Grassley Outlines Estate Tax Limbo's Effect on Family Businesses
Floor Speech of Senator Chuck Grassley
Comments on Unfinished Tax Legislative Business: Estate Tax Reform
Delivered Wednesday, June 16, 2010
The legislative business before the Senate deals with the so-called tax extenders. These extenders, as important as they are, represent only a small portion of the time-sensitive tax legislative business that needs to be completed. I have a chart that illustrates the status of several pieces of must-do tax legislation. Earlier this week, I discussed the lack of action on this year’s Alternative Minimum Tax (“AMT”) patch. In a day or two, I will discuss the failure of Congress to act on the bipartisan 2001 and 2003 marginal rate cuts and family tax relief.
Today, I want to discuss the lack of action on estate tax reform.
Most of you know this about me - for as many years as I have been a representative of the people of Iowa, I have never believed that death should be a taxable event.
Taxing people’s assets upon their death is just plain wrong, and their heirs should not be forced to sell a single asset in order to meet this arbitrary tax due date. Company assets should not have to be sold to pay taxes -- the market should determine when things are bought and sold. That is the best measurement - when a willing Buyer meets a willing Seller and they agree on a price and a time when a company should be sold.
That’s where I come from. We ought to repeal the death tax. The political reality is that there aren’t 60 votes in the Senate for that policy.
Unfortunately, while repeal is the law of the land today, in a few months, the law will take a sharp turn the other way. Under current law, in 2011, we will once again have an estate tax due and owing within nine months of death of 55% and even in some cases up to 60%. That just is not right - we have forced many unwilling sellers to have to deal with a very willing “shark” of a buyer waiting in the murky waters of tax uncertainty.
Some people wonder why I care so much about this issue. Pundits might say that Iowa is poor compared to places like New York City and that land and companies are not worth much.
Much of the press attention has been paid to what current law does this year. For instance, the New York Times printed an article on how the current law repeal of the estate tax applies to a Texas billionaire who died a few weeks ago.
We’re almost half a year away from a tax policy that a super majority of Senators say they don’t support. Yet, we’re stuck. This time-sensitive issue has taken a back seat to everything else.
You may not know that Iowa has 99 counties and I have visited each of the 99 counties every year for the last 29 years -- and let me give you just a couple examples of why I think this issue is compelling.
I want to talk about some real people who live in Iowa. Not only do they live in Iowa, they have devoted their entire life, for multiple generations to build businesses and create good jobs for the people of rural Iowa. Over 44 years ago, Eugene and Mary Sukup started a grain handling and storage manufacturing company in Sheffield, Iowa.
Today, the Sukups and their two sons and their families are still headquartered in Sheffield, Iowa, population, a whopping 990 - and they employ over 300 people from 5 different counties, in good paying jobs, with good retirement plans. In fact, the original employee team that started with them almost 40 years ago is still there today and in many cases the next generation has also joined the team. This chart depicts one of the main products they make and sell.
For you city folks watching, this is a grain bin. I ask unanimous consent to insert in the record a short history of the innovative efforts of the Sukup family.
In addition, they have facilities in six other states, also contributing to those state’s rural economy, like Defiance, Ohio; Jonesboro, Arkansas; Arcola, Illinois; Aurora, Nebraska and Watertown, South Dakota.
Places where good jobs and hard work that isn’t flashy and doesn’t make the scandal page of the big city papers, are valued as important. Places where people invest in the local economy and contribute to the community as good citizens.
They used to call these kinds of folks the “pillars of the community” in old-fashioned terms, but in today’s economy, these are folks devoted to American values and small town America. They may sell their products all over the United States they also sell their products all over the world, but you know what -- they manufacture those products right there in Sheffield, Iowa. And, as a family farmer, the Sukups have been successful because they make a great product.
Now let me tell you about another little Iowa town. It’s the town of Shenandoah. That is where Lloyd Inc., is located. Shenandoah is a bit bigger than Sheffield. A tad fewer than 5,000 folks reside there; 4,944 to be precise.
Senator Ensign, the lone practitioner of animal medicine in the Senate, might be familiar with Lloyd, Inc’s products.
It too is not a flashy company. They started making animal dietary mixes in 1958 and now are a significant provider of veterinary drugs. This chart depicts one of Lloyd, Inc.’s products.
Eugene Lloyd is a doctor of veterinary medicine. He’s the CEO of the company. Dr. Lloyd tells me that the company has never let go of any employees due to poor business cycles. Lloyd, Inc. employs over 90 well-educated people in Shenandoah.
The company has also provided generous health care and retirement plans to their employees -- and like I said, in rural America, those benefits are very important. Finally, both the company, and Dr. Lloyd and his family, have given generously through educational scholarships, unrestricted grants to Dr. Lloyd’s and his wife’s alma mater and provided financial and product support to address disasters, both locally and internationally.
Unfortunately, even after vigilant estate planning, these two family-owned companies will be facing a very large combined estate tax bill. That bill could total tens of millions of dollars between the two companies. That is tens of millions of dollars that will leave the state of Iowa. These companies might face a fire sale and so often in this circumstance a company is sold to someone with no interest or desire to maintain the current location or contributions to the community.
So, there are two companies – two towns -- six counties – four families and hundreds of employees -- all of which will be hurt if we don’t do something about the death tax. Businesses will be sold. Locations will be shut down. Real people will lose good jobs. The state of Iowa will lose tens of millions of dollars of hard capital invested for almost 90 years between the two companies.
I’ve barely even mentioned how much salary, retirement plans and charitable contributions they have made to those little Iowa communities. The multi-national or foreign companies will come calling. They will be circling these home-grown businesses. Trust me. They will. Perhaps, they will be accompanied by hedge fund types from a big city, like New York, Boston, or Chicago. They will go to places like Sheffield or Shenandoah.
