In a speech on the Senate floor, U.S. Senator Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, outlined the impact on American farmers, small businesses, and individuals if Congress does not act to provide relief from the death tax before the end of the year.
"Allowing death tax policy to expire is another example of the President putting ideology and sentiment ahead of economic reality. While the death tax targets the transfer of wealth from one individual to an infinite amount of other individuals, the repercussions are felt throughout all income levels," said Hatch, who has long said the death tax should be fully repealed. "From a person working the cornfields, to a cashier in a mom and pop store, to a gas station attendant, the long arm of the death tax affects more than the so-called wealthy. It is called the death tax not only because it is a tax imposed at a time when family members are grieving over the loss of a loved one, but also because it can be a death sentence for the family businesses and farms that American workers depend on for their livelihoods."
Under current law, the death tax and the gift tax are unified with a $5 million exemption amount and a top tax rate of 35 percent. However, on January 1, 2013, unless Congress acts, taxpayers will face an estate tax with a lower exemption amount of $1 million and a top rate of 55 percent that is due within nine months of death. Legislation put forward by Senate Majority Leader Harry Reid (D-Nev.) and passed by the Democrat-led Senate would allow the death tax to come fully back to life. Hatch authored competing legislation that would have provided significant relief from the death tax by preserving the higher exemption amount as well as lower rates.
Below is the text of Hatch's full speech delivered on the Senate floor today:
Mr. President, we are in the midst of an intense debate about how to deal with the expiration of bipartisan tax relief at the end of this year.
The President and the Democratic Party campaigned primarily on raising the top marginal rates.
Yet income tax rates are not the only tax policy set to expire at the end of this month.
If Congress does not act, the currently low death tax rates -- which have previously been supported on a bipartisan basis -- will skyrocket.
They will go from an exemption amount of $5 million and a tax rate of 35 percent to an astonishingly low exemption amount of $1 million and a 55 percent tax rate.
The question is clear. Where are Senate Democrats on this issue?
Again, a low death tax has previously been a rare point of bipartisan agreement.
Yet, this past July, my friends on the other side of the aisle proposed and passed a bill that included a tax cut extension for individuals making under $200,000 or families making under $250,000. Conversely, the bill would have designated the millions of families in New York, New Jersey, Florida, Virginia, and elsewhere that make in excess of $250,000 as rich and subject to higher taxes.
Still, when it came to the death tax, this bill, which was supported by all but one Democrat in this chamber, was silent.
In other words, that bill assumed that current death tax rates would expire, a crushing blow to America's family businesses and farms. This bill, which, once again, was supported by nearly every Senate Democrat, would allow the death tax to skyrocket and the exemption to be reduced to the lowest amount in over a decade, creating an administrative and compliance burden for nearly a million estates.
Allowing death tax policy to expire is another example of the President putting ideology and sentiment ahead of economic reality. While the death tax targets the transfer of wealth from one individual to an infinite amount of other individuals, the repercussions are felt throughout all income levels.
From a person working the cornfields, to a cashier in a mom and pop store, to a gas station attendant, the long arm of the death tax affects more than the so-called wealthy. It is called the death tax not only because it is a tax imposed at a time when family members are grieving over the loss of a loved one, but also because it can be a death sentence for the family businesses and farms that American workers depend on for their livelihoods.
I know a lot of my friends on the other side of the aisle understand this. Some have spoken on this floor in favor of extending the death tax rate. Some have introduced legislation to do so.
My friend, the Chairman of the Finance Committee, where I serve as the ranking member, has indicated he would like to see the current death tax regime extended.
So what is the problem? Unfortunately, bareknuckle politics is getting in the way of good policy.
And the President's insistence on a $2 trillion tax increase is undermining progress on resolving the death tax.
I have been a long-time proponent of repealing the death tax. Not only is it double-taxation and a deterrent to savings, but it also sucks up capital in the marketplace. The death tax adds inefficiency to our economy. It is what economists refer to as a deadweight loss. In other words, it creates another burden on our free market system that prevents the full potential of economic growth.
