Rep. Graves warns of imminent danger from the estate tax causing many, if not most, farmers to believe their own estate will need to be split apart and sold in order for their heirs to pay the inheritance tax due upon the their death.
*Editor’s Note: This opinion is in response to a column by Rep. Sam Graves titled “Saving the Family Farm” published in the Nov. 22 Courier-Post.
One word comes to mind after reading Representative Sam Graves Capital Report in the November 22 issue of the Salt River Journal and Courier-Post; fear-mongering.
Fear-mongering is the spreading of frightening and exaggerated rumors of an impending danger. Rep. Graves warns of imminent danger from the estate tax causing many, if not most, farmers to believe their own estate will need to be split apart and sold in order for their heirs to pay the inheritance tax due upon the their death.
We’ve heard this claim for years and family farmers (and small business owners) are conveniently portrayed as victims of this tax because most rural residents have family and friends who farm and will be affected.
According to the Tax Policy Center out of 2.7 million estates that will be settled this year only 5,200 estates will pay estate taxes. Furthermore, of these 5,200 estates only 50 will list a farm or small business as an asset. The estate tax affects so few small farms and businesses because the first $5.49 million of assets per person ($10.98 million per couple) are entirely exempt from it. In case you’re wondering the Tax Policy Center is a nonpartisan think tank and was established by economist who worked in the Reagan, Bush and Clinton administrations.
Additionally, according to the United States Department of Agriculture (USDA) in 2015 it was estimated only 1.7 percent of farm estates would be required to file an estate tax return for the 2016 tax year. A much smaller share of those estates (0.42 percent) is estimated to actually owe any Federal estate tax.
So why should this concern you? The Federal debt has spurned budget hawks to require offsets with most new spending and/or tax cuts. This cut will need to have offsetting components before these hawks will vote for it.
One such offset could be the loss of the “stepped up basis” on inherited assets. This has always been mentioned when the discussion turns to repealing the estate tax. In fact this was rumored to be part of the Trump tax plan being considered currently. As of today the loss of this provision has been taken off the table but that doesn’t mean with the regularity of it being discussed it could not be put back up for offsetting the estate tax repeal.
The step-up basis rule is the readjustment of the value of an appreciated asset for tax purposes upon inheritance, determined to be the higher market value of the asset at the time of inheritance. When an asset is passed on to a beneficiary, its value is typically more than what it was when the original owner acquired it.
What this means is a very meager estate containing real estate, perhaps a house, that was purchased many decades ago would be taxed on the capital gain when the heirs sell that house. Without the step-up basis rule the heirs will inherit not only the property but also the original basis (cost). So, a house purchased several decades ago that has appreciated perhaps 300 to 400 percent will required the heirs to pay a capital gain on the sale of that house even though it is well below the estate tax threshold.
The loss of the step-up basis rule will cause most estates where property passes through to heirs to pay capital gains. If the estate tax is this evil tax on hard work and savings what would you describe the tax on the sale of a gain on a modest house that could be the only asset passed on to future generations?
If the estate tax affects less than one percent of all estates nationally compared to the step-up basis rule affecting possibly a majority of estates which one affects the most citizens?
Personally, I don’t care if they repeal the estate tax or not. This shouldn’t be a partisan issue. Politicians on both sides of the isle have been on both sides of this issue. But, often and loudly, we should remind our elected representative that the step-up basis rule should not be sacrificed to pay for the repeal of the estate tax. And although today it isn’t being offered, it was just several months ago and we must be vigilant that it won’t be at a later date.
— Keith Mudd, Monroe City