Estate-tax debate affects only very rich

Is it about farmers and the owners of small businesses? Or is it about multimillionaires?

The national debate over whether to abolish the tax that the federal government levies on large estates revolves around enduring images of "American Gothic"-style family farms and mom-and-pop shopkeepers struggling to stay in business.

But that hasn't prevented Democrats and Republicans from seizing the estate tax as a defining issue in close U.S. Senate races this year, including the duel between Paul Wellstone and Norm Coleman in Minnesota.

Republicans want to abolish the tax on farmers, small-business owners and anyone else whose estate — house, property and other assets — is worth more than $1 million. Democrats want to overhaul the tax, not eliminate it.

Each says its plan better protects family farmers and owners of small businesses.

But the reality is that few farmers and small-business owners pay the tax even now.

The Minnesota Department of Revenue estimates that barely three dozen farms are subject to the state's version of the estate tax, even though the state threshold is $700,000 — $300,000 less than the current federal exemption. Moreover, only 325 of the state's nearly 1.9 million households would pay any federal estate taxes.

"There's a huge amount of misrepresentation on this issue," said economist Neil Harl of Iowa State University. "Farmers losing their farms because of the estate tax is a myth."

To the wealthiest Minnesotans, though, the estate tax is very real. And they're supporting the party and candidate whose position best protects their interests.

A Pioneer Press analysis shows that about three dozen of Minnesota's wealthiest families have contributed nearly three-quarters of a million dollars into the effort to elect former St. Paul Mayor Coleman, a Republican.

And while those wealthy families — most of whom live in Edina or around Lake Minnetonka — tend to back the GOP anyway, all stand to benefit from total abolition of what Coleman calls the "death tax."

Congress has, in a way, already abolished the estate tax. It is being slowly phased out and is scheduled to disappear entirely in 2010. But in a strange twist, the law is then slated to expire — restoring the tax in 2011.

Coleman and many other Republicans want to make repeal permanent. President Bush has stumped across the country demanding total abolition of the levy, and the issue has become part of the debate throughout the Farm Belt.

Democrats, including incumbent U.S. Sen. Paul Wellstone, want to raise the $1 million threshold to at least $4 million, and add a total exemption for family farmers and small-business owners. They say the tens of millions the tax generates each year is better spent on essential government services, especially since the federal budget surplus has evaporated.

A U.S. Department of Agriculture study notes that total abolition of the estate tax would primarily benefit farms worth more than $5 million. Under the proposal Wellstone supports, the USDA estimates that just 1 percent of farms nationally would be subject to the estate tax — even disregarding a built-in exemption for family farms.

The National Republican Senatorial Committee and the White House, which have both taken extraordinary interest in the Coleman-Wellstone contest, hammer away at the issue daily. The estate tax also has become part of the debate in Iowa, South Dakota and Missouri — all places where the GOP hopes to score points with farmers.

Republicans are suggesting in ads and polls that farmers will lose land unless the "death tax" is totally repealed. They say Wellstone claims to be against the tax yet has voted against abolishing it seven times.

Wellstone spokesman Jim Farrell says the Republicans are misstating the senator's position. While Wellstone has voted against total repeal, he has never said he wants to abolish the tax entirely. "We're never going to support repeal," Wellstone spokes-man Jim Farrell said. "We support reform."

Several Republicans prominent in Minnesota and nationally say they're puzzled by the current emphasis on the issue. Before Congress upped the threshold from $675,000 to $1 million last year, the GOP had a political issue that potentially affected anyone with a nice house and a healthy stock portfolio. Now, they say, the Democrat-engineered vote in June to raise the threshold to $4 million — $8 million under certain circumstances — undercuts the usefulness of the estate tax on the campaign trail.

Even former U.S. Sen. Rudy Boschwitz, a Republican and Wellstone's former nemesis, supports the Democrat position.

"An $8 million exemption? I'd be for that," Boschwitz said. He said that would reduce the need for expensive estate planning for all but a few families. Boschwitz said government should not subsidize the rich. But he would not exempt all family farmers.

Coleman, the National Republican Senatorial Committee and allied groups say the June vote was a political ploy by Democrats.

"That vote was designed for exactly what Wellstone is using it for: It was a fig leaf," said Mike Dubke, president of the business-backed Americans for Job Security, a Virginia-based group attacking Wellstone on the issue.

Coleman called the proposal "a sham vote." He said the exemption for farmers and small-business owners in the Wellstone-backed proposal is too cumbersome and makes families spend money on estate planning that could otherwise be spent building their business. And Coleman dislikes a provision in the law that requires a family member to stay involved in the business or farm for at least five years after inheriting it.

Coleman said he wants to go to Washington and abolish the "death tax." But when pressed, Coleman did say he'd accept less than total repeal.

"Look, I prefer to get rid of this tax entirely," he said. "However, I am open to discussing limiting this to only the super-rich, if there was a way we could structure it that way. But that hasn't been on the table."

Even if Congress does nothing, only a few hundred Minnesota families are affected by the tax. And if it lifts the threshold to $4 million, that number shrinks to just a few dozen.

