Monday, October 10, 2016
Obama’s New Death Tax Threatens Family Farms and Businesses
Rep. Warren Davidson
We all knew President Barack Obama’s lame-duck presidency would be bad, but for the millions of Americans who work at family farms and businesses, it’s about to get a lot worse.
As Heritage Foundation tax expert Curtis Dubay wrote at The Daily Signal, Obama is trying to sneak in a tax hike in his twilight days. His Treasury Department unveiled midnight regulations that effectively would increase the death tax to 30 or 40 percent.
If Obama channeled his desire and creativity in raising taxes into cutting spending, we probably would have a budget surplus by now.
In this case, the president’s creativity involves tinkering with well-established “valuation discounts” that families use to calculate their death tax liability.
These valuation discounts are one reason family businesses have been able to accurately calculate the burden of the estate tax—popularly known as the death tax—so the business or farm itself can be passed from generation to generation.
If these valuation discounts didn’t exist, then every time an owner died, a business essentially would have to overvalue itself, and thus be subject to a higher effective tax bill than the law intends. Farms especially are affected by this issue, and the estate tax generally, because it is a lot harder to sell off 40 percent of your farm than 40 percent of stocks or other assets.
If that’s not too much of a burden, imagine being a partial owner of one of these farms.
If you own one-tenth of your grandfather’s farm, you don’t have enough say in the future of the business to decide whether you want to sell off the farm or pay the 40 percent tax to keep it.
Such partial owners are faced with a choice: Either sell off your share for much less than it is worth or pay the government 40 percent of its value. For family-owned businesses, built with the blood, sweat, and tears of ancestors, this is an immoral choice for the government to force on people.
This issue affects workers, too. In cutting costs and selling assets to pay the IRS, many family businesses facing a tragic death and an ensuing death tax are forced to downsize.
For the economy as a whole, this means that millions of people who work for small businesses could lose their jobs, just because the Internal Revenue Service wants an added piece of the action if a business owner dies.
What’s good for the economy is when businesses grow and innovate. They shouldn’t have to plan to liquidate their assets to pay the IRS bill whenever an owner dies.
Democrats are floating a plan for a 65 percent death tax in order to “level the playing field.” This is no more than socialist planning by elites to confiscate property from hardworking Americans to pay for failed government programs and spending that won’t improve standards of living.
For the mega-rich who have enough money to structure their assets, this works just fine. For hardworking Americans who put everything they own into creating jobs and building their business, this is not an option.
Regardless of the bad economics behind the death tax, the Obama administration is going about it in the wrong way.
Deciding tax policy is a power enumerated solely for Congress. This is something that should be decided in the open with a robust public debate. The Founding Fathers believed this too, which is why they gave Congress, and the House in particular (the “people’s House”), the power to initiate tax laws.
If Congress doesn’t do anything, this will mean an even greater increase of out-of-control executive authority.
That is why I introduced legislation, the Protect Family Farms and Businesses Act, to halt the Obama administration’s backdoor tax increase. It would prohibit the administration’s new rule, or any like it, from going into effect.
The bill already has more than 20 co-sponsors and the support of more than 100 organizations.
Too much is on the line for too many for Congress to stand idle. The jobs of millions of Americans are at stake.
Stopping Another Obamacare Bailout
When President Barack Obama made his case to the American people for Obamacare, he promised that it would both lower health insurance premiums and not add to the national debt.
Neither has been true.
One way Obamacare has been adding to the deficit is through illegal bailouts of insurance companies operating Obamacare plans through the Department of Health and Human Services.
The Government Accountability Office highlighted one bailout scheme last week when it released a report finding that since 2014, HHS has been illegally sending billions of “reinsurance” fees to insurance companies instead of sending those dollars to the United States Treasury where they belong.
But that isn’t the only way the Obama administration is plotting to illegally funnel your money to insurance companies.
A separate “risk corridor” program also promised Obamacare insurance companies a safety net if their customers used an unexpectedly high amount of health care. The way it was supposed to work was that those plans with low medical costs would pay into a fund and plans with high medical costs would take out of the fund. In theory, the fund was supposed to be deficit neutral.
