When the Death Tax becomes a Tax on Living Communities Jack Kemp The Obama administration has shown an interest in reviving Inheritance Taxes. Obama's own position can be seen at: http://www.nodeathtax.org/2008election/obama.htm Barack Obama Will Create a $7 Million Estate Tax Exemption for Couples and a 45 Percent Rate: According to Bloomberg News, “Both candidates [Obama and Clinton would allow President George W. Bush's tax cuts to expire for workers in the top two tax brackets and set the estate-tax rate at 45 percent with a $7 million exemption.” [Bloomberg.com, 03/13/08] END OF QUOTE Sounds like an moderate exemption by Obama until you realize, with the falling value of the dollar, a great many small businesses like coffee shops, gas stations (yes, the owners aren't all getting rich), drug stores are worth either close to seven million dollars or will be in a few short years - because seven million dollars won't buy what seven million dollars used to buy. And politicians have been known to lie and give less tax exemptions. The fact is, Obama publicly states that he wants to reinstate the inheritance tax -- or so called Death Tax. There are people who voted for higher taxes on homes in 1948 who bought a small $8000 house with the GI Bill that found themselves in with a property assessed by both the Market and the local government at $250,000, putting them in a much higher tax bracket when they went to sell as retirees -- or their heirs did when the owners died in 1998. Here below is my May 26, 1997 letter to the editor to the New York Post, in response to a May 21, 1997 Op Ed column by economist Irwin Stelzer, in which he defended the inheritance tax. It also addresses Sen. Obama's position on the subject some eleven years later. It is reproduced here with minor grammar editing and was published under the letter group title: INHERITANCE TAX: WHERE STELZER ERRS In his support of inheritance taxes, Irwin Stelzer fails to touch on the circumstances of small to medium sized family businesses, typically worth no more men $1.5 million and generating a lot less income than that. When the owner of a small farm or a small chain of (say) three dry cleaning stores dies, the heirs have to sell the entire business to raise the taxes required. The heirs then have to look for another job as a large corporation takes over the place and often fires the staff, typically people in their 40s, 50s and 60s who have been with the founder of the business for years. This causes the government to spend a lot on the unemployment insurance, possibly on retraining, and possibly on welfare. It also destabilizes the economy of small towns and big city neighborhoods. As you know, most jobs in America are created by smaller companies. Whereas Stelzer may have some point about the debutantes pictured along with the column, people who work or have worked in a family business as heirs or outside employees should not be punished by the government, as they now are, when the businesses’ founders die. Stelzer also missed the effect of inflation’s creep on a $600,000 inheritance tax exclusion. When this law was first enacted, what did a new car cost -- $4000? What did a year at a private college cost -- $10,000? A loaf of bread -- half a dollar? A subway ride – 50 cents? The law is now punishing those people of lesser means who were not meant to be taxed at these progressively higher tax rates. I realize there are many politicians who love bracket creep because the government takes more and more of the citizens money with it, effectively raising taxes without having to vote for an increase. END Update: The quote on the Obama position above is from the website of an organization called NoDeathTax.org headed by Dick Patten. Mr. Patten was an attendee at the Defending the American Dream Summit in 2009 near Washington, DC. His organization's website takes on the plight of the small to medium family business owner's attempt to pass on their life's work to their children - and not throw their 50 year old employees out of work when they are forced to sell to pay off a Federal Death Tax. NoDeathTax.org has many sample stories of businesspeople explaining their situation. I chose a 2007 example from the New York-Connecticut area by a wine distributor named Bruce Nevins who owns a store right in Grand Central Station in Manhattan. You can read what he testified to the US Senate Finance Committee at http://www.nodeathtax.org/resources/testimonies/nevins Here is a short excerpt from Bruce Nevin's testimony: "Obviously, I will look into further estate planning techniques and hope to find other means by which to preserve Grande Harvest Wines. It is not simply for my sons – three of whom work in the company – but also for our employees and their families that I want to keep the business in operation. Except for my death tax liability, I foresee no reason why the company will not continue to grow and expand under my sons’ leadership. They are already learning the complicated business of importing and retailing wine from around the world. In time, they will take over for me, assuming we have found a way to deal with the death tax. I find it strange that Congress has not yet addressed a tax which falls so harshly on small business owners such as me. I am certainly no billionaire and have inherited no wealth. This tax will not break up the wealth of a landed family – it will destroy the legacy of an entrepreneur." END OF QUOTE