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 Committee on Taxation found that a capital gains tax above 28 percent starts to actually lose the government revenue – in part because confiscatory rates above that level tend to induce people to hold assets until they die. So the Biden budget wizards came up with the “solution” of imposing a capital gains tax at death. They don’t seem to care that it would crush thousands of family farms and businesses and destroy hundreds of thousands of jobs. They must hope voters aren’t paying attention.
By Phil Kerpen