The Anti-Endangered Species Tax

Commentary

The Anti-Endangered Species Tax

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 Representatives 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–which consists 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.

Absent from the letter, and most arguments against the Death Tax, is that the Tax also has a devastating impact on the environment; wildlife conservation in particular, and especially endangered species.

Private lands are the linchpin for endangered species and most wildlife for that matter. Approximately 78% of species listed under the Endangered Species Act depend on private land for all or part of their habitat, compared to 50% for federal land. But private lands with endangered species habitat are hit hard by the Death Tax. According to Michael Bean, when he was with the Environmental Defense Fund (and currently at the Interior Department), and 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 here in a Congressional report because the 1995 version, which contains a very strong statement about the harm to endangered species caused by the Death Tax, appears not to be available online; all that is available is the 1996 version, which contains a much milder statement about the Estate Tax):

“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.”

And, according to the aforementioned Congressional report:

“When the time comes to pay estate taxes, real estate assets often produce a substantial tax liability that can only be paid by developing the land. The impact is most apparent for natural habitats that are destroyed. Endangered species are affected as well, since about one-half of all listed species are found only on privately-owned land.”

The dimensions 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.

One 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 response 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 amount exempt 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 those landowners most likely to get clobbered by the Death Tax.

Second, many landowners, especially those in biologically rich regions with lots of endangered species, are very wary of the federal government due to its aggressive enforcement of the Endangered Species Act, as well as 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 similar efforts in the future, some of which may well be to 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.

The best option is to repeal the Death Tax entirely so that it will cease to be a threat to America’s landowners and so that Congress, as well as special interests (including environmental pressure groups), will not be tempted to fiddle with the Tax or even reverse landowner-friendly provisions. America’s landowners are increasingly wary of the federal government for a number of reasons, one of which is the increasing pinch of punitive laws and regulations such as the Endangered Species Act and Clean Water Act. Landowners need clear signals, not more complex regulations and laws.

It is time for the federal government to remove barriers to private stewardship by taking a conservation Hippocratic oath of “First, Do No Harm.” Repealing the Death Tax is a great place to start.

Brian Seasholes is a former research fellow with Reason Foundation.