A look at the death tax

By Congressman Bob Latta (R_OH5)

 One of the most plainly unfair taxes in the entire U.S. tax code is the Estate Tax — also known as the “death tax.” Even though American families pay taxes their entire lives — income taxes, payroll taxes, Medicare taxes, capital gains taxes and more — the federal government can’t help but reach its hands into their pocket one last time after they die to grab 40% of their hard-earned money.  

The death tax creates real world problems for farmers, ranchers, and small business owners — groups we can least afford to penalize during this economic recovery. In sectors that require high capital investments, like agriculture, families often have difficulty meeting tax requirements imposed by the death tax because their cash assets are much lower than the value of land, property, and equipment. In addition to the costs imposed at death, the death tax also has a stifling economic impact beforehand due to the cost preparation and planning needed to plan and comply with the tax.

With few options to raise cash to pay the death tax, many farm families could be forced to make tough choices at the time of death — and in worst case scenarios, must sell off land to meet their federal tax burden. Small businesses may have to break off parts of the business or sell critical assets just to meet their whopping 40% tax obligation.

Before serving in Congress, I was in the Ohio Legislature where I heard directly from people in our community just how hard this tax hits them. I am proud to have led efforts to eliminate the Ohio Estate Tax. In Congress, I voted to pass the Tax Cuts and Jobs Act which raised the exemption on the death tax to $11 million for an individual and $22 million for a married couple. While I believe the entire Death Tax should be repealed, this tax relief championed by Republicans ensured that most family farms and small businesses wouldn’t be subject to the tax after a death. 

This Congress, I reintroduced legislation in the U.S. House of Representatives that would permanently repeal the Death Tax. H.R.822, the Permanently Repeal the Estate Tax Act of 2021 also ensures Americans are not subject to a new capital gains tax at death by retaining the stepped-up basis of estate assets.

Unfortunately, Democrats are seeking to undo all of this work and are taking direct aim at family farms and small businesses in Northwest Ohio and around the country.

Senators Chris Van Hollen, Cory Booker, Bernie Sanders, Sheldon Whitehouse, and Elizabeth Warren have begun circulating a draft of their bill, the Sensible Taxation and Equity Promotion (STEP) Act, that would eliminate step-up basis and instead, tax unrealized capital gains. 

This bill is anything but sensible, despite what its title implies. 

For starters, the bill offers a very small exemption of just $1 million. When you factor in the amount of equipment, land, supplies, and more that it takes to run a family farm or a business, it’s clear that countless Northwest Ohio families would be caught up in this tax. Further, this new capital gains tax would apply in addition to the death tax. At a time when family farms are already struggling to survive, this would completely destroy them.

The STEP Act would mean families who have been on the same farm for generations would be forced into the decision to sell their operation, likely to a larger operation, to pay their federal tax bill. 

The federal government shouldn’t be taxing money that was already taxed, just because a person passes away. It is time to stop the federal government’s cold hands from reaching into warm graves. 

The American people are showing amazing displays of resilience across the country, especially here in Ohio as we recover from the coronavirus pandemic. Ohioans are working to re-open our communities and boost our economy in innovative ways. Instead of harming the people in our country who fulfill our nation’s supply of food, fiber and renewable fuel needs with this tax, we should be protecting and supporting their efforts.

Sons and daughters should be able to follow the agricultural legacy of their parents. These higher taxes will cost our farmers, ranchers, and small businesses their future, and our nation can’t survive without them. 

Congressman Bob Latta (R-OH5) has represented Northwest and West Central Ohio in the United States House of Representatives since 2007. Congressman Latta is a member of the House Energy and Commerce Committee and is the Republican Leader of the Subcommittee on Communications and Technology. Latta is also a member of the Subcommittee on Energy and the Subcommittee on Consumer Protection and Commerce, which he chaired last Congress. Along with his committee positions, Congressman Latta is a Deputy Whip and Co-Chairs the Rural Broadband Caucus, the Grid Innovation Caucus, the French Caucus, the Congressional Propane Caucus, and more.

One comment

  1. Ohioans would benefit by resurrecting and listening to the words of wisdom of one of the state’s great civic and legislative leaders, Tom L. Johnson. On the issue of how government ought to be raising revenue to pay for public goods and services, Johnson argued the case for the public capture of the rental value of land as the only tax that ought to be imposed on individuals or privately-owned entities. Had he been listened to farmers would pay no taxes on their homes, barns, equipment or revenue from the sale of the crops they produce. Owners of a residential property would benefit similarly, owing to the community only what the land beneath their residence would lease for on the open market.

    Well, over a century has passed since Tom L. Johnson and other Ohioans tried to convince Ohio voters and legislators that the public collection of land’s rental value is both fair and economically efficient. What has to be understood is that many estates of large value accrue to the owners because as population increases, the demand (and therefore the value) of land increases. What land sells for is what in economics is referred to as “the capitalization of the net imputed rental value of land.” Tom L. Johnson fought as Mayor of Cleveland that land was regularly assessed, although he was not successful in getting the tax on buildings eliminated or the annual tax on land anywhere close to its full annual rental value. Had he been successful, there would be far fewer huge estates and many more people with sufficient net worth to live comfortably in retirement.

    Tom L. Johnson is no longer here to testify for or against current legislation dealing with taxation. Hopefully, others in Ohio will find out what this remarkable leader from Ohio’s past tried to accomplish and raise the torch that fell to the ground with his death.

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