U.S. Sen. John Thune (R-S.D.) this week discussed an important objective of the Senate Republicans’ pro-growth, comprehensive tax reform legislation: repealing the death tax. Thune explained that South Dakota farmers and ranchers spend tens of thousands of dollars each year to avoid the death tax and preserve their family farms for generations to come – wasted resources that could be used to reinvest back into the business, create new jobs, and increase wages. If these owners don’t plan accordingly and take costly steps to avoid being hit by the death tax, their family might have no choice but to sell off land to pay the government – which means losing income-generating property or the entire family-run farm or ranch.
Thune’s remarks (as prepared for delivery):
“Mr. President, it’s unsurprising but unfortunate that so far Democrats have shown little disposition to work with Republicans on tax reform legislation – despite the fact that parts of our plan, like lowering corporate tax rates and switching to a territorial tax system, have been supported by Democrats as well as Republicans.
“One particular aspect of the Republican plan that Democrats have been taking aim at lately is our plan to repeal the death tax.
“They complain that it’s not something to really worry about, since, they claim, relatively few estates actually have to pay the tax.
“One of my Democrat colleagues released a report detailing some of the ways people try to avoid the death tax.
“From the tone of the press release and report, you’d think anyone trying to avoid the estate tax was a multibillionaire – and a tax cheat and greedy to boot.
“But I can tell you that the actual situation is very different.
“Of course there are wealthy individuals who try to reduce or eliminate their death tax liability.
“After all, who wants to be taxed a second or third time on money you’ve earned during your lifetime that you could be passing down to your children or grandchildren?
“But there are also a lot of small business owners and owners of family farms and ranches who have to spend tens of thousands of dollars a year trying to avoid the death tax in order to preserve their family business for another generation.
“Many of the farmers and ranchers in my state know that without careful and costly planning, the federal government will come around after their death demanding a staggering 40 percent of their estate, and their children won’t have the money to pay without risking the farm or ranch.
“Now how does that work, Mr. President?
“Well, farming and ranching is a cash-poor business.
“Farmers and ranchers may own valuable land, but they’re only earning cash on the crops they grow or the livestock they raise on that land.
“Thus, while their overall farm or ranch may have a substantial value, the amount of money they have coming in is relatively small, and subject to the swings in the market from year to year.
“Frequently, when farmers and ranchers die, the vast portion of their estate is made up of their land, while actual cash or liquid assets are a very small part of it.
“If they don’t take measures to avoid having their family hit by the death tax, the family will have no choice but to sell off land to pay the government – which means losing income-generating property or the family’s farm or ranch overall.
“And the same situation faces other types of family-owned businesses across the country where the value of the estate is tied up in that business.
“The threat of the death tax is a constant burden hanging over the heads of farmers and ranchers in my state who want nothing more than to be able to pass on the family farm or ranch to the next generation.
“Which brings me to a larger point – the need to simplify our current tax code, which is one of the five principles guiding Republicans’ tax reform efforts.
“Our tax code is long and complicated.
“It’s almost twice as long as it was in 1985, and nearly six times as long as it was in 1955.
“The instructions for the basic 1040 form alone are more than 100 pages long.
“And it’s no surprise.
“The tax code is full of deductions, exemptions, and special rules, all of which amount to unnecessary complication and, too often, confusion.
“Take education tax benefits, an area of concern for middle-class families.
“Currently there are more than a dozen separate tax provisions relating to education, from the American Opportunity Tax Credit to 529 savings accounts.
“And, of course, these provisions come with approximately 100 pages of IRS instructions, special forms, and schedules, not to mention the professional tax preparer that too many families have to hire to figure it all out.
“Then there are small businesses, which have to navigate a bewildering mass of tax provisions and regulations but often don’t have the money to hire the professional help they need.
“It’s fair to say that a big reason some small businesses fail to get off the ground is because they lack the resources that would enable them to deal with our tax code.
“And then, of course, Mr. President, as I mentioned before, there’s that other bane of small businesses and family farms and ranches: the death tax.
“The death tax forces farmers and ranchers to invest a significant amount of time and money in complex estate plans, insurance, and expensive tax professionals so that they can preserve their farm or ranch for their children.
“According to a recent survey by Family Enterprise USA, of those indicating that they undertook estate-planning efforts, the average planning cost in 2016 was more than $170,000, and that doesn’t include the average cost of insurance to pay for death taxes, which was $75,000 a year.
“Those are simply wasted resources that could be used to reinvest back into the business, create new jobs, and increase wages – all of which would help us achieve the kind of economic growth we’ve been lacking for the past eight years.
“Mr. President, Republicans don’t think farmers and ranchers should have to spend tens of thousands of dollars a year to preserve their farm or ranch for their children.
“We don’t think families should have to hire a tax preparer to file a basic income tax form.
“We don’t think it should cost small businesses between $15 billion and $16 billion each year to comply with the tax code.
“We don’t think you should have to be an accountant to figure out what tax deductions, exemptions, or credits you qualify for.
“We don’t think the tax code should prevent Americans from starting a small business, or expanding an existing business to provide more jobs or higher wages.
“And so the comprehensive tax reform bill we’re currently drafting will simplify the tax code.
“It will eliminate loopholes and special rules and dedicate those savings to easing the tax burden on hardworking families and small businesses.
“It will drastically ease the tax return process, with the hope of making it as easy for Americans to file their taxes as it is to fill out a postcard.
“It will eliminate the death tax so that family-owned businesses, farms, and ranches in my home state of South Dakota and around the country can focus their dollars on growing their business, not paying for tax professionals to preserve it.
“And our bill will simplify and streamline tax benefits, so you don’t need to hire a tax professional to find out what education, or homeownership, or other tax benefits you qualify for.
“It’s disappointing that my Democrat colleagues are so hostile to the idea of working with Republicans that they’re passing on the chance to join us to provide the American people with unprecedented relief from our antiquated, overgrown tax code.
“Mr. President, the single most important thing we can do for Americans struggling with stagnant wages and a dearth of opportunities is to pass comprehensive tax reform.
“By reforming our tax code, we can provide the American people with more jobs, fairer taxes, and bigger paychecks.
“And most importantly, we can do this for the long term.
“I hope Democrats will rethink their opposition and join us as we work to provide the American people with the relief they’ve been waiting for.”