A tax that lands like a meteor
Voters can expect a sharp campaign over Washington's new death tax. The tax hurts family business and raises an amount of money that is tiny.
The Seattle Times opposes all estate taxes. This state's death tax, which has a top rate of 19 percent, is joined to a federal death tax that has a permanent top rate of 55 percent. The supporters of this tax argue that it is OK because it applies only to estates over $2 million. But this is a tax on assets, not cash in hand. There is scarcely a block in Seattle that does not have $2 million worth of houses on it, and in business, $2 million is fairly small change. There are many in Washington:
Howie's Power Vac
• Consider Howie's Power Vac of Edmonds. It is not listed on the stock exchange. It is owned by Chuck and Mary Jo Mott and is run by their daughter, Deborah Mott, a single mother with two kids. It has a building and 28 trucks, which are specialty vehicles for cleaning heat ducts. It employs 38 people.
The building alone is worth the deduction. The rest of the business — the trucks, which cost $75,000 apiece, other equipment and the going-concern value of the business, are all subject to confiscatory rates. Chuck is 65; he and Mary Jo both have diabetes, which makes it more costly to buy life insurance. Under the current federal and state death taxes, Chuck Mott says, "My daughter would have to sell the business."
Schweitzer Engineering Laboratories
• A lot of people don't want to sell the businesses they created. "I can't think of a good reason I'd ever want to sell," says Ed Schweitzer, 58, who founded Schweitzer Engineering Laboratories, Pullman. He believes that if someone bought the family- and employee-owned company they might move it out of Pullman. Selling out "would hurt our employees and our community," says Schweitzer, who has a son and a daughter in the 1,300-employee business.
• Sonderen Packaging is a Spokane company that employs 95 people to make packaging for tea, cereal and other grocery products. The founder's son, Mark Sonderen, 54, runs it , and he hopes to pass it on to son Matt, who works in manufacturing, and daughter Keva, who works in customer service.
Says Matt, 25: "People tell me there are ways to get around the estate tax. Of course, there are — but they all cost money, and it's money we could be investing in the business."
Investing money in business is what creates jobs and raises wages. A smart government does not penalize this.
Of course, government needs taxes. But the smart way to tax a business is to take small bites many times out of every company in the industry, so that the tax may be paid out of cash flow, and all the companies can get used to it. The death tax is the opposite: It takes nothing for decades, then lands like a meteor on one owner but none of his competitors.
The final argument for this tax is that government is sorry to impose it, but that government needs the money. This is nonsense. The federal tax brings in barely 1 percent of revenues. The state tax is even smaller: Its take is less than half of 1 percent of revenues. That's not worth the damage it causes.
Copyright © 2006 The Seattle Times Company