Hatch Calls on Congress to Prevent Farmers, Small Businesses from Getting Hit with Death Tax
Utah Senator says, “We ought to repeal the death tax, plain and simple.”
WASHINGTON – In a speech on the Senate floor, U.S. Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, outlined the impact on American small businesses and farmers if Congress does not act to provide relief from the death tax and said Congress should act to fully repeal it.
“The death tax adds inefficiency to our economy. It is what economists refer to as a deadweight loss. In other words, it creates another burden on our free market system that prevents the full potential of economic growth,” said Hatch, who has been a long-time advocate of repealing the death tax. “We ought to repeal the death tax, plain and simple.”
Under current law, the death tax and the gift tax are unified with a $5 million exemption amount and a tax rate of 35 percent. However, on January 1, 2013, unless Congress acts, taxpayers will face a 55 percent estate tax due within nine months of death and a lower exemption amount of $1 million.
“We cannot continue this cycle of passing temporary tax relief and then waiting until the very last minute to decide what to do next. We owe it to family farms and small businesses to figure out a way to pass a permanent solution so that each year businesses are not left wondering whether or not they will have to shut their doors in order to pay the death tax,” said Hatch. “If we are serious about providing true tax relief that will help small businesses grow, we can sit here and debate whether a band aid will be the cure to our ailing economy, or we can begin the debate over how to prevent historic tax increases from hammering our small businesses and farms.”
Below is the text of Hatch’s full speech delivered on the Senate floor today:
Mr. President, I find it ironic that we are debating a bill called the Small Business Jobs and Tax Relief Act, when that bill does nothing to address the death tax — one of the biggest threats to our nation’s small businesses.
Again, while Republicans are being accused of not wanting to move legislation to help grow the economy and develop jobs, it was interesting to read this morning that my Democratic friends still do not have any agreement among themselves on how to proceed on a number of tax issues — including the death tax. They need to get moving.
Next year, unless Congress does something, the death tax will come roaring back at a much higher rate of fifty-five percent and a much lower exemption amount of $1 million next year. Though those who promote the death tax characterize it as impacting only Daddy Warbucks, the Monopoly Man, and Montgomery Burns, the data do not bear this cartoonish characterization out.
The death tax does not just hit those in higher income tax brackets. It has an effect well beyond small business owners, adversely impacting middle class jobs and wages. Call it what you will — the estate tax or the death tax. But in the end, it is a tax that is anti-small business, anti-job creation, and anti-wage increase.
We are in the midst of yet another Senate floor show, pursuing legislation that will give the President and his allies campaign talking points, but will do nothing to spur economic growth and job creation. Meanwhile, the Senate has failed to take action on estate tax reform. This is beyond irresponsible.
I have been a long-time proponent of repealing the death tax. Not only is it double-taxation and a deterrent to savings, but it also sucks up capital in the marketplace. To be clear, this is capital that could be used to hire more workers or expand a business. This is a basic economic concept that seems lost on President Obama. During last year’s deficit reduction talks, President Obama argued on behalf of tax increases, saying:
I do not want, and I will not accept, a deal in which I am asked to do nothing, in fact, I’m able to keep hundreds of thousands of dollars in additional income that I don’t need.
Income that I don’t need?
This is a point that could only be made by a person with a very loose understanding of how businesses and entrepreneurs operate. The President seems to think that this so-called excess income does no good.
In fact, however, it would be invested in new business ventures, new hires, and better wages. If these entrepreneurs with all of this excess income did nothing but put that money into a savings account, it would benefit individuals looking to buy a house, buy a car, or start their own business.
But the President does not seem to grasp this. And so it is no surprise that he and his Democrat allies have done nothing to address the job-killing death tax increase looming on the horizon. The President claims that he is interested in job creation. He certainly should be after last month’s anemic jobs report.
Well, he need look no further than death tax repeal. I know that his liberal base might not appreciate it, but the rest of the country, which is less interested in class warfare talking points and more interested in getting the economy moving again, would embrace it.
The death tax adds inefficiency to our economy. It is what economists refer to as a deadweight loss. In other words, it creates another burden on our free market system that prevents the full potential of economic growth.
For instance, many small businesses have to purchase insurance in order to prepare for paying the death tax so they do not end up having to sell the business just to pay the death tax. This added cost is embedded into the cost of goods when sold. In other words, American consumers, American workers, or Americans looking for work are those who will ultimately pay the death tax.
Consider also that heirs are often forced to sell an asset of the business in order to meet this arbitrary tax due date. These assets are likely generating revenue and could be a vital part of the business. But because the tax man cometh, small businesses are forced to sell these assets to pay the death tax.
We ought to repeal the death tax, plain and simple.
In 2010, the death tax was temporarily repealed, but in a few months, the law will take a sharp turn for the worse. Back in 2010, Senators Kyl and Lincoln offered a compromise that gained bipartisan support, which eventually became law. Under Title III of the Tax Relief Act — a law signed by President Obama — the death tax and the gift tax are unified with a $5 million exemption amount and a tax rate of thirty-five percent. Under current law however, in 2013 we will once again have a 55 percent estate tax due within nine months of death. And in some cases the tax will reach 60 percent. The exemption amount could be as low as $1 million.
That just is not right. How does it benefit the economy to have small businesses and farmers wondering whether they have to sell their business or literally sell the farm to pay for an uncertain amount of taxes? It creates an accounting and financial nightmare.
The estate tax is not about making the tax code more progressive. The estate tax is not about more redistribution. It is not about deficit reduction. It is class warfare, and while it might stir up some votes, it has an outsized and detrimental impact on our economy.
