04 August 2006

Estate Tax Rhetoric: Liars or Idiots?

Two quotes from the July 28, 2006 debate in the U.S. House on the trifecta bill which was just defeated in the U.S. Senate makes you wonder if the estate tax opponents in question are liars or idiots (parenthetical commentary from source omitted):

Estate tax opponent Deborah Price of Ohio, says that "more than 70 percent of family businesses and family farms don't even make it through the second generation, and 87 percent don’t make it to the third" and that this is because of the "crippling" estate tax.

Ric Keller of Florida, also an estate tax opponent, asserts that "one-third of family-owned businesses are forced to liquidate because of the death tax," and that "the money [being taxed under the estate tax] has been tax once at the income level."


We know that neither of these quotes can possibly be true. As I noted previously at this blog:

In 2006, just 123 farms and 135 small business will be subject to the estate tax at all. In 2009, the number will be 65 farms and 94 small businesses. Only about 2% of decedents subject to the estate tax have estates with farms or small businesses.

By comparison, there are 2,129,000 farms in the United States (Table 797) (about 90% are sole proprietorships or owned by a family, about 9% are other partneships, and about 0.4% are corporations (Table 795)). There are about 25 million non-farm small businesses in the United States (Table 726), defining small as receipts of under $1 million a year.

Thus, one in 2,000 farms each year is subject to the estate tax, and about one in 20,000 small businesses each year is subject to the estate tax in 2006.

Most estate with farms and small businesses in them also have ample liquid assets with which to pay estate taxes. For example, in 2009, just 13 farms estates, in the entire United States, will be subject to the estate tax and not have enough liquid assets to pay the estate tax in a single lump sum immediately. Even those that don't have those kinds of liquid assets are unlikely to have to sell land or a business. Farms and small businesses are allowed to pay estates taxes at an artifically low interest rate in payments over fourteen years.


For that matter, even if every single person who filed an estate tax return was a small business owner (which isn't anywhere close to being true), it still wouldn't come anywhere close to impacting even a third of small businesses owned by decedents.

Also, the amount of taxes foregone each year because capital gains accrued but not taxed at death are never subject to taxation is on the order of $20-$30 billion a year, on the same order of magnitude as the estate tax itself, according to tax expenditure statistics prepared by the Internal Revenue Service.

My money is on the theory that they are liars and not idiots. But, neither possibility reflects well on the people making the claims.

1 comment:

Anonymous said...

Hey - check out this piece of commentary from the Gotham Gazette, titled "How the Estate Tax Helps New York"

Lots of good information relating to your post!

http://www.gothamgazette.com/article/fea/20060925/202/1982