The Fruit Growers News - January 2002


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Permanently Repeal the EstateTax to Protect Farms

By Senator Wayne Allard R-Colorado

This year, a consensus emerged in favor of significant tax reform. Congress passed and the president signed into law a comprehensive tax cuts bill that eliminates the estate tax in 2010. The only problem is the bill expires in 2011. Permanent repeal of the estate tax is still needed to produce a fairer and flatter tax system. While it is important to focus on responding to recent tragedies in our country, we should not lose sight of the need for policy reforms that will provide long-term stimulus for our economy and reflect America’s conviction that prosperity through hard work should be rewarded, not penalized. Congress has levied estate taxes at various times throughout U.S. history, particularly during war. The current estate tax dates back to 1916, a time when many in Congress were looking for ways to redistribute some of the wealth held by a small number of super-rich families. This first permanent estate tax had a top rate of only 10%, and the threshold was high enough to ensure that the tax affected only a tiny fraction of the population. Like the rest of our tax code, it did not take long for this limited tax to evolve into a more substantial burden. In only the second year of the tax, the top rate was increased to 25%. By 1935 the top rate was 70%, and in 1941 it reached an all-time high of 77%. The strongest argument that supporters of the estate tax make is that most American families will never have to pay an estate tax. While this is true, it does not justify retention of a tax that causes great harm to family businesses and farmers, often constitutes double taxation, limits economic growth and consumes significant resources in unproductive tax compliance activities. In other words, the estate tax is not worth all the trouble. The estate tax can destroy a family business, farm or ranch. This is the most disturbing aspect of the tax. No American family should lose its business or farm because of the estate tax. Current estimates are that more than 70% of family businesses do not survive the second generation, and 87% do not survive the third generation. While there are many reasons for these high number, the estate tax is certainly one of them. More large farms are facing the prospect of break-up and sale to developers in order to pay the estate tax. One might expect that with all the economic dislocation associated with the estate tax that it raises a significant amount of revenue. In fact, the revenue take is quite modest - less than 2% of federal revenue, or $27.7 billion in 1999. A 1995 study published by the Rand Corporation found that for the wealthiest Americans, only 7.5% of their wealth is from inheritance. The other 92.5% is from earnings. America is a nation of tremendous economic opportunity. Success is determined principally through hard work and individual initiative. Our tax policy should focus on encouraging greater initiative rather than on attempts to limit inherited wealth. The estate tax is a relic. It damages family farms and businesses, harms the economy and constitutes double taxation. It is time for the estate tax to go. Sen. Allard (R-Colo.) is a member of the Senate Agriculture, Armed Services and Banking, Housing and Urban Affairs committees.