Picture the state’s tax collector as the Sheriff of Nottingham barging into a family gathering right after the funeral of a loved one. The sheriff demands that the grieving relatives “pay up – the death tax is due!”
While no one at Washington’s Department of Revenue is likely to do that, the mere fact that Gov. Gregoire and lawmakers in Olympia plan to reimpose our state’s estate tax (commonly referred to as the death tax) conjures that image from the Robin Hood fable – only in this case, Robin may be defending the shopkeeper and farmer from the tax collectors.
Earlier this year, our State Supreme court tossed out the estate tax. Congress is in the process of phasing out the federal version as well. Despite that, the governor and legislators want to resurrect the death tax.
No matter how you look at it, the death tax is wrong. A death in the family is traumatic enough and causes disruptions down on the farm, at the factory, or in the family store because often the founder and leader is gone. Family members often have to come to grips with who will carry on the operation, but it is very difficult with the tax collector standing in the shadows with a crippling tax bill.
By the time the owner of a family business dies, he or she has already paid federal, state and local taxes on their income several times – B&O taxes, excise taxes, license fees, social security taxes, federal income taxes, sales taxes, and state and local property taxes, etc. Most of what’s left goes to pay wages and benefits to employees, who, in turn, pay some of the taxes all over again.
If, despite all that, the business has anything left when the owner dies, state and federal tax collectors sweep in with their paperwork in order and literally try to take that, too. No wonder tax and probate lawyers thrive.
That’s just not right. It establishes a disincentive to innovate and create jobs, products and services and the wealth which funds government in the first place.
Reinstating the death tax raises about $127 million for the 2005-07 state budget. Even though the legislation floating around Olympia purports to exempt family-owned farms and would not include estates of less than $1.5 or $2 million, some experts looking at the bills say it may not. It still forces children to literally “sell the farm” or go deeply in debt to pay the state when mom or dad dies.
Often the family assets are tied up in machinery, equipment, buildings, inventory and property. In today’s world, it doesn’t take too much to hit the $2-million threshold when many average family homes in Seattle go for more than $500,000 or a combine on the Palouse goes for a couple hundred thousand.
In many instances, people have liens against their assets because the family borrowed to make it through a poor crop year, a recession, or to modernize or expand just to stay in business. More often than not, it isn’t as though a family member can go to the bank and withdraw a large sum or sell stock or bonds to pay the tax.
To put it simply, the death tax isn’t fair.
Our state’s highest court and Congress are on the right path. The death tax needs a permanent burial. While it is tempting to use death taxes to balance the budget, our state would get much more tax revenue in the long run if it helped preserve the small businesses that produce the jobs and wages that support the entire economy.
Family farms and businesses are the backbone of America, and we shouldn’t tax them to death – and beyond.
Don C. Brunell is president of the Association of Washington Business.