Our guest blogger is Seth Hanlon, Director of Fiscal Reform for the Center for American Progress Action Fund’s Doing What Works project.
One of the enduring myths of American politics is that the estate tax falls hardest on small businesses and family farms, forcing them to sell their farms and businesses to pay the tax. It’s not true, and has never been true. Nonetheless, newspaper reporters have scoured the land for many years, searching in vain for families forced to sell small businesses or family farms due to the estate tax.
Now that Congress seems poised to eviscerate the estate tax, the task of finding these mythical estate tax victims is going to be even harder. The tax cut compromise moving through Congress would exempt all estates with assets valued at under $5 million and $10 million for couples. With the exemption raised to these levels, only the largest 3,600 estates in the country will pay any estate tax; the other 99.86 percent of estates will be entirely exempt.
Yet it appears that no matter how much Congress slashes the estate tax, the Wall Street Journal will continue to send its reporters in search of the “small businesses” that are going to be devastated by the tax. A Journal story today carries the headline, “For Family-Run Small Businesses, Estate-Tax Uncertainty Adds Cost.”
Has the Journal actually found a small business that will suffer under the weight of the estate tax? Not quite. The story profiles a wealthy Arkansas man who owns a lumber business, forest land, and five mills that are currently valued “between $30 million and $50 million apiece.” This is the Journal’s only example of the “small businesses” faced with uncertainty under the new estate tax regime.
Does a business with 600 employees that is worth more than $150 million fit within the definition of “small business”? Only if you’re the Wall Street Journal publishing a story about who pays the estate tax, and you need a sympathy-inducing headline.
Estimates by the Tax Policy Center show that only fifty small farm and business owners in the entire country will pay any estate tax next year under the new framework, and they would pay an average rate of just 7.4 percent. If they actually exist, these fifty farms and businesses can probably avoid the tax altogether with only a little bit of estate planning — and so can many estates well in excess of $5 million.
According to the Journal, the $5 million exemption “won’t apply” to the lumber mill owner “because the value of the mills is so high.” Actually, the $5 million or $10 million exemption applies to all estates, and only the value above that level will be taxed.
With the tax legislation nearing passage in Congress, the estate tax is all but dead. It appears, however, that on the pages of the Wall Street Journal the small business myth is as alive as ever.