The Anti-Endangered Species Tax (aka Estate Tax)

The Anti-Endangered Species Tax (aka Estate Tax)
July 31, 2014

Little-noticed in the debate over the estate tax, better known as the death tax because it punishes the heirs of people who have died, is the harm it does to wildlife, especially endangered species.

Recently, the Family Business Coalition sent a letter to Reps. Dave Camp (R-MI), chairman of the Joint Committee on Taxation, and Kevin Brady (R-TX), chairman of the Joint Economic Committee, urging them to repeal the death tax.

The coalition—consisting largely of trade associations representing smaller businesses such as the American Dental Association and the Independent Petroleum Association of America, as well as limited-government groups like Americans for Prosperity and Americans for Tax Reform—made familiar arguments against the tax: it unfairly punishes hard work and wealth creation; it's particularly hard on minorities, since only recently have they started to accumulate substantial amounts of wealth; and it contributes little to federal revenues.

More Species on Private Lands

In addition to all of that, private lands with endangered species habitat are hit hard by the death tax. Private lands are the linchpin for endangered species, and most wildlife for that matter. Approximately 78 percent of species listed under the Endangered Species Act inhabit private lands, compared to just 50 percent on federal land.

According to Michael Bean, the person widely acknowledged as the foremost expert on the Endangered Species Act and U.S. Wildlife law, the death tax is "highly regressive in the sense that it encourages the destruction of ecologically important land in private ownership. In order to pay estate taxes, cash-poor inheritors of ranches, farms, and forests must often liquidate timber assets, subdivide the property, or otherwise destroy ecologically valuable land that had been cared for by owners who had truly loved it."

According to a 1995 report from the Keystone Center, cited in Congressional testimony nearly a decade later due to its strong statements regarding the tax’s environmental effects:

"Federal estate tax requirements are a major obstacle for private landowners whose land stewardship has been sensitive to its environmental value and who would like to be able to pass on their land to their heirs without destroying that value. The imposition of federal estate taxes often forces large parcels of environmentally valuable land to be broken up into smaller, less environmentally valuable parcels. Some of the best remaining habitat for endangered species is put at risk in this manner."

The extent of the problem of death tax-induced habitat destruction is very serious. A 2006 peer-reviewed study estimates that due to the tax each year approximately 2.4 million acres of forestland is harvested and 1.3 million acres sold. Of the acres sold, roughly 400,000 are converted to less wildlife-friendly uses, such as houses and shopping malls.

Problematic Response

One possible response to the problem of habitat destruction caused by the death tax is to amend the tax to exempt or reduce the burden on landowners who keep their land undeveloped. A typical example of this idea is in the 1996 Keystone Center report: "[R]educe, exempt, defer, or credit estate tax liability when landowners voluntarily enter in a cooperative ESA agreement during the term of the agreement. Higher benefits should be correlated with more permanent agreements."

There are several problems with this approach. 

First, increasing the dollar amount exempt from the death tax or exempting altogether those landowners who agree to manage their land for conservation purposes may well not work, because large landholdings are among the most economically and ecologically valuable.

Raising the exempt amount by a few million dollars would do little, if anything, for much of the land with the highest conservation value. It is ironic and very unfortunate that those who own the most valuable lands for wildlife are the landowners most likely to be clobbered by the death tax. 

Second, many landowners, especially those in biologically rich regions with numerous endangered species, are very wary of the federal government because of its aggressive enforcement of the Endangered Species Act and a host of other laws, such as the Clean Water Act, the highly punitive law by which the federal government regulates development and alteration of wetlands. In addition, many landowners are busy simply trying to run their businesses and have little time to figure out the bewildering intricacies of federal tax law.

Third, fiddling with the death tax will only encourage pursuit of additional changes in the future, some of which may well reverse landowner-friendly reforms. This is a very real possibility, given the reluctance of Congress and the Executive Branch to reduce the size of government.

Best Option: Abolition

The best option is to repeal the death tax entirely so it ceases to be a threat to the nation's landowners. Then Congress and special-interest groups will not be tempted to fiddle with the tax or reverse any new landowner-friendly provisions. 

The federal government should remove barriers to private stewardship by applying the Hippocratic oath to conservation efforts in the environment: "First, do no harm." Repealing the death tax is a great place to start.

Brian Seasholes (brian.seasholes@reason.org) is a research fellow with Reason Foundation. Used with permission of Reason’s Out of Control Policy Blog at http://reason.org/blog/  

Internet Info 

“Costs and Consequences of the Federal Estate Tax,” Joint Economic Committee, United States Congress: http://heartland.org/policy-documents/costs-and-consequences-federal-estate-tax