Spring, the estate tax, and a winter of discontent
Chuck Sheketoff
Washington D.C.’s famed cherry trees were in full bloom last week, announcing the arrival of spring just in time for my family vacation. Among the highlights, we got to watch the historic U.S. House vote in support of President Obama's budget, just days after seeing the President board Marine One for his trip to Europe while we were on our White House tour.
Unfortunately, in other parts of the nation’s capital — the Senate chamber — the winter of our discontent was all too alive and well.
Last week in a vote on an estate tax amendment to the budget resolution, a majority of the U.S. Senate agreed to a proposed huge tax break to the wealthiest of the nation's wealthiest households. Thankfully, because the vote was on an amendment to the budget resolution, it was not binding and does not become law.
As Oregonians we can be proud that neither Sen. Jeff Merkley nor Sen. Ron Wyden supported the estate tax amendment.
Why? Because the so-called Lincoln/Kyl amendment called for an increase in the amount of an estate not subject to taxes from the current $7 million per couple to $10 million, and to lower the tax rate on assets above this level from 45 percent to 35 percent. Lowering the tax rate would benefit just three of every 1,000 estates. And the amendment would cost over $250 billion over 10 years if it becomes law.
The version of the budget approved by the House of Representatives does not grant a similar estate tax break.
The Lincoln/Kyl amendment passed in the Senate 51-48. The non-binding vote serves as a statement of lawmakers' position on the issue. We should be thanking Senators Merkley and Wyden for standing up for Oregonians and voting “no.”
Congress will revisit the estate tax later this year to avoid the untenable situation under current law where the estate tax disappears in 2010 and comes back in 2011 at the pre-Bush level. Lawmakers will then need to make real decisions about whether giving more generous tax breaks to very wealthy households is the right priority for our country.
It’s simply amazing that amidst an economic implosion that has upended the lives of millions of working families, levels of economic inequality not seen since before the Great Depression, 45 million Americans lacking health care, and national outrage over gargantuan CEO salaries and bonuses, that more than half the Senate would still vote to give the wealthiest of the wealthy a big, fat tax cut.
Let’s hope that when the estate tax comes up for a binding vote later this year Senators Wyden and Merkley will be joined by a majority in preserving an effective estate tax. Otherwise the winter of our discontent is sure to continue.
Chuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org</p
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Apr 7, '09
The winter of our discontent will continue as long as both parties are beholden to Wall Street.
The cut to the estate tax would be a gift to the wealthy, but a trifle when compared to Geithner bailout plan.
Apr 7, '09
Chuck, the existing estate tax limits of $7MM/couple ($3.5MM/individual) will sunset and go back down to $2MM/couple ($1MM/individual) in 2010 unless extended. What level would you support as the level for 2010 going forward?
Do you recognize that family business, farms and ranches may well be affected without a reasonable estate tax level? If so, what would that level be that imposes a reasonable amount exempt from tax while avoiding depleting our budget base?
2:57 p.m.
Apr 7, '09
Chuck -
Alongside pride in OR's senators voting the right way on this, we should also note in shame the roles that other members of the Northwest delegations played in the vote. Four of the nine Democrats who voted in favor of the tax breaks were from our region - Senators Cantwell and Murray from Washington, and Baucus and Tester from Montana. Tester's vote is especially distressing, since he claimed the populist mantle in his campaign.
Apr 7, '09
Most of the really wealthy have their wealth sheltered in foundations. When Bill Gates put his 38 billion(?) into his foundation it was wealth that had never been taxed, and now it never will.
5:19 p.m.
Apr 7, '09
Kurt,
Under the terms of current law, deaths in 2010 have no estate tax (why it has been called "the year to throw Mama from the train"). At the end of 2010, Bush administration changes to the federal estate tax expire and the law reverts back to the tax and exemption schedule set during the Clinton years, with the exemption level at $1 million (effectively $2 million for couples) and a 55 percent top tax rate.
It’s hard to find anyone who likes the current scheme of full repeal for one year, followed by a return to the exemption level and tax rate schedule that were law before the Bush tax cut.
