By Phil Kerpen
Over the past two decades, Congress has repeatedly softened the blow of the federal estate tax by increasing the exemption amount – from $600,000 in 2000 to just under $12 million now. It still hits the largest, most successful family businesses hard, and most people think taxing death is wrong regardless of the exemption level. Nonetheless, President Trump called the higher exemption "virtual repeal," because for most Americans the tax is no longer a direct concern.
President Biden has other ideas; at the heart of his budget is a new, second “double” death tax with an effective rate of 43.4% on the appreciated value of assets held by an owner following their death. This new double death tax is in addition to, not instead of, the estate tax. And with only a proposed $1 million exemption, it would hit all income levels as vast numbers of small businesses, family enterprises and farms may be hold assets (land, buildings, machinery, etc.), but are often cash poor or even in debt.
A new study conducted for the Committee to Unleash Prosperity by the economic modeling firm REMI finds the economic consequences of this double death tax would be devastating. The study found -- with very conventional assumptions -- that the Biden proposal to impose capital gains tax at death and hike the rate to over 40% would destroy well over 900,000 jobs and cost the average household about $10,000 in lost income.
California stands to lose 125,000 jobs, New York 50,000, Pennsylvania 33,000, Georgia 30,000, Colorado 25,000, and Arizona 20,000. Even West Virginia, a small and relatively poor state, would shed 4,000 jobs with the new “double” death tax. Montana, 4,000 jobs. The list goes on.
That's probably part of why its former longtime Democratic senator and former Senate Finance Committee Chairman Max Baucus (D-MT) recently came out swinging against the tax, writing the tax "would force family businesses and ranchers to liquidate when an owner dies and to lay off employees while bringing in little revenue for Uncle Sam. Lawmakers should know this is a mistake… Proponents try to temper criticism by suggesting carve-outs, but we’ve learned from experience that they are ineffective."
And former House Agriculture Chairman Collin Peterson (D-MN) went even further calling it “the worst idea that has been proposed in terms of its impact on agriculture in my lifetime.”
Meanwhile, Main Street USA remains utterly confused as to why the Biden Administration and Congress seem so intent on now hammering family businesses, those most challenged as they try and emerge from the COVID-19 lockdowns, with massive, even crippling, new asset transfer taxes. They are also putting the livelihoods of those that work for or do business with family businesses, and their communities, in jeopardy.
Sadly, all this has very little to do with tax policy. It is about finding “pay fors,” or new government revenues, to cover the cost of Biden's massive new spending programs.
The scorekeepers at the Congress’s Joint...
Photo Credit: Andreas Klinke Johannsen
By Phil Kerpen
The same politicians who mostly killed free checking and debit card rewards programs through government prices controls are setting their sights on credit cards – and that means miles, cash back, and other rewards are now in jeopardy.
That's a potential political earthquake, because a recent study found that 84 percent of all credit cards are rewards cards, and 70 percent of cardholders who make less than $20,000 a year have rewards cards. Many small businesses also rely on rewards cards – especially cash-back cards.
Those individuals and small businesses need to engage quickly to stop efforts underway by Senator Dick Durbin (D-IL) to build support from his colleagues to extend his 2010 price-control and network-routing regulations on debit cards to credit cards.
The debit card experience should be seen as a cautionary tale.
Rushed to the Senate floor with no committee consideration as part of the Dodd-Frank Act, the Durbin Amendment placed price caps and network routing mandates on debit card transactions, benefiting the biggest retailers but disrupting the business models of banks, credit unions, and stores selling smaller-ticket items. When banks and credit unions were squeezed, they had to cut expenses, and that meant cutting free-checking accounts to customers with lower balances and ending nearly all debit rewards programs.
To garner the support of a handful of Republicans in 2010, Senator Durbin pitched his regulations as a boon to both retailers and to consumers. This is what actually happened:
- 77 percent of retailers kept prices the same and 21 percent actually increased prices because of the Durbin regulations, per the Richmond Federal Reserve.
- Free checking dropped from 60 percent of all accounts to only 20 percent, according to a University of Pennsylvania study.
- The Durbin Amendment cost the average low-income American about $160 per year, per a Boston University study.
- The number of unbanked Americans increased by about a million, according to the same study.
Durbin considers this a success – because his only real purpose was to push down transaction costs for the biggest retailers. And just as debit regulations hurt consumers, imposing Durbin-style price and routing controls on credit cards will result in rewards programs disappearing – particularly for lower income customers who are less valuable to banks.
Is that worth it to relieve influential big box retailers of what they claim are excessive transaction fees? If the costs are really so high, why have "cash only" stores almost completely disappeared?
Electronic payment costs vary, but average around 2 percent. But the average cost of cash across all retail sectors is 9 percent in a recent study. Grocery stores are on the low end of cash costs at 5 percent and bars and restaurants are on the high end of cash costs at 15 percent. The study defined the cost of cash as managing cash drawers, interacting with their banks with deposits, reconciling cash flows, and “shrinkage” from cash that goes missing from loss, theft, and fraud.