PrintDecember 7, 2009
Democrats' War on Home Business
On December 3rd, the House of Representatives passed House Resolution 4154, which is deceptively called the "Permanent Estate Tax Relief Act." This bill is part of the general war by the Democratic Party on self-employed Americans, family farms, and home businesses. Does this sound extreme? Consider the vote on the message: 225 Democrats voted for HR 4154, 26 against, and not a single Republican voted for it. No RINOs could be persuaded to support Congressman Pomeroy's attempt to freeze the estate tax emption level at $3.5 million and then tax all estate assets above that level at the exorbitant rate of 45%. How did House Democrats vote? Ninety percent of the Democrats voting on the message supported it, including many Blue Dog Democrats. As Republicans begin the process of drawing clear yellow lines between their party and the Democrat Party, HR 4154 is a perfect case study of those real philosophical differences.
The federal estate tax rate of 45% on estates in excess of $3.5 million is almost confiscatory. The consequence of federal estate taxes in this range is that when death claims the owner of a modestly successful small family business, the business itself is forced either to go under or go public by issuing stock. Given the limp condition of today's stock market and the small size of these businesses, the latter option means taking a huge economic loss. It also means that more and more of the traditional family farms, whose nominal value is inflated by an explosion of federal expenditures, will be pushed into the punitive tax rate, and on the death of an owner, they will likely be forced to sell.
As President Obama concluded a "Jobs Summit" in Washington, which included gaggles of academics, union leaders, and heads of a few gigantic corporations, the real job creation engine -- small business -- is finding a cold shoulder in the Democratic Party and its leader. As economic conditions improve, these small family-owned businesses are often the very first to offer other Americans decent-paying jobs. Moreover, the types of jobs that these employees do often embraces much more responsibility and learning than simply being another cog in some machine, whether in a federal, state, or local bureaucracy or a narrowly focused job in a huge corporation.
These employees not only learn more at their jobs, but they actually produce goods and services that people want. As Americans rightly worry about the transfer of productive economic activity across our borders, small family businesses offer the best way to keep work here. Small family businesses have many of the inherent efficiencies which allow them to successfully compete with production facilities overseas. Because these businesses are small and have little managerial overhead, they can be flexible and nimble in responding to market conditions. They are the very sort of businesses which can allow America to be globally competitive.
Beyond these arguments, lowering the tax rate and raising the exemption has been estimated to be a revenue-producer (which is the consequence whenever a tax rate moves beyond the "revenue maximization" point on the Laffer Curve). How much tax revenue would the federal government gain from lowering the top tax rate to 35% and raising the exemption on estate taxes to $5 million? According to a recent study by the Institute for the Research on the Economics of Taxation, making these reductions in tax rates and increases in exemption would bring in about $23 billion more in tax revenue.
What are the arguments against making a clearly beneficial change in tax rates? In a recent Business Week article, Bill Creighton of United for a Fair Democracy observes that the federal estate tax "has helped reduce the concentration of wealth that weakens our democracy." In short, the only arguments against ending this tax are to help advance socialism, even at the cost of destroying wealth.
The irony of this, of course, is that small family businesses, family farms, and related enterprises are the best defense against vast concentrations of wealth. Tax-exempt institutions like enormous and insulated universities or corrupt organizations like ACORN really do cheat the taxman and undercut democracy in our nation. The hardworking wheat farmer, the small-scale entrepreneur, and the retail outlet not yet gobbled up by the few vast retail corporations offer the best defense against concentrations of wealth, not the greatest danger of it.
If Democrats are serious about reducing the deficit, if they care about real job creation, if they want to make American business competitive in the world (which would also boost the dollar), and if they want to prevent centralization of power in huge corporations and government agencies, then they will cut the federal estate tax rate on small businesses to $5 million and lower the maximum rate to 35%. Doing this would really be standing up for the little guy. But the House vote today suggests that maybe this is not what the Democratic Party is really about.
Bruce Walker is the author of two books: Sinisterism: Secular Religion of the Lie and The Swastika against the Cross: The Nazi War on Christianity.