We think Congress should do no less than make the 2009 parameters — a $3.5 million exemption per person and a 45 percent tax rate — permanent.
At that level, if you visited eight funerals a week for one year, odds are you would come across only one death that would trigger the estate tax. And nationwide virtually no small business and farm estates would owe any estate tax — just 140 such estates in the entire nation would be taxable in 2011. And those that are taxed already have special provisions for payments. The small business/farm argument is pure scare tactics with no basis in reality.
Apr 7, '09
Thanks Chuck, I appreciate the framing that you place on the situation. Personally, I would have supported going back to the 2008 level of $4MM/couple and $2MM/individual. I was not aware that in 2010 the limit is virtually non-existant.
Apr 7, '09
Chuck - here's betting you are going to be wrong about Merkley and Wyden when it comes to a BINDING vote, unless Democrats let both of them know they will vote against Wyden in the 2010 primary if he votes for any "favor the rich" estate tax caps or repeals. The enemy of working people when it comes to estate tax are privileged liberals every bit as much as Republicans:
Smith exaggerates in hitting Merkley on taxes http://blog.oregonlive.com/mapesonpolitics/2008/07/smith_exaggerates_in_hitting_m.html
For example, Merkley voted to lower estate taxes - but not by as much as Republicans wanted to in 2005.
And frankly Chuck, I don't regard you as anything but a fraud when you in fact argue:
We think Congress should do no less than make the 2009 parameters — a $3.5 million exemption per person and a 45 percent tax rate — permanent.
I'm sorry, I don't know a single person who has an estate of $3.5mil, much less stands to inherit that much.
11:04 p.m.
Apr 7, '09
Ra.E.T -- Whoa! When I wrote "no less" I meant no more weakening...I'd personally love it to go back to a lower threshold level like Kurt, but I just don't see that as politically possible given the make-up of Congress and the position of Obama. If there were a vote for a $2 million exemption, I'd of course urge both Merkley and Wyden to support it, but I just don't think that's gonna be on the table. I'd love to be proved wrong.
Oregonians need to let both Wyden and Merkley know we appreciate their vote and are expecting them not to cave when the binding vote happens later this year. I'm going to remain optimistic that they will do the right thing.
Apr 8, '09
Chuck says: And nationwide virtually no small business and farm estates would owe any estate tax — just 140 such estates in the entire nation would be taxable in 2011.
Well, that's little consolation to whatever the number of family-owned small businesses or farms/ranches that WOULD be affected. It's not uncommon for farmers and ranchers to be ‘land rich and cash poor’ (picture a large cattle ranch) - as such some are forced to sell off land, farm equipment, parts of the operation, or the entire ranch to pay the estate tax. That may not be reality to Chuck but it is to them.
Hopefully they can work out some sort of appropriate exemption for family-owned small businesses and farms/ranches.
6:46 a.m.
Apr 8, '09
I'll try and find the reference, but a few years ago, there was someone who offered a large reward to anyone who could identify a single family farmer who had lost their farm due to the estate tax. It just doesn't happen.
Apr 8, '09
Um Kari, don't be an idiot. The estate tax causes small business owners and farmers to break up and/or sell off holdings every year. This is a very common issue and there are literally hundreds of estate tax accountants who specialize in the business of consulting in this area. The estate tax is one of the primary reasons why the family farm has disappeared over the years. If you have farmland worth $5M but only harvest $50,000 a year in cash crops then you don't have any way to pass the family farm on to the kids. It basically has to be moved into a corporate environment which doesn't have to pay estate taxes.
Apr 8, '09
The estate tax is also a big part of the reason why we see prime farmland being turned into developments. My next door neighbor is an older widow who owns about 20 acres of land inside the UGB. That land is worth about $10M to a developer but maybe only $500,000 as farm land. Her daughter will need to sell that land to a developer when her mother dies since there is no way she can possibly pay the estate tax. There just isn't anyway to have a farm that small pay that big of a tax when the mother passes away. So that 20 acres will all get subdivided. Maybe another subdivision is the best use of the land, maybe not. The point is that the estate tax is what directly will cause that decision to be made since the tax has to be paid and there isn't really any way around it for someone at the lower income levels. If the mother had more cash flow she could use a large life insurance policy to transfer the estate tax free but that takes a bunch of money to do and she doesn't have it.
