Warren Buffet is at it again, trying to rally some interest on Capital Hill for rational reform of the Inheritance Tax. What’s remarkable is how effective lawmakers have been in making the taxation of tiny number of very wealth people into a populist cause. Under the moniker of “repealing the ‘Death Tax’, Congress has put forward proposals to drastically cut the inheritance tax on estates over $1 million, despite the fact that this taxes apply to fewer than 1% of the population.
Opponents of the inheritance tax argue that it unfairly targets family farms and businesses, forcing them into selling in the event of the death of a family member. However, there are clearly ways to avoid penalizing these cases while still putting reasonable taxes on estates. For farms, one of the few legitimate ways that a cash-poor family farm can be put behind the eight ball by estate taxation is when local property values change while the farm is in operation. Distinguishing between the property value of a farm and the value of the ongoing operation would make it possible to distinguish between family farms in areas of rising property value, and agri-businesses that should be capable of incorporating cash flow for tax bills into their overall budget. Setting reasonable taxation levels- most likely the old $1 million mark- will allow small, likely cash-strapped family businesses to avoid most taxes. Meanwhile, larger businesses- which are likely already incorporated, and have the accounting and planning resources to smooth succession- will pay their fair share, providing revenue to support the programs that help the other 99% of the population.