When they arrive, we will have no one else to blame but ourselves for letting these family- owned companies committed to the community go away. The punitive death tax policy, passionately pushed by my liberal friends, will have greased the skids. It will have killed the local roots of these successful small town businesses.
All of us from rural America are trying to battle what is called “out-migration.” If we leave the death tax in place in its punitive form in 2011, it will take away jobs, businesses, and people out of rural America.
Now that is why I care about this death tax debate – because of real people, in real Iowa counties, invested in real communities. You know it is strange -- in New York City -- how many multi millionaires live in any one block in Manhattan?
But those so called multi-millionaires seem a little different when you check out the Iowa corn crop, or you sit together at church or the grandson’s baseball game. They are, as the popular book says “the millionaire next door.” They are the pillars that help hold up all those 99 counties that I visit every year. I know these are not the kind of stories that make the front page of the big city papers. When family businesses are sold and shut down or move out of state or even out of the United States, it certainly makes the front page of the newspapers I really care about.
So, when you hear about the number of estates affected, keep in mind, to some extent, that statistic is only a snap shot. The estate tax return is filed by the representative of the dead person. Those statistics, so often dwelled on by many of the proponents of the death tax, don’t capture the full picture. The statistic is only a look at the dead person who owned the business or farm. It doesn’t 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 bicameral Democratic leadership to slow-walk a resolution of this vexing problem. The slow-walk strategy will leave the American people with current law. The junior senator from Vermont, as always, is passionate and transparent about what he thinks and believes. He has said we should retain current law. His position is that $253 billion in revenue gained from retaining current law is better spent by us in Washington, no doubt spent on what the junior senator from Vermont believes are valuable programs. Should his view prevail, we will see the essence of the economic policy of the Democratic leadership over the last 18 months. It will be yet another income re-distribution policy. The President defined it a couple of years ago. It will be a program designed to “spread the wealth around.”
More taxes for those who have saved and sacrificed during life. More spending on those who are demanding ever more generous taxpayer-funded subsidies. That’s basically what re-distribution is all about. It’s about folks in Washington “spreading the wealth around.”
I have heard rumors and read press reports that indicate the junior senator from Vermont has a lot of company in the House and Senate Democratic Caucuses. But those who share his view haven’t been as transparent as the junior senator from Vermont. The number of quiet supporters of the junior senator from Vermont may be high enough to prevent the Democratic Leadership from allowing a clean vote on the bipartisan compromise.
The American People need to hear some data about how current law will apply. They need to know where that revenue will come from.
According to the Joint Committee on Taxation, the non-partisan official Congressional scorekeeper on taxes, the number of affected estates under current law will be at least 10 times higher than what it would be under the Lincoln-Kyl bipartisan compromise. That compromise would cap the death tax rate at 35%. It would also provide for a unified credit equivalent amount of $5 million. Here’s the data from the Joint Committee on Taxation.
Let’s take a look at the tax year of 2011. It arrives in a little over 6 months. Under current law, 44,000 estates will be taxable. Under the Lincoln-Kyl compromise, 4,000 estates would be taxable. Current law, the path we seem to be slow-walking on, means 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’ll find that roughly 616,000 estates will be taxable over that period. Under the Lincoln-Kyl compromise, roughly 54,000 estates would be taxable over that period. To give everyone a bit of perspective, I want to share some Iowa farm data. It’s from the U.S. Department of Agriculture.
Under current law, in a bit over 6 months, the line between a taxable farm and a non-taxable farm will be $1 million.
The U.S. Department of Agriculture reports that there were 92,800 farms covering 86% of Iowa in 2007. In 2007 the average Iowa farm was 331 acres. According to a survey conducted by Iowa State University, in 2009 the average acre was worth $4,371. That means that a farm the size of the 2007 Iowa average, at average 2009 prices in Iowa, is worth $1,446,801. In 2007 there were 19,302 Iowa farms with 500 or more acres, worth at least $2,185,500 at average 2009 prices.
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 aren’t included in the figures I cited.
This data show that the current law estate tax could hit many, many Iowa 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. Current law death taxes, quietly supported by apparently many members on the other side, will act as an incentive to break down many family farms and small businesses. These family farms and small businesses form the economic backbone of their hard working heartland communities.
What amazes me is the zeal by some to use tax policy to inflict this kind of damage on family farms and small businesses. All of this to fund an ever-expanding set of federal benefits to many who don’t pay any income tax. The signal sent is that those who work hard, save, and want to pass something onto their families exist solely to fund these bloated federal programs. Why work hard? Why save? Why not work less? Why not go into debt or live beyond your means? In the end, the government levels everyone out, at death, by, as the President said, “spreading the wealth around.”
I haven’t touched on the damage being inflicted now by our inaction on estate tax reform. At every town hall, I hear from folks who ask these kinds of questions. They ask “What’s the law going to be?” “Will it be retroactive?” “When will the Congress address this matter?” “Why delay?”
Recently, I received a letter from 750 Iowa attorneys asking for resolution of this issue. At a time when families are dealing with the emotional and financial stress of the death of a family member, why do we add this additional confusion and anxiety? I am afraid I don’t have a good answer for these folks. We need to get an answer. Hopefully, it’s one that is bipartisan and limits the reach of the death tax to the top 10 percent of the wealthiest estates. At the very least, we owe the American People an open and intellectually honest debate and votes up or down on a fair policy.
Resolving the estate tax nightmare with real reform is time-sensitive tax legislative business. It’s nowhere on the Senate’s radar screen. I urge my friends in the Democratic Leadership to put it on the Senate’s radar screen. I yield the floor.
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