Sean Paul Kelly recently posted a piece in opposition to a bill locking in inheritance taxes at 45% with an exemption for the first $3.5 million. The post seemed to draw nothing but praise.
I don't agree, but I needed to think about the matter a bit before posting.
Consider the implications on the farm where I now live and work, should the new inheritance tax scheme come into effect (55% above $1 million exemption). My dad bought this place for somewhere around $700,000 about ten years ago. If he were to leave this land to me, the current value is somewhere around $3 million.
It shouldn't be worth this much and it isn't based on its ability to produce income. But it is due to its recreational value and perhaps as investment property. Despite that fact, the government will tax me according to present market value.
The land maintains 150 cows at best, year in and year out. The average calf fetches $500. So we have a gross income of $75,000 from cattle sales if we do not replace old cows. Old cows have to be replaced. So we keep some heifers each year and sell a few old cows that fetch less than their calves would be worth. Let's say $350. Despite our best efforts, a few cows die each year and not all cows have a calf.
Fields must be sprayed for weeds and fertilized. We harvest, store and feed hay to cows in the winter, incurring labor and machinery costs. In a dry year, we also have to irrigate land with additional energy (and equipment) costs. If we owe money to the bank, interest must be paid.
We must maintain fences and structures.
We raise a few cash crops--feed grains--but profits on these have been minimal at best.
I also sell some excess hay at a meager profit, after investing a serious amount of hard labor under sometimes oppressive conditions.
When all is said and done, this land I am told is worth $3 million pays me a salary of $30,000 a year. At best. And that is it.
So, if I get an exemption of $1 million and owe 55% on the balance, I will owe $1.1 million dollars in inheritance taxes should my dad decide to leave this place to me. Takes a while at $30,000 a year gross to save a million bucks.
My dad has never worked a day on this land. I have. While he did bankroll me, I have been responsible for and cared for this land from day one. I have sweat equity invested here.
Most small family farmers are in a similar position. They own property their sons and daughters cannot afford to keep if this new tax law comes into effect.
So what will happen in most cases like mine?
Sons and daughters will be forced to sell the family farm to pay taxes and mortgage payments to a bank in many cases.
The money the government collects will not be used to fund social programs. It will be used to fight wars. To bail out Wall Street bankers. Who will use the money to buy my farm so I can pay my tax bill. And of course, to write themselves yearly bonus checks.
And then the land is placed into corporate owned megafarms, immune to things like inheritance taxes.
You aren't giving heirs to wealth anything. Their parents are. You're saying the government has a right to what they earned.
Believe it or not, some of us actually earn our inheritance.
Be careful what you wish for. Some day you might get it.
A million bucks ain't what it used to be.
PS. I'd add that the sons and daughters of most farmers are worse off than I am. Most of them are handed a debt at the bank in addition to a tax bill and count themselves lucky to get away from the farm debt free.
For what it's worth, my dad also earned the money he used to buy this farm and he already paid taxes on that income at least once.