You read the headline right. In 2010, the gradual decline of the so-called death tax reached a full repeal for that year and that year only. That year just so happened to be the year my grandfather, the patriarch of our family’s small manufacturing business, lost his long and painful battle with cancer. Had we been so fortunate to have him for another year, we would have lost everything he worked so hard to build. My father was the president of the company at the time, a firm specializing in creating composite equipment. You’ve probably never heard of the composites industry, let alone our company, but I guarantee you’ve used products our machines made. You probably took a shower in a tub made with our equipment today. There are countless applications of composites, from bathtubs, boats, oil and gas, infrastructure, and defense.
We supplied equipment to all of these sectors and more, supporting countless jobs and creating a multitude of products most people take for granted. My family took pride in the ability to design and manufacture all of our products for customers around the world right here in the United States, with facilities in Florida, Tennessee, Indiana, and Washington state, employing hundreds of people.
Yet, in 2010, like most of the country, we were struggling. My father had spent the last few years doing everything he could to keep the doors open, battling not just the emotional anguish of watching his father suffer from cancer, but navigating the company through the throes of the Great Recession. Despite the odds, the company pulled through. We would have lost the business if my grandfather died less than a year later.
Some will try to discredit the impact of the death tax by saying it only affects a small number of wealthy people. First, the acceptable number of businesses our tax system should be allowed to destroy is zero.
Second, defenders of the death tax are either willfully ignorant or purposefully deceitful about what kind of wealth is actually taxed.
The government isn’t backing up a truck to Scrooge McDuck’s vault of gold coins (even if they were, didn’t he already pay income taxes on that money?). The death tax takes about half of everything you own, including buildings, machinery, inventory, land, etc. In these terms, the $5 million exemption gets eaten up rapidly. It forces businesses to liquidate the assets they need to produce their products to pay off the government and/or cut a check for the equivalent value. There isn’t a business on the planet that can cut a check for half its worth today that would still be open tomorrow.
Growing up with this front-row seat to the plight of small business is why I work in public policy today. It’s no coincidence I work at a group like FreedomWorks, fighting for lower taxes, because I’ve seen firsthand what the burden of our tax system looks like on the face of a person that has to somehow be thankful his father didn’t live another few months. With this generational opportunity for tax reform coming to a head and the possibility of repealing the death tax, I asked my father for his thoughts. Here’s what he said:
My Dad died in the final year of a tax bill that saw the estate tax theoretically at zero. There were still tax implications but it allowed us to dramatically reduce liability and avoid what could have been a tax debt that would have forced us into bankruptcy. Remember, we were coming out of a terrible recession and available cash was minimal.
It’s a perverse feeling to be grateful your father was fortunate to die in 2010 due to government greed.
One more major issue is that, when a family business grows, it becomes more difficult to pass down ownership due to inheritance/gift taxes. The transfer of wealth (stock) is taxed heavily after small exemptions. This makes it extremely difficult when a company becomes successful. The growth in value is then taxed when stock is passed down; again requiring large cash usage or ridiculously expensive insurance policies to keep the business in the family. That’s why many small family businesses are forced to sell.
That’s the bargain the tax code left my family: death or death by taxes.
So when I hear about the death tax being thrown around like a bargaining chip by members of Congress, or minimized by someone some like Sen. Bernie Sanders (who has made his fortune dividing people in government instead of building a business) I cannot help but speak out. Congress, the death tax may be a pawn in your game, but it rivaled cancer in its destructive power to my family.
Patrick Hedger is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a program manager at FreedomWorks Foundation.
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