Mr. President, many do not realize the enormous impact the death tax has on rural America. I am not only talking about farmers and ranchers. I am also talking about the small family-owned businesses that generate economic growth in smaller towns.
If we do not address the death tax, some businesses with assets over $1 million could be susceptible to the death tax. I know for a small business, that $1 million in assets is a pretty low threshold. That is why I care about this death tax debate — because of real people, real Utahns, and real communities that will be upended if this tax increase is allowed to go into effect.
But when you hear about the number of individuals impacted by the death tax, that statistic actually understates the sweep of this intrusion by the federal government. The estate tax return is filed by the representative of the deceased. That return does not take into account the dead person’s family, employees, or neighbors. All of those folks are affected if the death tax burdens that family business or farm.
There seems to be a strategy by the Democratic leadership to drag its feet in coming up with a resolution to this impending problem. What they fail to realize is that this strategy is only adding to the cloud of uncertainty over our economy.
Will Congress keep the rates and exemption amounts the same? Will Congress increase them? What do I need to do as a small business owner to better prepare my business from withstanding a tax increase? These are the types of questions that more and more small business owners and farmers are continuing to ask.
And the uncertainty these questions generate is holding back investment, job creation, and wage growth. Yet policies to promote economic growth have unfortunately taken a back seat to presidential talking points that campaign advisors think will generate votes. Attack the rich. Promise more spending.
As a candidate, President Obama promised in 2008 that Washington needed to be spreading the wealth around. That is one promise that the President has kept. In spite of an economy that demands a focus on job creation, the President and his liberal allies have spent the last year coming up with ever more inventive redistributionist schemes.
Recently, the Joint Committee on Taxation released an estimate on how many more taxable estates, farming taxable estates, and small business taxable estates would be affected by the increase in the death tax over the next ten years. The numbers are astonishing. If Congress does not act, we will see more than a 1,000 percent increase in the number of taxable estates, a 2,300 percent increase in the number of farming taxable estates, and a 1,000 percent increase in the number of small business taxable estates.
The reach of the death tax is growing, and it is going to hit not just the so-called rich, but current employees, and for that matter, entire communities. Let’s take a look at the tax year of 2013. It arrives in a little over 7 months.
Under current law, 46,700 estates will be taxable. If we extended the Lincoln-Kyl compromise, 3,600 estates would be taxable.
Current law, the path we seem to be slow-walking on, means more than 10 times the number of estates will be hit by the tax. The Lincoln-Kyl compromise means only the top 10 percent, the wealthiest estates, would be hit by the death tax.
If you project the 8 years of current law out over 10 years, you will find that roughly 570,000 estates will be taxable over that period. Under the Lincoln-Kyl compromise, which is the current estate tax regime, roughly 41,000 estates would be taxable over that period.
In a recent interview with the Associated Press, Secretary of Agriculture Kathleen Merrigan described an epidemic of sorts that is hitting our farmlands across the United States. She did not talk about rising fuel prices or droughts. Instead, Secretary Merrigan discussed how our country’s farmers and ranchers are getting older and fewer young people who are taking their place. I have heard time and time again that the death tax is the number one reason family farms and businesses fail to pass down to the next generation.
If Congress does not act soon, the Joint Committee on Taxation estimates that another 2,000 farming estates will be hit by the death tax next year. Keep in mind, farmers sometimes carry debt. That would reduce the value of the farm. But, on the other hand, farmers have other farm-related assets, like combines and other equipment, that are not included in the figures I cited.
This data shows that the failure to address the estate tax cliff will undermine many, many family farms. For those folks working the land, this is an unwelcome uncertainty. As I indicated earlier, the tax is an impediment to passing on the family business, in this case, the family farm. A much higher death tax, apparently supported by many members on the other side, will undermine many family farms and small businesses.
Yet, these family farms and small businesses form the economic backbone of their communities. Do we really want to send the signal that those who work hard, save, and want to pass something onto their families exist solely to fund bloated federal programs.
Why work hard? Why save? Why not work less?
Instead, if the President is just going to spread your wealth around, it might just be easier to go into debt and live beyond your means.
There is something fundamentally unjust about the estate tax. Contrary to the claims of the President, and his most liberal supporters, a person’s wealth is the result of his labor. When you build a business, you put your sweat and ingenuity into it. And to then be punished for this — to have it taken away at the moment of death by the federal government — is an assault on personal liberty and freedom.
John Locke understood this. America’s Founding Fathers understood this.
And they would no doubt be appalled to know that behind the Grim Reaper now stands an IRS agent waiting to collect and deliver the government’s share. But today’s so-called liberals have abandoned this classical liberal philosophy — the philosophy of natural rights and liberties that our nation was founded upon — in favor of a redistributionist philosophy that undermines rights and undermines our economy.
Time is running out. We cannot continue this cycle of passing temporary tax relief and then waiting until the very last minute to decide what to do next. We owe it to family farms and small businesses to figure out a way to pass a permanent solution so that each year businesses are not left wondering whether or not they will have to shut their doors in order to pay the death tax.
Also, for those who love to raise taxes on small businesses, keep in mind, these businesses pay a lot of income tax each year into the Treasury’s coffers. Do we really want to kill the goose that is laying the golden egg?
Madam President, if we are serious about providing true tax relief that will help small businesses grow, we can sit here and debate whether a band aid will be the cure to our ailing economy, or we can begin the debate over how to prevent historic tax increases from hammering our small businesses and farms.
I urge my friends in the Democratic Leadership to put the death tax on the Senate’s radar screen. Thank you. I yield the floor.