By Gene Hall
The agreement on a tax policy compromise reached by President Obama and Congressional Republicans is good government. It’s been rare during the last two years to see the two parties reach over the great divide between them to accomplish something positive, something the country desperately needs.
First of all, raising taxes in this still fragile economy is just a bad idea. From that standpoint, it’s better for even the rich to keep, invest and spend their money and spur the economy than for Uncle Sam to take it away.
Then there’s the death tax that is part of this deal. Call it the federal estate tax if you wish. It taxes death and unless the tax compromise passes, it’s going to be a colossal burden for family farmers and small business owners.
Way back in the early days of the Bush Administration, death tax reform was achieved. Unfortunately, it was a confusing, declining scale system which would eventually expire and revert to the pre-reform rates. “Eventually” arrives on December 31 of this year. This year, the rate actually declined to zero, but next year, if nothing is done, it returns with a vengeance. Estates will be taxed as they were prior the reform. That is—only a $1 million exemption with the rest taxed at a confiscatory 55 percent. It doesn’t take a very large farm, ranch or small business to be worth more than that.
The estate tax should be repealed. It doesn’t raise that much money and has high administrative costs. Aside from that, it’s a double dip tax the government should be ashamed to collect. Estates, no matter how large or small, are accumulated dollars that have already been taxed. The feds make another claim on those dollars when the primary owner dies. Sometimes, farms, ranches and businesses have to be dismembered or sold outright to pay it. Then there are the billions of dollars spent to prepare for, and avoid, estate taxes.
There is a fix in the tax compromise. An exemption of $5 million would take care of most small businesses and agricultural operations. After that, the remainder of the estate would be taxed at a much more reasonable 35 percent. The Senate has passed the compromise. The House should quickly follow suit to avoid a disaster for middle class taxpayers.
If you watched the television news coverage of the compromise, you saw a lot of folks scowling as they nodded their heads in agreement. When you see that, chances are the system worked like it’s supposed to. No one is completely happy, yet something important was achieved.