Under the Tax Cuts and Jobs Act of 2017, President Donald Trump and Congress worked together to make a series of significant changes to tax code. Among them was a change to the estate tax, which taxes individuals on larger inheritances (which is why it’s also known as the “death tax”).
As an outcome of that reform, the tax – which charges heirs 40 percent of the value of the estate – currently impacts estates in excess of $11.7 million.
At the time, key Democrats roundly criticized the proposed repeal, saying that it helps only the very rich, folks with unfathomably-high net worth like Jeff Bezos, Bill Gates, Elon Musk and the then-President himself.
Such talk has come to fore again, now that we have a new President. Joe Biden has countered the previous reform with reform of his own – he has proposed decreasing the limit and increasing the rate. Under the Biden plan, only estates with a value less than $3.5 million would be tax free; those above it would have to pay a 45% tax.
His plan, just like the criticism that befell Trump’s plan back in 2017, is built on a false narrative that ignores the fact that the estate tax in some way or another has a significant impact on many small business owners, especially at those lower levels.
To put it into perspective, among the alleged “filthy rich” who would be fleeced by the tax are countless farmers across Western New York.
Farmers aren’t sitting on millions in the bank -- or even thousands of dollars for that matter -- like the Bezoses and Trumps of the world.
Instead, many farm owners are cash poor yet wealth rich due to the assets of the business itself – that is, the property, plant and equipment and the overall value of the business portfolio.
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 3,000 acres of land to meet those needs and keep their business as solvent as possible. Rural land has become expensive in recent decades and can now be had for around $2,000 an acre in this area. One 3,000 acre farm could therefore hold $6 million in value in just the land that was accumulated over time.
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. 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, trade wars, or a dairy crisis like they’re living in now, they aren’t even making any money at all.
Even so, if they died, the IRS would come knocking.
Their kids, who would have hoped to keep the farm running for they and their kids, would 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.
With everything else that keeps them up at night, an empowered estate tax shouldn’t be yet another worry. Farming families shouldn’t have to obsess about and spend money on succession plans designed entirely to keep Uncle Sam at bay, especially when it’s immoral for government to believe that an inheritance belongs to the public coffers in the first place. It belongs to the families trying to keep small businesses alive for themselves, the families they employ, and the customers and communities who benefit from what they do.
Hopefully, President Biden considers the plight of family farms – and other family-run businesses -- and casts his death tax plan aside, like a sort of broken campaign promise.
When the Grim Reaper comes for a family member, it shouldn’t come for the business, 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.
And, don’t forget, that same federal government had already spent years reaping corporate and personal income taxes from that enterprise and its owners and heirs.
When is enough enough?
From the 01 February 2021 Greater Niagara Newspapers and Batavia Daily News