The Daily Caller

The Daily Caller

The Death Tax is killing family businesses

“The Power to tax involves the power to destroy.” — Chief Justice John Marshall

Whitman “Whit” Leverett was born just a few weeks ago, on September 26 — all of 20 inches and 8.2 lbs — and already his father Clayton is concerned about whether Whit will be able to keep the family’s fifth-generation, 150-year-old ranch.

The Leverett family has twice felt the cut of the death tax.  The family was forced to sell thousands of acres to pay the dreaded federal estate tax when Clayton’s grandmother died.  When his father passed away even more land had to be put up for sale, employees were let go and Clayton was forced to take on a second job in construction to keep up the tax payments.

Every death shrinks the business and makes it more difficult to keep it going. One more strike from the grim reaper and the IRS and the ranch likely will be sold.  Whit’s future — and the future of ranchers and farmers across the country — stands in the balance.

The 2010 elections have become, in part, a referendum on limits.  In cases where Congress’ policies have violated commonsense limits on its tax and spending powers, polls indicate that voters intend to introduce limits of their own.  This trend is particularly visible in the debate over the death tax, where Congress’ violation of limits has enormous consequences for farmers like Clayton

The death tax expired on January 1, 2010.  Unless Congress acts this year, however, the tax will return on January 1, 2011, at a rate of 55 percent on all assets exceeding $1 million.  Sen. Bernie Sanders (I-VT) has even introduced legislation that would increase the top death tax rate to 65 percent, claiming it would make the rich “pay their fair share.”

Yet more than two-thirds of American voters say the death tax should stay extinct, not be brought back to life at 55 percent — much less 65 percent.

The majority of voters get it: The death tax has become nothing more than a tool for social engineering.  Yet the tax fails even at this task.

Why?  Because rather than reducing wealth disparity, the death tax actually destroys independently-owned family businesses like the Leverett ranch and increases the size and power of corporate-owned entities.

Consider the story of former Biloxi, Mississippi family-business owner Victor Mavar.  Mavar’s family seafood business was sold to a large, multi-national corporation due to looming death tax liabilities that vastly exceeded the family’s ability to pay.  When the company was lost, so were the jobs of more than 200 workers. “The death tax has encouraged a ‘wealth-redistribution,’ not from the rich to the poor, but from the local community to multi-national corporations,” Mavar wrote in testimony to the U.S. Senate Finance Committee.

The statistics bear this out.  A study by Prof. Antony Davies of Duquesne University in Pittsburgh found that for every 4.5 percent increase in the estate tax (the average annual increase since 1993), 6,000 small firms are liquidated or absorbed by larger firms.

Conversely, Davies found that repealing the estate tax would create 100,000 new businesses, which would employ 2 million people, generate $80 billion in labor income, and increase payroll tax revenues by more than $20 billion annually.

When small businesses get gobbled up, local production is often cut off and jobs are outsourced or sent to the chopping block.  Former Congressional Budget Director Douglas Holtz-Eakin predicts that reinstating the death tax at a 55 percent rate will cost the economy nearly 1.4 million small business jobs.