U.S. Rep. Larry Combest (R-TX) voted today to repeal the estate tax, commonly called the “Death Tax.” The death tax occurs when the owner of a business or farm passes away and the survivors are forced to pay up to 55 percent of the value of the business or farm if it surpasses a certain limit. H.R. 8, the “Death Tax Elimination Act,” which passed the U.S. House of Representatives by a vote of 279-136, phases out the federal estate, gift, and generation-skipping transfer tax over the next 10 years. It also simplifies the generation-skipping tax and expands the availability of the estate tax rule for qualified conservation easements by modifying the distance requirements.

Combest notes how the death tax can hit family operations especially hard. “When the owner passes away, the family farm passes to the next generation with a tax penalty totaling as much as 60 percent, and the choice is between keeping the family business or selling it just to pay the taxes,” said Combest. “These assets have already been taxed one or twice already. The death tax makes it three times, and that’s just not right.”

The estate tax is commonly referred to as the “death tax,” since it is generally triggered solely by death.  Except for changes in the schedule, the tax repeal takes almost the exact approach to repealing the death tax that Congress included in last year’s Taxpayer Refund and Relief Act of 1999 that was vetoed by President Clinton.  If the president would sign death tax repeal into law, families could benefit by $28.3 billion in tax relief over five years. The death tax includes all assets of an estate, including life insurance premiums, stocks, property, bonds, etc.

Less than half of all family-owned businesses survive the death of a founder and only about five percent survive to the third generation. Under the current tax laws, it is cheaper to sell a business before dying and to pay the capital gains tax than to have your family pay higher taxes after your death.

The bill would begin a reduction of the tax immediately and eliminate it completely in 2010.  It would also maintain stepped-up basis on up to $5.6 million of assets.  If the bill were to become law, all family operations would retain stepped-up basis for $1.3 million of assets and heirs to larger family farms or ranches could choose which assets retain the step-up in basis.

“You get a certificate at birth and a license at marriage. You shouldn’t get a bill upon death. By repealing this archaic law, farmers, ranchers and small business owners will be able to keep the American dream alive that hard work and good stewardship provides,” Combest concluded.

H.R. 8 is now pending action in the Senate.