Death Tax: That's What You Get for Dying
When you arrive home after your 12-hour work day, take a moment with your young child or grandchild. While bouncing that child on your lap, explain to them the power of hard work and the American dream. Tell them if they work hard, are innovative, and have the intestinal fortitude to take a risk they could one day be the owner of a multimillion dollar business that helps employ hundreds of grateful people. I would wait until the child is older to explain that if they want to pass that business on to the next generation, the United States government will grab 55 percent of the pie.
Proponents call it the "estate tax" while those against the law call it the "death tax." I call it double taxation and am ready to throw all my tea into a river. The current estate tax is 35 percent with a $5 million exemption. If Congress does not act by Dec. 31 of this year, the tax will increase to 55 percent and the exemption will be reduced to $1 million.
Estate tax is defined as a tax levied on an heir's inherited portion of an estate if the value of the estate exceeds an exclusion limit set by law. The tax, levied at the time of an owner's death, is mostly imposed on assets left to heirs, but does not apply to the transfer of assets to a surviving spouse.
HARDI spent a good portion of their annual Fly-In event lobbying the folks in Washington D.C. to get rid of the estate tax. Karen Madonia of Illco Inc. had some particularly powerful testimony in front of the House Small Business Subcommittee on Economic Growth.
SIMPLY UNFAIRThis should not even be up for debate. The estate tax is simply unfair. The government is penalizing individuals for taking risks and pursuing the American dream. By the time an entrepreneur has passed on, all that money has been plenty taxed. The federal, state, and local governments have already received more than their fair share while the money was being earned. Why does the next generation have to get taxed again on that money?
These business owners are being penalized for being responsible and saving some of that money for the next generation. They would have been better off buying every car, boat, and any other toy they could get their eyes on and only pay the single-digit sales tax rather than having their kids pay 55 percent.
The only arguments I could find about why the estate tax should continue are it brings a lot of money into the federal coffers and it stops the perpetuation of a class system. On the first point, perhaps the government should cut some spending instead of continuing an unfair tax. On the second point, we are not Europe of the 1600s. There is a lot of different ways to earn wealth in our country. You can do anything from starting an HVACR distribution company to throwing a baseball 100 miles per hour. It is amazing what one generation within a family can do in this country with some hard work and a little luck. And I have news for you, if that second-generation distributor does not continue with the ingenuity and the hard work, that wealth will quickly leave the family.
NOT PERSONAL WEALTHThe distributors that traveled up to the Hill were quick to point out that their situations did not involve the passing of bank accounts with millions of dollars in them. The distributors were talking about businesses where most of the net worth is tied up in inventory. If, God forbid, the owner dies suddenly and without warning, the children might need to either close branches or sell off the company entirely just to pay Uncle Sam his share. How is that going to motivate the next generation of business people to put their blood, sweat, and tears into their company?
The tax has changed from nothing in 2010, 35 percent in 2011, to the possible 55 percent in 2013. This was after it was 45 percent in 2009 and 50 percent in 2002. In fact, since 2001, the tax has changed eight times. How can businesses plan when they don't know what the rules of the game will be?
You don't need to hop on a flight to Washington, D.C., to make your voice heard. I would call on all distributors to make sure their representatives are aware of how this affects your small business. Underline the need for consistency so businesses can plan. Do it for yourself, your children, and the next young entrepreneur who is chasing the American Dream.