The Negative Impact of the Oregon Estate Tax
By Evelyn Robinson
At the beginning of 2012, the Oregon Inheritance Tax changed into the Oregon Estate Transfer Tax, which ushered in new rules and regulations on the passing on of estates. This has affected all Americans, but particularly those who own and run businesses, be they shops, factories or farms. This has had a massive impact on these kinds of people, who need to pass on a full and functioning business to their descendents and who cannot afford to pay vast levies on these transfers. It may also have a negative impact on the Oregon economy as a whole due to the fact each inheritance transfer could tear apart a business or farm.
As noted above, the estate tax takes into consideration the total wealth of an individual upon their death. If this is
over a million dollars a tax is levied on it. This hits business owners and particularly farmers the most. The land, buildings, and equipment all count toward the wealth of the estate. In this scenario, the value of the land of a
farm is often greater than the annual income it produces and certainly far greater than any profit it may generate after costs.
An example of this, according to Fox News, is Kevin Kester, who is a rancher, earns less than your typical bureaucrat, but is likely to generate a huge tax bill of $13 million should he pass on. Kester demonstrates the key problem with the law, that it does not differentiate between the wealthy who own properties for fun and those who own them to scrape a living. It does not account for the cost of running a business, just the value of its parts. These costs are not removed from the wealth of the estate, meaning that if a tax is levied, it will become unaffordable to the inheritor, who will most likely be forced to sell the farm and lose his/her livelihood.
Effects on Economic Development
Based on data from other states and death tax policies, Dr. Eric Fruits and Dr. Randall J. Pozdena, both professors in Oregon, came to the conclusion that getting rid of the estate tax would lead to permanent job growth, increased personal income and more tax being collected. The professors believe there would be 44,500 more jobs in the state should the law be completely repealed. Judging by this data and working backwards, it appears that the tax is hampering investment in jobs and the profitability of businesses. It would also hamper in-migration to the state.
The American Forest Foundation has added its survey to the data as well. Their survey was centered on the state of Minnesota, which has 5.3 million acres of family owned forests. In the state, there are 6,000 forest owning families, 82% of whom earn less than $100,000 a year. Oregon also has a significant amount of family run forests, which will also be affected by the estate tax should the principal owner die. The implications are that more forestry land could be developed, left to ruin, or cleared should these families be unable to pass on their forestland to successors.
Preparing for the Day
Preparing for the day people pass on is a necessary, if difficult, part of growing old. This tends to include healthcare plans for medical costs, life insurance to cover funeral costs, and the provision of private and/or state pensions. Now, they must also include preparation for the Oregon estate tax.
First, the state law makes clear that a married spouse does not have to pay any tax if they inherit the estate. This will buy time for any transfer of the property to the next generation should there be a surviving spouse. By splitting the estate 50-50 between spouses, only half the estate is assessed on death, meaning the total deduction could be $2 million before being taxable.
Donating parts of the estate as gifts may work as well. Gifting small parts of the estate to descendents can reduce the value of the whole estate. Such laws are complex. This is why it is important to speak to a tax professional to determine a strategy regarding your estate.