those needs and keep their business solvent. Rural land has become expensive in recent decades and can now be had for around $2,000 an acre in this area. One 5,000 acre farm could therefore hold $10 million in value in just the land.

That farm also needs considerable equipment to make it work. That is not cheap. Small tractors which serve the feedlots come in anywhere between $50,000 and $100,000. The large tractors needed to plow, plant and harvest large tracts of acreage range from $110,000 to almost $270,000 for the latest and greatest. Now, imagine a whole fleet of those machines to handle all the various tasks and crops. That same farm could have almost two million dollars invested in tractors alone.

Now, think about the men and women who own those farms. They live simply. There’s no extravagance. They’re not rolling in cash. In many years, when there’s a drought, a late frost, or a dairy crisis, they aren’t even making any money at all.

But, if they died, the IRS would come knocking. Their kids, who would have hoped to keep the farm running for they and their kids, have to pony up and give Uncle Sam cash they don’t have by selling off assets, taking out backbreaking loans, or getting rid of the farm entirely.  

It’s so scary of a scenario that this statistic tells it all: 80 percent of farmers plan to pass off control to the next generation, but only 20 percent of them are confident in the ability of their succession and estate planning to do so.

Then there are companies like mine; let’s go from talking about businesses that raise produce to those that make products.

Confer Plastics has been in operation for 45 years. Over that time, the company has accumulated 19 molding machines, 2 large buildings, acres of land, and a flourishing product line. That’s a lot of wealth held only as objects, not as cash (as matter of fact, we have loans to pay off that allow us to acquire those things).

To make sure that the company can go to the next generation – which guarantees an determined effort to keep my 240 coworkers employed – the company has spent considerable amounts of money on making sure that there is a clean succession in the event that my dad or I (or, God forbid, both of us at once) pass away. Every year, the company pays nearly a quarter of a million dollars in life insurance policies on the two of us to manage the very real threat posed by the estate tax.

It grosses me out to think what we could do with that $220,000 annually. We could pay off debt, buy new machines, dole out bonuses to our team, fix up the building, and develop new products -- you know, the things businesses are supposed to do. But instead, we have to prepare ourselves to pay the piper in death, even though that same government has already reaped millions from the company in regard to corporate taxes through the years.

We’re not alone in that regard. Drive through WNY and you see countless, long-lived family owned and operated plants. I guarantee that the owners wonder often how to keep the company going for the future.
When death comes for a family member, it shouldn’t come for the company, too. The estate tax is a cash grab by the government that comes at the worst time, under the worst conditions possible, and for the worst reason possible.

It’s immoral to believe that an inheritance belongs to the public coffers. It belongs to the families trying to keep farms and factories alive for themselves and the families they employ.

From the 02 October 2017 Greater Niagara Newspapers

1 comment:

Andrew said...

Nice job Bob. There's something that we're not used to these days, an intellectually honest argument about an issue. I'd love it if we (meaning our elected officials) could drop the pre-manufactured, emotionally charged talking points and might instead, perhaps, debate based on the merits of our positions.