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Monday, December 09, 2019

Betting The Farm On A Lie

Few things sell ideas in American politics like a good farm story.

Just ask Representative Dave Reichert. He held a hearing recently on the impact of the estate tax on farms and small businesses.

An outspoken critic of the tax, Reichert was inspired by a recent story featuring the McBrides — an old farming family from the town of Issaquah in his suburban Seattle district.

The McBrides first got noticed over the summer, when The Seattle Times reported that they had sold the last farm in Issaquah, a sign of the changing economy and demographics of the community.

The McBride family had farmed the land for over a hundred years and over the course of six generations. The 12.5-acre lot sold for $4.5 million to a developer planning to build a luxury housing development called Avery Pointe, where houses start in “the low 700s.”

Jim McBride — son of the 97-year-old patriarch, Ralph McBride — claimed they’d sold the land because of the estate tax. “All my parents’ wealth was in that land,” he insisted, “and we couldn’t afford to pay the taxes that come with inheriting it at the current property value.”

Five days later, the paper cited the Issaquah farm in an editorial decrying the estate tax as an attack on family farms and calling for its immediate repeal.

Frank Blethen, the publisher of the paper, is an outspoken critic of the estate tax and a longtime funder of efforts to repeal it. So his embrace of the McBrides’ account is unsurprising.

There’s just one thing: The story is completely false. There’s no way the McBride family sold their farm because of the estate tax.

At the federal level, estates worth less than $5.4 million for individuals and $10.8 million for married couples are exempt. So if all or even most of the McBride family’s wealth was in the land that sold for $4.5 million, they’d still have fallen below the exemption and would have paid no federal estate tax.

And in Washington state, farms are 100 percent exempted from the estate tax. If the family had kept the farm and the kids had inherited it, they wouldn’t have paid a dime on the bequest.

In fact, critics of the estate tax have tried and failed to find a farm lost as a result of the estate tax for the past 15 years.

David Cay Johnston took on the task in 2001, when the estate tax was much more robust than it is today, and couldn’t find a single one. That reporting for The New York Times won him a Pulitzer.

There are 2.2 million farms and 28.2 million small businesses in the United States, according to official data. In 2013, only 120 farms and small businesses owed any federal estate tax at all, and their average value topped $50 million — more than 10 times the worth of the McBride estate.

Which brings me back to Reichert. Perhaps he’s just deeply concerned about this tiny fraction of very wealthy estates. Perhaps he was misled by the intentionally misleading editorial in The Seattle Times.

Or perhaps he’s doing what estate tax opponents have been doing for decades: not letting facts get in the way of a good story.

OtherWords columnist Josh Hoxie is the director of the Project on Opportunity and Taxation at the Institute for Policy Studies.

Originally posted at OtherWords.

Photo: khawkins04 via Flickr

Marshaling Marooned Tax Dollars

Republican lawmakers have largely greeted President Barack Obama’s new spending plan as dead on arrival.

But at least one provision has a chance of becoming law: a plan to tax the profits that large U.S. corporations have parked in offshore tax shelters and use that money to rebuild the nation’s crumbling infrastructure.

A series of heavy snowstorms in my hometown of Boston made the need for that kind of spending boost eminently clear. The record snowfall brought the city’s aging and underfunded transit system to a complete halt. The hundreds of thousands of residents who depend on it have been repeatedly stranded.

So one thing is clear: We desperately need to invest in our infrastructure. But funding it through a corporate tax holiday on offshore profits is a shortsighted mistake.

While some of these profits are stashed abroad because companies actually produced a product overseas and sold it to foreign consumers, a significant share comes from money generated here. It’s parked offshore purely to avoid taxes.

Corporations don’t have to pay taxes on these profits unless they “repatriate,” or bring this money back. A tax holiday, touted as an incentive to encourage investment, would reward the worst tax dodgers who hold a combined $2 trillion offshore.

The last time Congress tried to address this problem was in 2004. That’s when corporations got a one-time, 85 percent discount on their taxes in exchange for voluntarily repatriating their offshore earnings.

This deal was billed as something that would spur growth and create jobs. Unfortunately, as research from the Joint Committee on Taxation and the Center on Budget and Policy Priorities makes clear, that didn’t happen.

Instead, the top 15 companies that benefited from the 2004 tax holiday fired over 20,000 U.S. workers while increasing their dividends to shareholders. In short, they used the tax holiday to line their own pockets.

There’s no reason to expect anything different this time. A recent report from Citizens for Tax Justice shows that 10 corporations would get a combined $82 billion tax break from Obama’s proposal. Apple, Microsoft, and Citigroup would receive the largest benefit.

To Obama’s credit, his proposal is slightly tougher than the 2004 deal. He’s calling for a mandatory tax on the entire $2 trillion and tying it to further corporate tax reforms.

But his proposed tax rate for repatriated profits is only 14 percent — less than half the current regular rate of 35 percent. And since this is just Obama’s opening bid, you can bet that it’ll be even lower after some negotiating.

In a demonstration of bipartisan support for the idea, Senators Barbara Boxer and Rand Paul have introduced legislation that would link a tax holiday to infrastructure spending. Their bill isn’t linked to broader tax reforms, makes compliance voluntary, and proposes a measly 6.5 percent rate.

Worse still, according to a congressional study, the plan would bleed revenue badly over the long run. That would prevent any uptick in dedicated infrastructure funds.

The need for increased infrastructure spending is unequivocal. The American Society for Civil Engineers, for instance, gave the United States a D+ on its most recent infrastructure report card. The group estimates that it would take $1.6 trillion in new spending over the next five years to get it up to code.

Meanwhile, many profitable global corporations like Verizon and GE pay absolutely nothing in federal taxes. Corporate income tax currently makes up just 10 percent of all federal revenue — down from 33 percent in 1952.

A better proposal would close loopholes for both corporations and America’s super-rich and spend some of the extra money collected on infrastructure.

Closing offshore tax shelters is a great idea. Giving a major tax break to the corporations that built them is not.

Josh Hoxie is the director of the Project on Opportunity and Taxation at the Institute for Policy Studies,

Cross-posted from Other Words.

Photo: Tobym via Flickr