Lawmakers aim to eliminate death tax

Jul 5, 2013

Utah farmers could find some financial relief in the near future if a major tax reform bill becomes law. UPR’s Matt Jensen reports on a new attempt at eliminating one of the nation’s oldest taxes.

A South Dakota lawmaker is proposing to do away with a centuries-old tax commonly known as the death tax. The estate tax, its technical name, is levied on family farms, ranches, and businesses upon the death of an owner. Needless to say, it’s a very unpopular tax among farmers.

Last month, U.S. Sen. John Thune (R-S.D.) re-introduced a bill to eliminate the tax, along with Texas Republican Rep. Kevin Brady. Here’s Thune at a press conference on June 19.

“We don’t believe death ought to be a taxable event,” said Thune. “If you look at what families go through when they’re in a grieving process, it’s really ironic that we penalize and punish them through the tax code after they’ve worked really hard over a lifetime to build up some equity and some assets that they hope to pass onto the next generation. Imposing a tax rate as high as 40 percent is not only bad for our economy, it’s unfair to those families who have saved and built for generations; and they’re creating jobs at the same time.”

A grain operation in Juab County.
A grain operation in Juab County.
Credit utah.gov

Other lawmakers agree. Here's bill co-sponsor Kevin Brady.

“This tax barely pays for two to three days of federal spending over the year. The damage it creates far exceeds any benefit it has for revenue so it’s time to end this unfair tax. We’re going to continue, as we go about tax reform, to make this a high priority.”

The bill is nearly identical to legislation introduced in the last session that got bipartisan support of 223 representatives and 38 senators including Utah Sen. Orrin Hatch who’s also backing this latest effort.

“I just believe this is one of the worst taxes that we can possibly have,” he said at the press event. “And I hope that in a bipartisan way, that our friends on the other side and our fellow Republicans and Democrats will do everything they can this year to get rid of this dog.”

A 2009 study by the Congressional Budget Office indicated that one-third of family business that were required to pay the estate tax owed more in taxes than they had in liquid assets.

“The fact of the matter is if we don’t do something, 2,400 farms are going to be hit this year and about 2,700 small businesses,” added Hatch. “In the case of the family farm, they work all their lives; their equity is in the family farm; and then we go and take almost half of it away. (If) they’re wealthy enough to hire really good lawyers (they) can avoid these kinds of things. But the average family farmer just can’t do that and neither can the average family business.”

Utah agriculture experts are weighing in as well. Randy Parker is the CEO of the Utah Farm Bureau – the state's largest voluntary organization of farmers and ranchers. He says individuals and families own 98 percent of the more than 16,000 farms in Utah. Parker even wrote his master’s thesis on the impact of inheritance tax on intergenerational family farms.

“One of the problems that family farms and ranches have is that most of their financial assets are tied up in land, buildings and equipment,” said Parker. “They don’t have a lot of liquid instruments like stocks, bonds and cash in the bank. So when one of the owners of the farms passes and it’s time to look at how to move the farm to the next generation, with 80 to 90 percent of the assets tied up, they have to make a tough decision, and generally that means they have to sell off part or all of it to satisfy the tax implications.”

According to Parker, the estate tax was created more than 100 years ago to help pay down the massive debt from the Civil War. Proponents for keeping the tax say big name food companies associated with American agriculture can afford to pay the high tax. But Parker says corporate tax structure helps such large companies avoid the estate tax, which is levied against individuals and families rather than corporations.

Parker says one of the major flaws of the death tax is that it’s easy for farming operations to reach the taxable threshold. A typical alfalfa farmer in Utah, for example, can own acreage, facilities and equipment that exceed millions of dollars in value. But Parker says the commodity prices of their goods barely cover the cost of production.

“The Utah Farm Bureau and the American Farm Bureau both, for a number of years, have supported repeal of the death tax,” he added. “Because of the illiquidity within agriculture and family farming and ranching, it puts a tremendous burden. We applaud Congress for taking a look at this, and we’re hopeful that this time it will pass.”

The death tax repeal bill is currently before committees in both the House and Senate. For Utah Public Radio, I’m Matt Jensen.