Anti-sprawl or slow-growth campaigns have erupted across the nation during this decade. Slow-growth advocates claim sprawl costs us all. What they should be saying is the death tax costs us sprawl. Indeed, the loss of farmland and wildlife habitat to an ever-increasing desire to live the American Dream has become a major political battle. Ironically, as anti-growth forces argue for more governmental restrictions, the elimination of one government policy — the onerous and arbitrary federal ‘death’ or estate tax — could correct some of our sprawl-related problems.
The estate tax — levied on the value of one’s assets (land, business, bank accounts, stocks, bonds, etc.) at the time of death — currently encompasses a broad range of estates with half of all 1995 estate tax returns consisting of estates valued at less than $2.5 million. Moreover, the marginal tax rates on estate assets (valued above $650,000) range from 37 to 55 percent. It is obvious that policy makers have failed to consider the pervasive nature of the ‘death tax.’ Most importantly, they have failed to protect and support the American Dream by allowing the estate tax to fall disproportionately on small businesses, the self-employed and farmers.
Arguably, rural landowners often sustain the greatest harm because they are usually considered ‘land rich but cash poor.’ Farmers spend a lifetime re-investing their money into the land and unknowingly force their family to pay the estate tax. As a result, this tax is causing families to sell their farms to developers, sometimes prematurely, denying future generations the opportunity to farm the land. Thus, the federal estate tax is ending family legacies, and eliminating open space throughout our country.
Georgia is not impervious to the negative economic effects of the estate tax. The average farm size in Georgia is 265 acres, and there are over 40,000 farms in Georgia — 29 percent of Georgia’s land. Moreover, the average value of a Georgia farm with buildings is $392,577 — a 57 percent increase from the 1987 figure of $226,217. Coffee County, one of the state’s top agricultural-producing counties, has average farm values of $500,000, and farmland and buildings in Mitchell County are, on average, nearly $600,000. Clearly some of Georgia’s most productive farmland is vulnerable to the estate tax. Although farm values continue to rise, the estate tax rates are not indexed with inflation; thus, an increasing number of Georgia’s farmers will face the estate tax in the years ahead. Moreover, as more and more families are caught by the estate tax, inheriting the family business will become more difficult.
Many small businesses and family farms fail to make the transition from generation to generation, and this can be troubling for younger farmers who want to remain in farming. A report by the Center for the Study of Taxation indicates that 70 percent of family businesses do not make it through the second generation, and 87 percent fail to pass from the third generation — so much for intergenerational justice. Kennesaw State University conducted a survey in 1995 on minority-owned small businesses and the effects of the ‘death tax.’ A major finding showed 58 percent of the business owners surveyed thought their businesses would either fail or have difficulty meeting the burden of the estate tax.
Advocates of the estate tax claim it maintains equity between rich and poor, but this is not true, especially considering the community toll exacted when a landowner sells property for conversion into shopping centers and residential areas. Moreover, supporters claim the estate tax is a necessary component in battling the federal deficit; however, research from the Institute for Policy Innovation proves otherwise. First, the death tax is extremely inefficient, providing slightly more than 1 percent of federal revenues ($19 billion annually). Second, the compliance costs imposed by the estate tax can cancel out the revenue raised by the tax. In fact, the low estimate for compliance, nearly 65 cents of every $1 raised, is spent on tax accountants, lawyers and financial planners in order to minimize the sting from Uncle Sam. Finally, eliminating the federal estate tax will have a positive impact on the growth of our economy by encouraging savings and investment.
Consequently, the estate tax should be abolished to minimize sprawl and to continue economic growth. The benefits that will accrue to society for abolishing the death tax are many. According to separate reports from the National Center for Policy Analysis and the Heritage Foundation, eliminating the estate tax will benefit the U.S. economy in the following ways:
· U.S. economy will average $11 billion per year more in extra economic output;
· 145,000 new jobs will be created;
· Personal incomes will rise an average of $8 billion per year above current projections; and,
· Greater personal saving and investing and less spending will be encouraged; a policy that favors investing allows people to save their money for future use, thereby decreasing the reliance on Social Security, etc.
Abolishing the ‘death tax’ is the first step to minimizing sprawl, not to mention encouraging economic growth. It is an inequitable tax that not only punishes heirs by leaving them a large tax bill, but it also forces Georgia to cope with the loss of open space and farmland. Since urban sprawl appears to be blamed for many land-use problems in Georgia and the United States, we can at least fight for the end of one of its causes — the estate tax.
Jefferson G. Edgens, Ph.D., a native of Rome, Georgia, is a Natural Resource Policy Analyst at the University of Kentucky. He is also an adjunct scholar with the Mackinac Center for Public Policy headquartered in Midland, Michigan. The Georgia Public Policy Foundation is an independent, nonpartisan organization dedicated to keeping all Georgians informed about their government and to providing practical ideas on key public policy issues. The Foundation believes in and actively supports private enterprise, limited government and personal responsibility. Nothing written here is to be construed as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.
© Georgia Public Policy Foundation (May 13, 1999). Permission is hereby given to reprint this article, with appropriate credit given.