A Cartoon of the Death Tax Fight

by Adam Nicholson - No Comments
Posted on August 31st, 2010 2:46 pm

Some people just don’t get it: destroying family businesses and jobs is not funny. Yet in a USA Today op-ed, Walt Disney heir Abigail Disney tells a joke of an argument in favor of the death tax. Her cartoonish description of the death tax issue might be humorous if not for the consequences of estate taxes on family business owners, farmers, and entrepreneurs.

Ms. Disney, who is an advocate for high estate taxes, argues that the government has an important role in a free society, and that everyone should contribute taxes to government. So far, so good.

When she later tries to claim that the death tax is the best means to this end, she gets it all wrong. In truth, the death tax is a huge impediment on the very people who already contribute the most to the federal government’s coffers, to the economy, and to the local community: small and family businesses and their employees.

Ms. Disney suggests that the super-wealthy – like her family, people who have access to lots of tax planners, attorneys, and other assistants who can help them plan their assets – ought to pay the estate tax. But these are the very people often manage to escape considerable taxation.

It was for this reason that Alicia Munnell, one of President Clinton’s economic advisers, wrote that “[estate] tax liabilities depend on the skill of the estate planner, rather than on capacity to pay.” While Abigail and her family may enjoy a “very comfortable” living thanks to Walt Disney’s productivity, for many family-owned businesses, the estate tax is anything but comfortable.

Many family farms (and businesses) are broken up thanks to death tax liabilities. Take for instance Neal “Doc” Dow, a farmer in Oregon, who has already felt the brutal cut of the death tax. Dow’s wife, Anna, was previously married to another farmer. When her first husband died, she was handed a very high estate tax bill – far beyond her ability to pay. Despite her best efforts, she was forced to sell most of the land, keeping only a fifth of it thanks to a loan from her father.

Neal and his wife spent the next sixty years rebuilding their farm. Dow’s children want to carry on in their father’s footsteps. Unfortunately, this does not appear to be a likely option. Here’s Dow in his own words:

At one time I would have assumed that the legacy we spent 60 years building would be passed down to my children. I now realize that federal estate tax law – the hated “death tax” – is all but designed to prevent it.

The fact is: My children will owe the government so much money when I die that the ranch will die with me. Despite my best efforts to preserve Anna’s legacy, our children will lose most, if not all of the ranch.

As if Dow’s story isn’t heartbreaking enough, consider Clayton Leverett, the owner of a cattle ranch in Texas. He was forced to sell ranchland, apply for an expensive loan, and take a second job (off the ranch) in order to pay estate tax liabilities. Clayton explains his death tax story in an op-ed:

“Because of the expenses of our loans, we won't be adding more cattle. Nor will we start any new (and necessary) maintenance projects or hire anyone (despite our need for full-time help). Consequently, just when the local economy needs our help the most, my family will be focused on surviving.”

In Clayton’s case, the death tax prevents hiring new employees. For other owners of family enterprises, it results in laid off workers.

The Marr family of Arizona knows this all too well The Marr’s built a company from their kitchen table that grew to over 220 employees. The Marr’s had dreams of keeping the business and making it stronger. The estate tax ruined those plans:

Thirteen years after my father died we realized that we had no choice but to sell Imperial Lithographics. Our piece of the American Dream could not survive the confiscation of the estate tax.

The loss of Imperial Lithographics was not limited to my family, but affected our employees, their families, and the Phoenix community. The new owners of the company wanted to buyout a competitor, not expand their service. Accordingly, the business was gutted, the two-hundred twenty employees were laid off, and hundreds of thousands in charitable donations to local charities dried up.

These stories tell only a piece of the death tax story. Across America, the cost of the estate tax comes to roughly 1.5 million small business jobs, according to an American Family Business Foundation study written by economist Douglas Holtz-Eakin.

Unlike the Disney character Scrooge McDuck, the average family business owner is not a miser, but a job-creator. Small business owners reinvest their profits to grow the company, creating jobs and spurring economic growth. The death tax severely hampers small business investment.

Interestingly, Ms. Disney fails to note that the Walt Disney company is no longer family-owned (as it turns out, Walt fought to keep the company private). As a result, the Disney Company no longer faces the burden that is faced by entrepreneurs, family ranchers, and business owners such as Clayton Leverett, Doc Dow, and the Marr family.

Walt Disney’s animated characters were famous for facing death multiple times in each of his movies, each time emerging unscathed. Unfortunately, the creators of jobs and economic growth in America do not have nearly so much luck when it comes to the estate tax.

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