January 17, 2011

Death Tax Bandage

Guest column submitted by U.S. Senator Mike Crapo

Families should not be forced to sell their farms or small businesses to pay the federal Death Tax when they lose a loved one. Selling off productive farmland and businesses to meet unfair, overly-burdensome tax liabilities reduces jobs and destroys families' financial futures. While the Death Tax must be permanently and fully eliminated, I supported the recent proposal to prevent the tax from springing back to previous burdensome levels for the next two years. In the meantime, Congress must work to permanently eliminate this unreasonable tax.

The Death Tax is a double tax on income already taxed when it was first earned by the decedent, and it is especially burdensome for family farmers and small businesses in rural states, like Idaho. In many areas, farm and ranch land values have increased substantially, making it difficult for families to meet the high Death Tax burden while passing their legacy onto the next generation of family farmers and keeping the land in production. In 2009, Idaho families paid more than $118 million in federal estate taxes, which is more than was paid by families in many neighboring and rural states, such as Montana, Iowa, Nebraska, Wyoming and Arkansas. However, estimates don't encompass the full extent of the burden the Death Tax places on Idaho family farmers and businesses, as many of them go through costly, time-consuming estate planning efforts to ensure that these family farms and businesses can be passed down to future generations, rather than having to be sold off in order to pay the tax burden to the government.

Of all the provisions in the bipartisan tax relief enacted in 2001, the Death Tax is one of the most confusing and frequently-changing provisions. Prior to 2001, the Death Tax was set at a maximum rate of 55 percent, with a $1 million exemption. Under the 2001 legislation, the rate was gradually phased down and the exemption phased up. By 2009, the rate was down to 45 percent, and the exemption was $3.5 million. Under the original legislation, for 2010 only, the rate was zero, before being scheduled to return to the pre-2001 rate and exemption level for 2011 and beyond. This quirk in the law led to unintended incentives requiring Congressional action.

Recognizing that the votes were not there in Congress to pass a full repeal of the Death Tax, I supported a proposal to ensure that the tax did not spring back to a 55 percent rate this year. This bipartisan legislation, which is supported by many farm and small business groups in Idaho and across the country, provides for a 35 percent maximum rate and a $5 million exemption, along with a step up in basis for 2011 and 2012.

Unfortunately, this is only a temporary fix, and merely kicks the can down the road. In two years, Congress will again face the decision of what to do about all of the tax relief enacted in 2001. I hope by that time Congress will be responsible enough to enact comprehensive tax reform that will simplify the tax code, broaden the base, lower the rates and make our tax code more competitive for American farms and small businesses competing in the global marketplace.

High federal taxes should not prevent a family farmer, rancher or other business owner from passing the business they developed onto their children and grandchildren. Penalizing productive heritage undercuts efforts to maintain small businesses and local jobs. We must utilize the next two years to eliminate the Death Tax and advance some tax certainty and fairness for the betterment of families, communities and the U.S. economy.

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