One estate tax bill protects family farms — another empowers billionaires

Sen. Bernie Sanders (I-Vt.) and Sen. John Thune (R-S.D.) don’t agree on much about tax policy, but they do both find the current estate tax law unacceptable. 

The difference lies in what Sanders and Thune would do to address the situation. They each have proposed legislation in the past few weeks, but there is little common ground between them. The bills are diametrically opposed. That’s not surprising, given their politics, but you have to work a bit to see the difference in their worldviews here. 

Sanders and Rep. Jimmy Gomez (D-Calif.), the House sponsor of Sanders’ bill, see the world largely as Teddy Roosevelt did a century ago. A tireless advocate for the estate tax, Roosevelt believed it was critical to containing the concentration of wealth in America, which he saw as a threat to our democracy. 

Sharing Roosevelt’s view of the purpose of the estate tax, Sanders and Gomez seek to close the gaping loopholes in the estate and gift tax system. Like prior versions, their bill is named the For the 99.5 Percent Act, reflecting its purpose: to guard against exploitation by the wealthiest 0.5 percent of Americans. 

The bill targets all of the major estate and gift tax avoidance strategies, but this new version of the For the 99.5 Percent Act goes further than prior versions. It would implement a new proposal from the Biden administration’s proposed budget to limit the life of so-called dynasty trusts, which are used by the ultra-rich to avoid wealth transfer tax for multiple generations. And it would equalize the effective rates of tax on gifts and bequests. Currently, because the tax paid on a gift is not subject to gift tax, the effective tax rate on gifts is 28.6 percent, substantially less than the 40 percent estate tax rate.

But the For the 99.5 Percent Act reflects a more nuanced worldview on Sanders’ part than simply “tax the ultra-rich.” Recognizing the importance of allowing family farms and ranches to continue from one generation to the next, the act substantially strengthens several of the provisions of current law that protect farming and ranching families from unduly harsh estate tax treatment. 

The worldview of Thune and the 40 Republican senators who co-sponsored his “Death Tax Repeal Act” is far less clear.  

On the surface, Thune seems to share Sanders’ concern for farming and ranching families. The press release introducing Thune’s bill focuses nearly exclusively on the supposed plight of farmers and ranchers in explaining the bill’s purpose. Rather than enhancing the already existing protections for farmers and ranchers, however, Thune’s bill simply eliminates the estate tax altogether. It’s hard to understand why a bill supposedly intended to protect families from having to sell farmland or ranchland needed to confer a gigantic tax windfall on America’s billionaires. But that’s the approach Thune took.

By going so far beyond his stated objective of protecting family farms and ranches, Thune’s approach, ironically, is more likely to undermine that objective than to serve it. While Thune likely could have found bipartisan support for a bill limited to protecting family farms and ranches, a fantastic outcome for his South Dakota constituents, his introduction of a bill that relieves billionaires of any estate tax obligation has little chance of appealing to any Democrats and, even if it somehow was passed in the Senate, would certainly be vetoed by the president. 

Worse, Thune’s bill would eliminate the only safeguard in the tax law against the intergenerational passage and accumulation of massive amounts of farmland and ranchland by billionaire families. Already, America’s billionaires have assembled vast tracts of land. Were Thune’s bill to be enacted, and the estate tax no longer forced the breakup of those billionaire land empires, the typical farmer a generation or two from now might be a tenant of a billionaire owner rather than the owner of a small farm.

There are some farmers and ranchers who will love Thune’s bill, just not the ones whose descendants will continue farming or ranching. By allowing America’s ultra-rich to hold assets until death without increasing their estate tax liability, the Death Tax Repeal Act will cause gains from the holding of those assets to escape income tax if sold shortly after death by those who inherit them. This means the farmers and ranchers who stand to benefit the most from Thune’s bill are those whose children want to sell out to developers. 

Of course, billionaires will fare even better on this front. As I pointed out in another opinion piece, under Thune’s proposal, Jeff Bezos stands to avoid both income tax and estate tax on the over $100 billion in gains in his Amazon shares. 

Truth is, if Thune truly thought the problem with the estate tax is its impact on family farms and ranches, he would have chosen an entirely different approach to solve it. Heck, he might even have just signed on to Sanders’ bill. 

So what is the worldview driving Thune and his friends to seek a full repeal of the estate tax, even for billionaires? If they have one, it seems to be that Teddy Roosevelt’s concerns about the hazards of concentrated wealth are entirely misplaced and that wealth in America is not concentrated enough. 

With all respect to Thune, I’m going with Roosevelt and Sanders — and America’s farmers and ranchers — on this one.

Bob Lord, a tax lawyer for 40 years, is a senior advisor on Tax Policy for the Patriotic Millionaires.