One common argument against the estate tax is that it is a crushing burden for small businesses and family farms, a burden that would force grieving heirs to sell the family business in order to pay the tax bill. But that myth is about to bite the dust. If the estate tax returns at the higher, pre-Bush-tax-cuts level, the average small-business or small-family-farm estate will pay an estate tax rate of
12.2 percent
On its face, that number seems too low; after all, the estate tax rate in law would actually be 55 percent. But that's where it is important to distinguish between nominal and effective tax rates. Nominal rates are the numbers written down in tax law; effective rates are what people actually pay after taking advantage of all the available deductions and exemptions. Even under pre-Bush tax law, these estate-tax exemptions total in the millions. As a result, according to a Tax Policy Center analysis, the effective rate for family farms and small businesses is low. And the 12.2 percent rate is just for those families that have to pay at all; for various reasons, nearly three-fourths pay nothing.
In 2001, the New York Times tried to find examples of families losing their farms because of the estate tax. The Times approached an economist who had studied the issue extensively, a man whose company runs hundreds of farms, and the American Farm Bureau Federation. None of them could cite a specific case.
Earlier today, I asked the Federation--longtime advocates for repealing the estate tax--whether they'd come up with examples since that time. Media relations director Tracy Grondine sent me two examples from a recent newsletter. (See page five.) While the stories have complications, as they always do, it's hard not to be sympathetic. But it's also hard to think there aren't more cost-effective ways to help people like this, given how rare the cases are.