June 5, 2000

Vol. 79, No. 11

House takes up 'death taxes'

The House of Representatives is set to vote this week on a bill that would eliminate the federal "death tax." The legislation would eliminate estate taxes while retaining stepped-up basis for up to $5.6 million of assets. This important provision would protect many farm families from paying capital gains taxes when an heir decides to sell the farm or ranch, according to Farm Bureau.

"This year the federal government is expected to collect over $30 billion in estate taxes," said Pat Wolff, an American Farm Bureau Federation senior director of governmental relations. "This legislation is a win-win situation for farmers and ranchers, who no longer will be forced to pay death taxes and will be protected from additional capital gains taxes by the continuation of stepped-up basis."

On May 25, the House Ways and Means Committee passed the bill--a modified version of the original Death Tax Elimination Act (H.R. 8)--sponsored by Reps. Jennifer Dunn (R-Wash.) and John Tanner (D-Tenn.). The revised bill would reduce estate taxes by approximately 15 percent over the next nine years. In 2010, all estate taxes would be eliminated.

Current estate tax rates vary from 37 percent to 55 percent. With over 90 percent of U.S. farms being family-owned and -operated, estate taxes can force farmers and ranchers to sell land, buildings or equipment to pay estate taxes to the government.

The inclusion of stepped-up basis in the final bill also is important, said Wolff. When property is inherited, its "basis," defined as the value for tax purposes, is "stepped-up" to current market value for the new owner. If the property is sold, the owner pays capital gains taxes on the property increase in value while he owned it.

"What's significant about this bill is that death taxes are eliminated and estates valued at $5.6 million or less are shielded from having to pay capital gains taxes," she said.

If the House passes the bill this week, the legislation still faces an uncertain future, Wolff said.  The Senate has not indicated whether it will consider the freestanding House bill or fold an estate tax provision into a larger tax relief bill. Veto threats have already been issued from the White House.

Additional links:
House Ways and Means Committee
Rep. Jennifer Dunn (R-Wash.)
Rep. John Tanner (D-Tenn.)

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