The safest way for our elected leaders to proceed is to protect American family business above all else. Death should not be a taxable event.
In the national debate about the estate tax, there are many perspectives. Opponents of the tax argue that it unfairly targets family-owned businesses and farms, while proponents of the tax argue that it is an important revenue generator that only impacts a small amount of wealthy families. After 36 years of studying this tax, I have developed a deep understanding of all sides of these arguments, and also discovered that there are hidden hands seeking to influence the public discussion for their own gain. In discussing a tax that has the potential to shut down a family business based on the death of a family member, it is vital that we do so based on facts and not manipulation by large corporations with entrenched interests.
A quiet, yet powerful stakeholder in the estate-tax debate is the life-insurance industry. A large number of the 5.75 million privately held employer firms in the country use life insurance to mitigate the effects of the estate tax. As long as families need insurance to hedge against the potentially devastating impacts of the death tax, they will continue to support the life-insurance industry. Investigative reporter Richard Pollock, who writes for The Daily Caller News Foundation, found that “the life-insurance industry has handsomely profited from the estate tax for years through the sale of ‘survivorship,’ or second-to-die life-insurance policies that generate billions of dollars in sales. The insurance industry provides these products to cover the estimated estate tax the policyholders’ children or heirs would have to pay upon their death.”
Unfortunately, these insurance companies are profiting at the expense of family-owned businesses, job creation and ultimately the overall health of our economy. My colleague at Patriot Aluminum Products pays yearly income and payroll taxes, and supports the jobs and families of 60 employees. In addition to these taxes, for every dollar of investment in the company, the owner sets aside an extra $0.40 for the estate tax. Using life insurance, his current monthly premium is equivalent to and prevents him from hiring 1.5 new employees. He is one of many.
Since 1995, more than 103,000 closely held businesses and roughly 36,000 farms have been forced to pay the estate tax simply because someone has died. According to 2016 IRS data, nearly 700 family farms and more than 2,200 family owned businesses paid the estate tax in 2016. Furthermore, proponents of the tax fail to address how little revenue it actually generates versus the lasting impact the tax has on family business. Economist Stephen Moore notes, “In 2014, the estate tax collected roughly $19 billion, about 0.6 percent of all federal revenues. It costs the economy multiple times that amount of money in lost investment and complicated estate tax-planning schemes invented by estate-tax attorneys and accountants.”
As people digest opinions about this tax, it is important to understand the motivations behind various arguments. The safest way for our elected leaders to proceed is to protect American family businesses above all else. Death should not be a taxable event.