Benjamin Franklin wrote in 1789 that “nothing in this world can be said to be certain, except death and taxes.” While both remain certain 232 years later, nothing requires them to be combined. In fact, taxing death itself is one of the most immoral things the government does – and that’s saying something.
Farmers and ranchers have long fought against the federal Estate Tax, also called the “Death Tax.” Sending surviving relatives a huge tax bill because their loved one had the audacity to die is simply wrong. It’s indefensible to punish a lifetime of hard work by forcing a family to sell its assets or business to pay the government.
In recent years we have seen progress in pushing back on the Estate Tax. Congress and President Trump increased the threshold where the tax kicks in, giving some relief to family farmers and small business owners. This doesn’t change the fact that taxing death is wrong, but at least it’s a step in the right direction.
Unfortunately, President Biden is trying to move backward. To pay for the ever-growing wish list of government spending, he suggests adding another brand-new tax that is due upon death. His “American Families Plan” would pay for universal preschool and community college, child care, medical leave, Obamacare premiums and more. In exchange, he proposes that the government should collect capital gains tax from families upon their loved ones’ death rather than waiting until when (and if) it is sold. This new tax would not take the place of the estate tax; rather, it would be added on top.
Today, capital gains are only taxed if the property is sold. This lets owners use the cash from the sale to pay the taxes. Under Biden’s proposal, the owners would have to immediately pay up to 43 percent capital gains taxes whether they actually sell the property or not. The IRS would then charge a 40-percent estate tax on what’s left of the property. Combined, the two taxes would result in as much as a 61 percent tax rate, according to the Tax Foundation.
The Biden plan claims it would not tax capital gains on death for family farms so long as they continue to farm the land and keep ownership in the family. But he offers no specifics about how such a carve-out might work or how onerous its compliance rules may be. Also, many farmers are diversified into other businesses like seed and pesticide sales. Presumably, Biden would not exempt these businesses in the new law. Even a modest side business could force a farm family to sell part or all of their farmland to raise cash for Uncle Sam. At a minimum, more time and resources will be spent consulting accountants and attorneys to navigate these tax law changes if enacted.
Here is the bottom line: carveouts and exemptions do nothing to change the fact that taxing death is plain wrong. While death and taxes are not going away any time soon, we should at least have the decency to keep them separate. That way, Americans would still have the incentive to work hard and save so they could someday pass down their business to their family. What a novel idea!