By Senator John Thune
Family farms, ranches, and businesses are the life-blood of our South Dakota communities. As anyone who has built a business can tell you, success did not happen overnight. These families have scrimped, saved, and built job-creating businesses all with the hope and promise of passing their success on to the next generation. Families who live and work on their land view farming and ranching as a way of life and take seriously their calling to be custodians of the land they farm and ranch. It is important to them that future generations have the opportunity to care for their land and contribute to the communities they hold dear. It often takes generations to build a flourishing family business, but it only takes one bad Washington policy to destroy it.
The federal estate tax, commonly referred to as the death tax, forces grieving families to pay a tax on their loved one's life savings that was built from income already taxed when originally earned. The tax imposes a rate as high as 40 percent on an estate during the transfer of ownership upon the death of a loved one. Many of these businesses are "land rich and cash poor," meaning that the value of the business is in the land and in the business equipment. These businesses do not have substantial liquid assets sitting around to pay the 40 percent tax when a loved one passes away. As a result, the death tax often requires that business assets are sold simply to pay the tax, making passing on farms and businesses to the next generation even more difficult.
Currently more than 70 percent of family businesses do not survive to the second generation, and 90 percent of family businesses do not survive to the third generation. Family businesses can find themselves in a situation where estate taxes owed are more than the value of the liquid assets available to pay the tax. This is certainly the case throughout the Midwest and in South Dakota where we have seen land values increase dramatically. In South Dakota we've seen farmland prices increase by over 50 percent in just the past five years.
I believe that repeal of the destructive death tax is critical to keeping family farms and businesses intact across South Dakota. Recently, I introduced the Death Tax Repeal Act of 2013 which would permanently repeal the federal death tax. I am committed to promoting policies that provide incentives to grow family business and support building our economy, which starts with a permanent end to this unfair tax.