For instance, many family farms have to purchase insurance in order to prepare for paying the death tax so they do not end up having to literally sell the farm just to pay the death tax. This added cost is embedded into the cost of goods when sold. In other words, American consumers, American workers, or Americans looking for work are those who will ultimately pay the death tax.
This past July, the Joint Economic Committee analyzed the costs and consequences of the death tax. In a report, the Committee found that as of 2008, the death tax has cumulatively reduced the amount of capital stock in the U.S. economy by roughly $1.1 trillion since its introduction as a permanent tax in 1916, equivalent to 3.2 percent of the total capital stock.
Coincidentally, since its inception nearly 100 years ago, the death tax has raised just under $1.3 trillion in total revenue. By comparison, that is equivalent to the U.S. federal deficit for fiscal year 2011 alone.
And I have some news for those seeking to engage in class warfare.
The death tax does not reduce income and wealth inequality. Perversely, the estate tax creates a barrier to income and wealth mobility.
In an interview this past year with the Associated Press, Deputy Secretary of Agriculture Kathleen Merrigan described an epidemic of sorts that is hitting our farmlands across the United States. She did not talk about rising fuel prices or droughts. Instead, Secretary Merrigan discussed how our country's farmers and ranchers are getting older, and fewer young people are taking their place. I have heard time and time again that the death tax is the number one reason family farms and businesses fail to pass down to the next generation.
Consider also that heirs are often forced to sell an asset of the farm in order to meet this arbitrary tax.
These assets are likely generating revenue and could be a vital part of the family farm. But because of the death tax, family farms and ranches are instead forced to sell these assets or sell the farm to pay the death tax.
We ought to repeal the death tax, plain and simple. It might make sense in a college social justice seminar, but it has no place in serious discussions about fiscal policy.
Recently, the Joint Committee on Taxation released an estimate on how many more taxable estates, farming taxable estates, and small business taxable estates would be affected by the increase in the death tax over the next ten years.
The numbers are astonishing.
If Congress does not act, we will see more than 15 times the number of taxable estates, more than 13 times the number of small business taxable estates, and a whopping 24 times the number of farming taxable estates.
And to add fuel to the fire, farmers already have to recoup the economic losses incurred from the recession.
This is kicking farmers and ranchers while they are down. The recent droughts have caused an unprecedented economic hardship. And if we decrease the exemption amount for the death tax from $5 million to $1 million, just look at how many more farms will possibly be exposed to the death tax in certain drought-stricken states.
According to information compiled from the United States Department of Agriculture, as you can see on this chart:
15 percent of farms in South Dakota are valued over $5 million. But look at the number of farms valued over $1 million -- an astonishing 49 percent. Look at California. Eleven percent of farms are valued over $5 million, but 42 percent of farms are valued over $1 million. And then there is Montana, where 7 percent of farms are valued over $5 million, but 30 percent are valued over $1 million.
Now not all of these farms will necessarily be impacted by the death tax next year, but I guarantee that most of them will down the road.
Mr. President, the fiscal cliff presents us with a pivotal moment. How we tax our citizens is ultimately a question of what we stand for.
With respect to the death tax, the question is whether we stand for families and jobs, or whether we stand for redistribution regardless of the consequences.
We need to resolve death tax policy. We can no longer afford to put small business, family farms, and individuals in a position where each year, uncertainty about the death tax rate and exemption amount causes them to divert income away from creating jobs and towards unnecessary death tax planning.
It is time for the President to lead on this issue.
The President tellingly said when he was running for President in 2008 that his experience running for President was one of the critical bullets on his resume qualifying him for the job.
Other than writing and part-time teaching, President Obama has made a career running for office. Well, he will never run for office again. It is time to put aside the campaign, and take up the mantle of leadership. It is time to make the tough decisions necessary to get our economy moving again.
Resolving the death tax is a good place to start, and should he decide to lead, he will find partners on both sides of the aisle to join him.