Estate Taxes
Priority Federal Issue

Status
The Taxpayer Relief Act of 1997 included provisions to protect family-owned businesses from the death tax, but these provisions have proven so complicated and cumbersome that few businesses use them. Last year marked the first time full repeal was passed by both Houses of Congress with significant bipartisan support. The legislation, which would have repealed the death tax by 2010, was introduced by Reps. Jennifer Dunn (R-WA) and John Tanner (D-TN). President Clinton ultimately vetoed the bill, but the momentum to repeal the estate tax was carried to the new Congress and now has the support of the White House.

Estate tax repeal is a key component of President George Bush’s tax-cut plan. In Congress, several bills have already been introduced this session, including the Death Tax Elimination Act of 2001. Reps. Dunn and Tanner reintroduced their estate tax repeal bill on January 31 with a new feature that would increase the unified credit, allowing assets from $675,000 to $1.3 million to pass to heirs tax-free. The House is expected to take up the bill by late spring after other pieces of President Bush’s tax plan are considered.

Senate Finance Committee member Jon Kyl (R-AZ) and Sens. John Breaux (D-LA) and Blanche Lincoln (D-AR), plan to introduce a similar estate tax repeal measure in the Senate. It would repeal the estate tax immediately, rather than phasing it out over 10 years. Their bill would eliminate the death tax in exchange for increasing the time that property is subject to capital gains taxation. Under their proposal, taxes would occur once the estate is sold, not inherited. Heirs would pay capital gains taxes on the total amount of value gained between the time the property was first purchased – before death – to the time of sale.

In addition, Senators Phil Gramm (R-TX) and Zell Miller (D-GA) have introduced legislation (S. 35) that would phase-out the estate tax over eight years. Minority Leader Tom Daschle (D-SD) also introduced an estate tax measure, but it would provide only minimal relief beginning in 2002.

FMI helped form a bipartisan coalition of business organizations and individuals to reduce and ultimately repeal estate taxes in 1999. Americans Against Unfair Family Taxation (AAUFT), which FMI President and CEO Tim Hammonds co-chairs, is working with families and businesses across America to give prominence to the issue outside Washington, DC. In addition, FMI is a co-director on the Steering Committee of the Family Business Estate Tax Coalition.

Grocery Industry Impact
For family-owned supermarkets, estate taxes are especially burdensome. The top U.S. estate tax rate of 60 percent — nearly the highest in the world — applies to estates with a mere $10 million in assets, which can impact even a two or three store business. The tax must be paid almost immediately after the principal owner’s death. Since the assets in a typical supermarket operation are usually tied up in stores, warehouses, trucking fleets, inventory, heavy equipment and refrigeration, they must often be liquidated, or the business sold, to pay the tax. In an industry in which ownership is increasingly diverse, estate taxes are a daunting obstacle for female, Latino, African-American, Hispanic and Asian entrepreneurs. Despite these drastic consequences, the estate and gift tax is the federal government’s least significant revenue source. In addition, national polling consistently shows that 92 percent of Americans feel the estate tax is unfair. Of those responding, 56 percent have incomes of less than $60,000 per year.

Key Committies
Senate:    Finance
House:    Ways and Means; Small Business

Position
FMI strongly advocates repeal or significant rate reduction resulting in repeal of the top 60 percent rate for estate taxes to make it easier for independent supermarket owners or principals in family-owned businesses to leave a viable business to their heirs or employees.

FMI Contact
Laura Bourne   lbourne@fmi.org