But in reality far more plans experienced higher costs than they anticipated, leaving HHS with billions in claims from insurance companies but no way to pay them. The Obama administration has asked Congress to appropriate money to bail out these insurance companies, but Congress has rightly refused.
So now HHS is getting creative. On Sept. 9, HHS issued a memorandum addressing suits filed by insurance companies in federal court demanding risk corridor payments. HHS wrote that, “as in all cases where there is litigation risk, we are open to discussing resolution of those claims,” and that “we are willing to begin such discussions at any time.”
This language appears to suggest that HHS may be trying to illegally funnel money to Obamacare insurers through the Department of Justice’s Judgment Fund. In other words, since Congress has not appropriated money for nonbudget neutral risk corridor payments, HHS will just invite insurance companies to sue, and then the DOJ can pay the bill instead.
Last week, Sens. Marco Rubio, R-Fla.; Ben Sasse, R-Neb.; John Barrasso, R-Wyo.; and I wrote a letter to the DOJ and HHS to make sure that doesn’t happen. Our letter notes that the Congressional Research Service has already found that the Judgment Fund may not be used to settle risk corridor claims and asks HHS to identify how it plans to pay the risk corridor settlements mentioned in their Sept. 9 letter.
A Taxing Situation
What would you think of an individual or a company that earned a pre-tax profit of $29.9 million in one year, paid nothing in taxes and still received a $3.5 million refund?
Am I speaking of Donald Trump? No, it is The New York Times Company. Forbes magazine studied the newspaper’s 2014 annual report, in which the company explained: “The effective tax rate for 2014 was favorably affected by approximately $21.1 million for the reversal of reserves for uncertain tax positions due to the lapse of applicable statutes of limitations.”
In other words the Times took advantage of tax laws that only good tax attorneys understand and in doing so was no different than Donald Trump. The Times, which obtained Trump’s supposedly confidential tax returns, made a big deal out of the Republican presidential candidate’s use of loopholes to avoid paying taxes.
Democrats are trying to make this part of their “fair share” scenario when, in fact, they are making the argument Republicans have been making for years for tax reform, which Trump has promised to do if he’s elected president.
The federal government is taking in record amounts of tax revenue, but is approaching a $20 trillion debt. The problem, noted Ronald Reagan, is not that the American people are taxed too little, but that their government spends too much.
No one is saying that Trump’s deductions were illegal, but that doesn’t matter to Democrats. As a Wall Street Journal editorial noted on Monday, “The left is committed to defeating Mr. Trump by whatever means possible, as many believe this end justifies any means, much as progressives have justified the Edward Snowden leaks despite the damage to national security.”
Leaking sealed or private documents is not a new strategy for Democrats. When Barack Obama was a candidate in the Democratic Senate primary in Illinois, the sealed divorce papers of his opponent, Jack Ryan, were shamelessly used to help defeat the “family values” Republican. Had that dirty trick not been used, Obama might never have been a senator, much less president.
Does anyone expect an IRS or Justice Department investigation into who leaked Trump’s tax records? Unlikely. FBI Director James Comey’s refusal to recommend prosecution of Hillary Clinton for her deliberate mishandling of classified information seems to prove that the Obama administration is little more than an arm of her presidential campaign.
The left’s narrative — stated and implied — is that everything government does is good, and so it is only right that taxpayers pay increasing amounts of taxes no matter how irresponsible government is in spending them. In this thinking, government has replaced God and taxes have replaced the collection plate, which at least amasses voluntary contributions.
Politicians mostly like the tax code the way it is because they can tweak it in exchange for campaign contributions from lobbyists. For the rest of us, the tax code is a foreign language impossible for most to understand. Even the IRS doesn’t fully understand it. If you call the IRS for advice and the advice they give you is wrong, you can still be subject to penalties and interest.
Republicans in high tax states and at the federal level should use the left’s “smoking gun” on Trump’s taxes as a weapon to demand tax reform. Flat and fair taxes have been suggested. Anything is better than the current system. Real tax reform would ensure that Trump paid some taxes, though they would likely be lower for him than for everyone else who pays them.
After that, maybe the conversation can shift to the real problem: government spending.
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Posted by JR at 1:30 AM