1:43 p.m.
Apr 8, '09
Then prove it, Andy. The challenge has been made repeatedly and never substantiated. If you think this statement is true:
"The estate tax is one of the primary reasons why the family farm has disappeared over the years."
there should be no shortage of detailed analyses on the disappearance--since it's a common subject of discussion--for you to refer to. Otherwise, you're just full of shit.
Apr 8, '09
Pick up the phone and call any accountant in the estate tax field and they'll give you plenty of examples where farms and other businesses are sold because of the estate tax. Very common issue that happens to clients every year. So go fuck yourself Joe.
2:58 p.m.
Apr 8, '09
"Pick up the phone and call any accountant in the estate tax field and they'll give you plenty of examples where farms and other businesses are sold because of the estate tax. Very common issue that happens to clients every year. So go fuck yourself Joe."
can't do it, I see. And no moving the goalposts with "other businesses." We're talking about family farms here.
Apr 9, '09
Don't let a good story get in the way of the facts.
"To keep farms in the family, we are going to get rid of the death tax," noted President Bush. Yet a recent New York Times article (April 8, 2001, "Focus on Farms Masks Estate Tax Confusion") notes that the American Farm Bureau Federation, one of the leading voices calling for repeal of the estate tax, cannot give a single example of a farm lost to the estate tax. A farmer in Iowa is quoted in the article as saying the emphasis on repeal of the estate tax to save family farms is misplaced because "for most farmers around here, the estate tax is not high in their minds ... what we need are better crop prices." His comments are echoed by a South Dakota farmer, John Sumption, who recently testified at a Senate Finance Committee hearing about the estate tax. Mr. Sumption argued for modification of the estate tax by raising exemption levels, as was proposed by the Democrats in their alternative to the estate tax repeal bill in the House, and he testified:
"Mr. Chairman, I am not an expert on tax law, but I know about family farmers. They are my friends and neighbors. They are not worried about estate taxes, because, for the most part, they don’t have to pay them. They are worried, however, about the prices they receive for their crops and livestock, about good public schools for their kids, about local community services, paying for prescription drugs and being able to pay their bills in retirement. And, of course, they are always worried about the weather." (Mr. Sumption’s full testimony can be found at on the Senate Finance Committee website.)
The data supports Mr. Sumption’s point. According to 1999 data recently released by the IRS, only 6.8% of estate tax filers have farm assets. Indeed, only 2.8% of those filers with farm assets pay any tax. (And they have up to 15 years to pay with reduced interest rates.) According to the New York Times, "The average value of these farm assets was $440,000, only about a third of the amount that any married couple could leave untaxed to heirs."
So Andy, I believe a heart-felt apology is owed to torridjoe followed by an act of self-intercourse in the privacy of your own home.
9:19 a.m.
Apr 9, '09
Andy--- Last I checked, the American Farm Bureau (for whom estate tax repeal is a key priority) has been unable to provide a single example of a family farm that lost it's farm dye to the estate tax.
You're the one making the claim that it happens all the time -- the burden of proof is on you. Put up or shut up.
9:20 a.m.
Apr 9, '09
Grr... "due"
Apr 9, '09
This just inspires mental depression. MOST of that farm debt is the same kind of real estate inflation that people with extra mortgages find themselves paying down.
I'm sorry. An acre of McClean Co. Il, farmland, can not be worth six figures. BTW, those that say, "just give the American auto industry a chance". I don't know it, but I would love to, the per centage of those mortgages that went to buying American farm implements, featuring air-conditioning and surround stereo.
<h2>We never account for how the corrupt consumer model continually costs snd bites hard in the butt.</h2>