Monday, July 13, 2015

Can Gigantic Family Businesses Avoid Estate Tax?

Some "family businesses" have become humungous. Mars, for instance. Other giant enterprises have sold shares to the public but remain under significant family control, such as Schwab.

At this humungous level, maintaining family ownership or control for another generation may well be socially desirable. Family control counters the short-sightedness typical of businesses that must
please Wall Street analysts. (If Mars Inc. had been a public company for a generation or two, Milky Ways probably would be inedible.)

Estate tax, however, poses a nearly impassable barrier. No wonder, then, that families with humungous businesses fight fiercely to repeal the estate tax. As suggested in this report, their potential tax liabilities are staggering.

Possible alternative: How about borrowing an idea from Paul Newman. Newman's Own, the nearly humungous business the actor founded, devotes its profits to charity. Could we give Mars, Schwab, et al a free pass from estate tax if they agree that 95 percent of profits will be used for the public good?


Jim Gust said...

"Could we give Mars, Schwab, et al a free pass from estate tax if they agree that 95 percent of profits will be used for the public good?"

No. We cannot agree on what is a "public good." We should be going the other way, ending the tax free status of "nonprofits" such as Newman's Own.

BTW, Milky Way is and always has been inedible.

Jim Gust said...

Contrary to bunk being peddled by Public Citizen that you link to, family farms are quickly disappearing from the American economy. Death taxes may not be the primary reason, but they are an important one among many. Big Agriculture is using the levers of government power to squeeze out the family farm all around the country.

Family farms are being sold off before the death of the owner, to avoid the chance of forced sale at sacrifice prices. That is why the unscrupulous can claim there is "no evidence" of farms being sold to pay estate taxes--the sale occurred years before. BTW, I note with interest that the claim is published in Al-Jazeera. Not my first choice in journalism.

Finally, David Cay Johnston has been making ridiculous claims about the tax system for years, his opinions are not worth much.

JLM said...

Jim, Newman's Own doesn't claim to be nonprofit. It claims to give its after-tax profits to charitable causes (and they are generally worthy ones).

I wish family farms weren't vanishing, and I wish big agribusiness wasn't churning out all those "food products." But the battle is lost, and taxes didn't have much to do with it. Buy local!

I wasn't endorsing Johnson's article, merely referring to his data. Should I consider Michael Snyder more reliable? Should I follow Snyder's advice to stock up on emergency rations?