With the passing last week of baseball icon and New York Yankees owner George M. Steinbrenner, an issue has been brought to the forefront that will affect farmers and small businesses throughout Kentucky. The Steinbrenner family would have owed the federal government $600 million if Mr. Steinbrenner passed away in 2011. That is a total of 60 percent of the entire estimated value of the Steinbrenner estate. It has been reported that the Steinbrenner family would have likely had to sell part of the Yankees within nine months of the death of Mr. Steinbrenner in order to pay Uncle Sam. That is double taxation of savings and investment. Does the government really have the right to this money?
Obviously, the Steinbrenner Estate is the extreme case, but here in Kentucky family-owned farms and small businesses will suffer the same consequences when the estate tax, known as the "death tax," is reinstated. In 2011, property worth over $1 million will be hit by a tax of up to 60 percent. According to the Kentucky Farm Business Management Group, the average net worth of a typical Kentucky farm is $1.8 million. That means the loved ones of Kentucky farmers who pass away may have to sell farms that were in the family for generations because the farmer was "land rich" and "cash poor." The federal government does not care if the death tax forces a grieving family to sell the farm or a small business.
We have a great farming tradition here in Kentucky. Unfortunately, the tax policies of the Obama administration and the current Congressional leadership of Nancy Pelosi and Harry Reid will destroy the tradition of the family farm in America. A Spencer County farmer wrote me last year saying " lower rates will give my farm a better chance to remain in operation when transferring from one generation to the next. The tax should not cripple a farm or ranch from remaining in operation." I could not agree more with this Kentucky farmer. Just last week, another farmer from Daviess County called my office in support of the repeal of the death tax. His family has owned the farm since the 1880s.
The death tax is also an affront to small business. Kentucky is dotted by small businesses from Ashland to Paducah, and they are the economic engines that drive job creation in the Commonwealth. A small businessman from Hardin County wrote me saying "Americans broadly support ending the estate tax because it repeals one of the most unpopular and destructive taxes collected by the federal government." The death tax will be a job killer as well. According to a study done by the former Director of the Congressional Budget Office, Dr. Douglas Holtz-Eakin, small business owners would create an estimated 1.5 million new small business jobs with the repeal of the death tax. The reason is that a small business owner could plan to grow, knowing their family will not have to pay the double tax on their business when they die.
In addition, the Obama tax increases that take effect in 2011 are not just limited to the death tax. The vast majority of small businesses pay taxes at the individual level, and many small business owners are subject to the two highest tax rates. Let's look at the example of a husband and wife who own a small business and have three children. The business earns $250,000, which the family plans to put back into the business so they can expand and hire more employees. This year, that family will pay a 33 percent tax rate. If the Democrats have their way, next year their tax rate will be 36 percent. But because of special penalties that only apply to people in the top two tax brackets, that family's effective tax rate will actually be 42 percent. Their tax rate will go even higher if they have more children.
But let's say that the same family business does even better and earns $400,000. Under this year's rules, the family would pay a 35 percent tax rate. Next year, the rate will be 39.6 percent, but the special tax penalties will push that up to 41 percent. Unbelievably, the business that isn't doing as well pays an even higher tax rate than the more successful business.
Everyone agrees that small businesses are the engines of job growth. Does anyone really believe that the federal government confiscating more money from small businesses won't affect their ability to grow and create jobs? And why should businesses that aren't doing as well face an even higher tax rate than the most successful small businesses?
Even worse, Democrat Senator Bernie Sanders, a self described socialist from Vermont, recently introduced the "Responsible Estate Tax." The legislation is anything but responsible. It would make the death tax retroactive to cover this year and will be a major tax increase on many farmers and small businesses. I strongly oppose this legislation.
Last week the Federal Reserve said the economy is still struggling. I believe the country is on the verge of a double dip recession, and the President and his party in Congress are clearly not focused on creating jobs. I hope in the remaining days that I am in Congress we can prevent the largest tax increase in American history, so our economy can get back on track and people are not double taxed.