Christopher Chenery grew up barefoot and poor. Determined to improve his family’s future, he worked hard and developed a business savvy that resulted in a profitable career as a public utilities executive in the early 20th century. Even with the onset of the Great Depression, Chenery remained successful enough to purchase back his family’s horse farm (which his cousin had previously been forced to sell). Restoring a sense of family pride, Chenery built stables and a home on the farm, which he owned and operated until his death in 1973.
Chenery’s heirs were then required to pay an enormous $6 million federal death tax (equal to roughly $29.5 million today) on his estate. The huge bill left his children with few options: they could liquidate the horse farm that their father had proudly restored, or they could sell a newly trained racehorse named Secretariat. Fortunately, Secretariat was not sold; instead the Chenerys took a big gamble and syndicated the American thoroughbred, allowing other individuals to buy shares and become part-owners of the horse. The Chenerys were then able to pay the federal government’s $6 million tax without selling the prize horse, though they now had investors to appease. Luckily, the gamble paid off: Secretariat went on to win the Triple Crown that very year.
But for the Chenerys’ shrewd decision-making, Secretariat’s inspiring triumph might never have occurred at all, or his victories might have been enjoyed by wholly new owners who did not expend time and capital training the racehorse.
Unfortunately, many American families may soon find themselves in a similar situation, as the federal death tax is set to automatically increase on January 1 unless Congress acts. Rather than working to maintain the current 35 percent death tax rate and $5 million exemption, however, President Obama and his allies in Congress recently supported tax legislation that would raise the rate to an incredible 55 percent (with only a $1 million exemption from the tax). For some estates, an additional surtax could push the death tax to 60 percent. And remember, this is property that has already been taxed at regular income tax rates.
Under their plan, the total number of estates hit next year would increase from 3,600 to 55,200. Indeed, failure to extend the current law, which was enacted with bipartisan support, would subject 24 times more family farms and 13 times more small businesses to the death tax hike. Many Americans would then be forced sell all or part of their farms and businesses to pay a 55 percent tax for more government spending.
The American Farm Bureau has warned that the “$1 million exemption is not high enough to protect a typical farm or ranch able to support a family from estate taxes; and, when coupled with a top rate of 55 percent, will make it especially difficult for farm and ranch businesses to transition from one generation to the next.” Moreover, the National Federation of Independent Businesses has stated that, “the uncertainty of the current law has left many family-owned businesses guessing about their estate tax liabilities and unable to make prudent business decisions.”
Thus, family farmers and small businesses owners – our chief job creators – would be hit hardest by this tax hike. Despite 42 consecutive months of unemployment over 8 percent, the president seems more concerned about promoting redistributionist policies that “spread the wealth” than protecting America’s job creators.
To be clear, I strongly believe that the death tax must be repealed permanently, and I support legislation to do just that. It's wrong for the government to tax people twice, once when they earn their money and once when they give it away. But in the meantime, we should, at a minimum, keep the current death tax rate and exemption in place.
If not, the effects of an increased death tax are painfully predictable: family farms will likely be sold off, businesses will be splintered, jobs will be lost, and Americans will be robbed of their ability to pass on hard-earned savings to future generations.
Don’t forget, it almost cost us Secretariat.