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MAY 13, 1999, THURSDAY

SECTION: IN THE NEWS

LENGTH: 923 words

HEADLINE: PREPARED TESTIMONY BY
U.S. REP. JOHN TANNER
EIGHTH DISTRICT, TENNESSEE
BEFORE THE HOUSE SMALL BUSINESS COMMITTEE
TAX, FINANCE, AND EXPORTS SUBCOMMITTEE
AND
RURAL ENTERPRISE, BUSINESS OPPORTUNITIES, AND SPECIAL SMALL
BUSINESS PROBLEMS SUBCOMMITTEE
SUBJECT - THE ECONOMIC EFFECTS OF THE FEDERAL ESTATE AND
GIFT TAX SYSTEM ON SMALL BUSINESS AND ITS PROPOSED REPEAL

BODY:

Good morning. I want to begin this morning by thanking Chairman Manzullo, Chairman Lobiondo, Representative McCarthy, Delegate Christensen, and Members of the Committee on Small Business' Subcommittee on Tax, Finance, and Exports and its Subcommittee on Rural Enterprises, Business Opportunities, and Special Small Business Problems, for holding today's hearing.
We are here to examine the economic effects of our federal estate and gift tax system on small businesses and family farms along with the potential effect of its repeal. You are to be commended for your willingness to focus on this important issue. When I think of the federal estate tax I think of Frank Markham, Jr.
I knew Frank's father and I have known Frank for many years. Like so many families in the rich Mississippi Delta floodplain of West Tennessee, Frank and his family operated a family farm just outside Tiptonville, Tennessee.
In the late 1970s, tragedy struck the Markham family though when Frank's father passed away. It wasn't long after that Frank and his family realized they faced an estate tax bill of more than $150,000. That may not sound like a lot of money today, but I can assure you it was a lot of money then. Indeed, many small business owners and family farmers consider that a lot of money today.
An auction was the next step for the Markham family. To pay the estate tax bill, Frank's family was forced to auction off some of their farm equipment. Fortunately, he did not lose the farming operation his father built, but many have solely because of this tax.
What's important about Frank Markham is that he and many like him don't fit the established rhetorical boxes that have traditionally framed the debate about the future of the estate tax. Historically, estate taxes were considered a good way, in the words of President Franklin Roosevelt, to prevent the "perpetuation of great and undesirable concentrations of control in a relatively few individuals over the employment and welfare of many, many others."
It's no longer a rich versus poor issue though. That, in my view, is a myth and here's why. America has changed since the days of FDR. Opportunity and entrepreneurial spirit have led to wealth creation, which transcends such societal and historical barriers as age, race, and sex. I am not offended by the wealthiest among us, the Trumps and the Forbes', paying some tax on the transfer of extraordinary wealth from one generation to another, but more than half of this tax is now paid by average, hard-working Americans.
According to the Internal Revenue Service, 70 percent (69.7%) of America's taxable estates are valued at $5 million or less, yet those estates are responsible for paying 51 percent of the total estate tax paid.
Particularly burdensome on small businesses and family owned farms, the estate tax stifles entrepreneurial spirit and paralyzes small communities throughout the rural South that rely on them to boost local economies and create jobs.
The over-riding issue for this Congress is whether it believes we should continue to penalize the generational transfer of wealth and property. To continue that, I believe, is just plain wrong, particularly when it comes to small businesses and family farms.
Consider: 70 percent of America's family-owned businesses don't survive to a second generation, and 87 percent don't survive to a third generation. So it should be no surprise to your Subcommittees, or anyone else for that matter, that the 1995 White House Conference on Small Business made the repeal of the federal estate tax one of its top priorities.
The estate tax was created in 1916 to help finance America's role in World War I. In recent years, we have successfully increased the exemption, but the increased exemptions established in the Taxpayer Relief Act of 1997 are no longer keeping pace with inflation. The current estate tax exemption is $1.3 million for small businesses and family-owned farms.
Today, estate tax rates are set at 37 percent and 55 percent depending on the size of the estate and that is just to onerous.
By mid-July the House Ways and Means Committee will put together a tax relief measure that meets the Committee's obligations under the fiscal year 2000 budget resolution. In the weeks ahead we will be working to craft a tax bill that provides for up to $778 billion in tax relief over 10 years.
It is my hope that working with Representative Dunn and others we can succeed in providing for a reasonable estate tax rate reduction in that bill. Rate reduction is the only way we will truly will be able to provide relief to small businesses and family-owned farms, while reducing the disincentives to the generational transfer of property that exist today in the form of the federal estate tax.
Finally, I want to close with a little common sense. This is how Mike Brundige of Martin, Tennessee, put it in a letter published in The Union City Daily Messenger, "Rep. Tanner is right to stick up for working people who save their money to build businesses and want to pass them along to their family members."It is one of the most important things we can do to ensure that the ownership of farms and small businesses here in West Tennessee remain in the hands of the families that built them."
I want to thank Chairmen Manzullo and Lobiondo, Representative McCarthy, Delegate Christensen, and the Members of these two Subcommittees for focusing attention on an issue that is vital to America's small businesses and family-owned farms.
END

LOAD-DATE: May 14, 1999

Document 46 of 54.


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