AED supports full repeal of the estate tax. Doing so would
provide a great degree of job security for millions of working
Americans and would ensure that money currently spent on costly
estate plans to avoid the tax and protect family businesses is put
to more productive use. AED does not support efforts to carve out
exemptions from the estate tax for family business because these
"carveouts" are cumbersome and have very limited
applicability.
BACKGROUND
Over the last
several years, politicians across the political spectrum have woken
up to the devastating impact that the estate tax has on family
business owners, their employees, and the economy as a whole. Only
about 30 percent of all family-owned businesses are passed down to a
second generation, and only about 13 percent reach a third
generation. Although a number of factors account for these low
figures, the federal estate tax is among the most significant
barriers to the transfer of family-owned businesses. The rate
structure is steeply graduated, with a top rate of 55 percent on
taxable transfers over $3 million.
The current estate tax
system forces many owners to sell their businesses -- in whole or in
part -- to pay the tax. When businesses sell off the means of
production or close their doors, jobs are lost. Additional burdens
of the tax include the high costs of effective estate planning and
administration, which siphon still more resources away from
productive business uses. The steeply graduated estate tax structure
often forces businessmen to make financial decisions based on
potential estate tax consequences rather than for sound business
reasons. A 1995 survey of AED members found that the equipment
industry spends nearly $5 million annually in life insurance
premiums in order to have proceeds available to meet estate tax
liability. More than $6.6 million had also been spent on lawyers,
accountants, and other estate planning advisors.
The 1997
tax reform bill increased the unified credit incrementally to $1
million over a period of six years. The new law also created an
exclusion for family owned businesses. That exclusion permits an
individual to exclude up to $1.3 million in family business assets
when it is combined with the unified credit. The value of the family
business exclusion is designed to fall as the value of the unified
credit increases between now and 2002, permitting a constant maximum
exclusion of $1.3 million. However, the family business "carve out"
has come under some criticism because many business owners find it
hard to meet all the requirements to qualify for the tax
shield.
STATUS
In the 106th Congress, estate tax repeal
efforts have centered around four primary pieces of legislation. HR
86 and S 56, introduced by Representative Chris Cox (R-CA) and
Senator Jon Kyl (R-AZ) respectively would repeal the estate tax
outright. HR 86 has 203 cosponsors; S 56 has 26. The Cox and Kyl
bills remain, at least philosophically, the lead repeal bills.
The other two bills, HR 8 introduced by Representative
Jennifer Dunn (R-WA) and John Tanner (D-TN), and S 38 introduced by
Senator Ben Nighthorse Campbell (R-CO), seek to take a more
pragmatic approach to estate tax repeal by gradually phasing it out
over a ten year period. The Dunn-Tanner bill currently has 234
cosponsors; Campbell's has 15. Substantial progress was made on the
estate tax repeal issue in June and July of 2000. On June 9, 2000
the House passed HR 8 by an overwhelming vote of 279 to 136.
Ultimately, 65 Democrats defied their party's leadership and
supported elimination of the estate tax. On July 14, 2000 the Senate
passed HR 8 by a vote of 59 to 39, with support of nine Democrats.
Unfortunately, one Democrat continues to oppose estate tax repeal:
President Bill Clinton. The President has made clear his intention
to veto the estate tax repeal bill when it gets to his desk. And
despite the strong show of support in the House, the Senate did not
pass the bill with enough votes to override the veto.
TALKING POINTS
• Repealing the estate tax would cost
the federal government very little in lost revenue. Receipts
from estate taxes have traditionally accounted for only about 1
percent of federal tax revenues. Additionally, the economic growth
spurred by estate tax repeal would offset lost estate tax
revenues.
• The
estate tax is a highly inefficient way for the federal government to
raise money. It is estimated that each year, the government and
taxpayers collectively spend an equivalent of 65 cents for every
dollar the tax collects on enforcement and compliance activities.
Furthermore, in an effort to save their businesses and their
employee's jobs, many businessmen undertake costly estate planning
strategies to prepare to meet the estate tax burden. The costs of
doing so - lawyers fees, accountants fees, and insurance premiums -
are estimated to equal the amount collected by the tax. This is
money that could be put to far more productive use. Additionally,
tax causes economic distortion because it penalizes savings and
encourages consumption.
• The
estate tax costs jobs. When business are sold to pay the estate
tax, jobs are lost. Repealing the estate tax would mean more
employment and greater job security for those already
employed. OTHER
USEFUL RESOURCES
Check on the status
of Representative Cox's repeal bill.
Check on the status
of Senator Kyl's repeal bill.
Check on the status
of Representative Dunn's repeal bill.
Check on the
status
of Senator Campbell's repeal bill.
Representative
Jennifer Dunn (R-WA) has been one of Capitol Hill's fiercest
advocates for estate tax repeal. Her office has issued a number of
statements on the issue.
Economists at the Heritage Foundation
have also written extensively on the estate tax issue.
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