Who might still be affected? The Pohlad family, the Bingers of 3M, the Carlson sisters of the Radisson hotel chain, Stanley Hubbard of Hubbard Broadcasting, Glen Taylor of the Timberwolves and Richard Schulze of Best Buy — all are members of the Fortune 400. All are financial supporters of Coleman.

Add longtime GOP stalwarts such as the Pillsburys and the Whitneys, and Coleman's support from Minnesota's elite is near total. Of that group, only Vance Opperman, formerly of West Publishing, and the Dayton family are backing Wellstone. Mark Dayton is Minnesota's junior U.S. senator and is a substantial Democratic moneyman.

All told, federal records show 40 of the state's wealthiest families have contributed at least $713,000 to Coleman, his affiliated political action committees, or the National Republican Senatorial Committee. Most notable are father-and-son commercial developers Sidney and John Goodman of Chaska: Combined, they've contributed at least $81,500 to the Coleman effort.

Coleman says the state's wealthy support him because they dislike the union-friendly Wellstone, not because of Coleman's stance on the estate tax.

"Look at who's supporting Paul Wellstone: the trial lawyers. Is that bad? I don't know," Coleman said. He added that Wellstone's position as a champion for Big Labor has made him a natural target for Minnesota's business community.

Government has no business managing private property and/or business.

Who said anthing about "managing", doofus?
It's more akin to keeping the pot stirred so the ingredients don't stratify, settle out and burn.

Yes, that is correct. You get a lifetime gift and estate exemption of $1,000,000. Anything above and beyond the exemption amount is taxable to the estate. This amount is increased through 2010 until the entire estate is tax free. I however do believe that gifts given within the lifetime of the estate owner decrease the exemption that can be taken by the estate at the time of death (however any gift below 11,000 annually, 22,000 if married, is not taxable at the time it is given). It does however later reduce the total LIFETIME exemption amount. (Again, I am not positive that that is how the lifetime exemption is calculated).

I am a CPA, but tax and estate planning is not my specialty. Now I'm curious and am going to have to look into this!

There is even a Generation-Skipping Tax to prevent you from leaving you estate to your grandchildren instead of you children to avoid a generation of tax. For example, you are taxed when you leave your estate to your children and it is taxed again when your children leave it to your grandchildren. You can't just leave it to your grandchildren and avoid a layer of tax.

Okay, after doing some research, I'll correct myself. Gifts given in the amount of $22,000 or less (for a married couple are tax free) and do not reduce the lifetime exemption amount. If a gift exceeds the $22,000, the amount in excess of the 22,000 reduces the lifetime exemption. No gift tax is paid at that time however.

Doofus?

Sorry, but "stirring the pot" in the kitchen IS "managing" the recipe. When the government is telling someone "I'm sorry, but your father/mother earned that money, and you can't have it, despite what your father/mother wants", what else can you call it?

BTW - I'd prefer if you came up with some other name to call me - only my wife gets away with "doofus":-)

When the government is telling someone "I'm sorry, but your father/mother earned that money, and you can't have it, despite what your father/mother wants", what else can you call it?

So instead of reading and understanding Jefferson's words of wisdom on the issue, you choose to become just another zero-tax ideolouge. Fine. Hiding behind ideology is the refuge of a lazy mind, but I suppose everybody needs to relax their weary noggins on occasion.

BTW - I'd prefer if you came up with some other name to call me - only my wife gets away with "doofus":-)

Hey, honestly, it was just a lucky guess.
How am I supposed to know that I happen to agree with your wife on this issue?
I'll concede to her greater familiarity, experience and judgement on the matter.

I didn't say a thing about zero-tax, friend. IMO, some form of "windfall" tax on fungible income that is transferred to inheritors is fine. But the death tax, as it exists now, is clearly punitive.

Inheriting land, especially a farm that is a family-owned enterprise, isn't really fungible - the value of the land is dependent on (1) long-term working of it to produce yearly income (which is also taxed) or (2) selling it. Using "market rates" to set the value of the transferred property ups the ante even further.

The same argument can be made for private corporations, including football teams. Money and stock in public corporations, on the other hand, are fungible.

Oh, yeah... I was attemtping to use a little humor to point out your ad hominem attack style, and to try and get you to stop. I see that's not going to be effective, so I'll be more direct: Your attack-laden style is offensive. I try to treat others with respect, and I expect them to do the same for me. To not do so, such as in this case, is childish. Clearly, you're more intelligent than that, but perhaps you would rather be offensive.

Oh, yeah... I was attemtping to use a little humor to point out your ad hominem attack style, and to try and get you to stop. I see that's not going to be effective, so I'll be more direct:

No need, I achieved my desired result: to extract a more thoughtful response on the topic. You're distinction between fungible and non-fungible assets is really quite good.

It's a shame you didn't see the humor in my retort regarding the pet name your wife calls you. That's OK. No personal offense was intended. As far as my "attack-laden style"... let's just say that I'm not shy about defending my position when I encounter responses like " So you want to turn America into a Bolshevik paradise because you hate the Rockefellers and Kennedys?" or "Invoking communism in the name of Jefferson."

It took a little teeth pulling, but I did manage to get a more thoughtful comment from you than the others. Thanks-you.

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