The Estate Tax Forced my Family to Sell the Farm

The Estate Tax Forced my Family to Sell the Farm

By Bill Arnett

This is the absolute truth.

My family owned two farms for over 100 years. The estate tax forced their sale. To my embarrassment, this event buttresses a specious Republican talking point. If you read my previous post about the Second Amendment, you'll know how I feel about context. It is everything. Knowing the context around the sale of this farm demonstrates why I whole-heatedly support the estate tax... and affirmative action.

First, what is the estate tax? When you die, if the total sum of all of your possessions, property and cash exceeds some set value, you owe a tax on every penny over that value. For instance, if the estate tax exemption is one million dollars and the estate tax rate is a flat 50 percent, and the total value of your assets is one-million-and–one dollars when you die, then your estate owes fifty cents in taxes. If your assets totaled two million dollars then you would owe $500,000 in estate taxes (50 percent of every dollar over $1 million.) That's the concept. The exact thresholds and percentages have changed over the years, quite a bit actually. Often called the inheritance tax, Paris Hilton tax or death tax it was introduced in the U.S. in 1916, though similar taxes were levied through the 1700s.

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My grandfather was a college professor in Gainesville, Florida. His grandfather was a real estate salesman in central Illinois. In the late 1800s, he purchased two farms and leased them to tenant farmers. The revenue was split between the farmers and whichever forefather of mine happened to be in ownership. This continued for three generations and would have continued for more if not for that darn estate tax!

In the 1980s, my grandfather was old enough to begin making his final arrangements. In 1980, the estate tax exemption was $511,000 (inflation-adjusted to 2017 dollars). That's not a ton of money. While his salary was comfortable and the farms generated a modest income, he certainly didn't live the millionaire's high life. The value of the land, however, exceeded the threshold. If I died tomorrow, he figured, my grandchildren's inheritance would go to Uncle Sam.

This is where the Republican anti-estate tax talking point has it's roots.

Small, family farmers who happen to own their land are suddenly treated like millionaires by the IRS. Having no real cash or assets other than the land, its sale would be forced, completely undermining the whole concept of a family farm. It's a very sympathetic argument. And the Republican solution to save those family farmers? Scrap the estate tax all together. However, the vast majority of estate tax payers are not cash-poor farmers, but cash-flush millionaires. The talking point makes a false equivalence. It equates the plight of a family farmer, forced to sell their very livelihood, with a millionaire hedge fund manager forced to sell their—private jet? yacht? hedges?—to pay the estate tax. There are a number of simple solutions to save that rare farmer threatened by the estate tax.

Winston Churchill called the estate tax “a certain corrective against the development of a race of idle rich." The idea of preventing multi-generational wealth hoarding giving rise to a neo-feudal plutocracy sums up many of the arguments in favor. The role of government is the same as the umpires and rule-makers in pro sports: to keep the game fair. Not just for the good of each player but for the continuing health of the sport as a whole.

The major sports leagues have some very progressive policies, like the worst team in the league gets the first pick in the draft and large market teams share money with small market teams. If capitalism works because competition brings out the best in people then success must be penalized or competition will decline. The estate tax is one form of success penalty. It stands between democracy and a gradual slide into the very rich/very poor class structure that my great-great-great-great-great-grandfather left behind in Europe.

Here's what my grandfather did: he sold the farm to his children before he died. He called a lawyer and established a partnership that split ownership among his living descendants. The Arnett farms would become the Arnetts' farms. That's one solution. If you are in the tiny minority of non-millionaires who might get swept up in the estate tax, get a lawyer.

Another solution has actually been on the books for a while. After 40 years of Republican push back, the current estate tax exemption has crept up to $5.49 million, ten times the 1980 exemption, and the highest tax rate has been lowered to 40 percent. This rise in threshold means that now only 2 percent of estates have to pay the tax. If there are any family farmers with a total net worth over $5.49 million who choose not to hire an attorney, I will find it difficult to shed a tear for them.

By the time my sisters and I were ready for college, our small farm stakes had made enough money, helped by scholarships and in-state tuition, to pay for our college educations. Being debt-free after school was a tremendous gift that I'm only now, in my 40s, truly realizing. The source of that money can be traced directly to decisions made by my great-great-grandfather shortly after the Civil War. My path to college could not legally have been duplicated by the four million recently freed Black Americans. No amount of hard work, self-discipline or boot strapping could have changed it. Therefore, I am in favor of that imbalance being addressed.

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