Government Affairs

The death tax's days are numbered.

For the second time in two years, Congress has voted to repeal the pernicious estate, or "death," tax. If President Clinton makes good on his threat to veto the repeal legislation (as he did last year), the House and Senate are poised to vote again to repeal it after a new President takes office next January. The time to bury the death tax finally appears to be at hand.

As the chief sponsors of the death-tax repeal legislation, we've seen the momentum for repeal grow phenomenally in recent years, and we've found that it's not just those who pay the tax who want it eliminated. A June 22-25 Gallup poll found that 60 percent of the people support repeal, even though about three-quarters of those supporters don't think they'll ever have to pay a death tax. Other polls put public support at between 70 and 80 percent.

Why is support so widespread? Ultimately, it is because the American people have an unwavering sense of fairness. They recognize that there is something terribly wrong when, despite having taxed someone for a lifetime, the federal government can come back one more time when a person dies and take more than half of whatever is left. That is not only unfair, it threatens the American dream.

Repeal of the death tax would be of enormous help to family-owned businesses and farms, which are often forced to sell all or part of their businesses to pay the tax after the death of their founder. Even entrepreneurs who end up not having to pay must devote scarce resources to estate-tax planning when they could put that money and time to more productive uses, like research and development, new jobs, better pay, or health-care benefits for employees.

Environmental groups want repeal because the tax causes open space to be turned into housing developments. Members of minority groups want repeal because they know that it takes several generations for a family to build an economic foothold in a community. Senior groups want repeal, too. All joined a broad, bipartisan congressional coalition to end the death tax. In the House, 65 Democrats joined 213 Republicans to create a veto-proof majority in favor of the legislation. In the Senate, nine Democrats joined 50 Republicans in support.

The repeal bill that passed the House and Senate recently would phase out the death tax over a 10-year period. It would begin by converting the unified credit to a true exemption, so that the first dollar of an estate subject to tax would be taxed at a rate of 18 percent, versus 37 percent under current law. The five-percent surtax levied against certain estates would be repealed in 2001, and death-tax rates would be reduced each year until 2010, when the death tax would be eliminated entirely. Inherited assets would then be taxed the same as any other assets.

A capital-gains tax would be due when the assets are sold. Although the gain would be calculated using the decedent's tax basis, everyone could shield up to $1.3 million in gains from any tax, plus an additional $3 million transferred to surviving spouses. (A married couple could, therefore, shield up to $5.6 million in gains from further tax.)

Why not just settle on a reduction in the death tax for family-owned businesses and farms, as suggested by the President and some Members of Congress? Because we already tried that approach, and it failed. It is nearly impossible to reflect in law the complicated family relationships that exist in the real world. In 1997, Congress created a "targeted family-business exemption," but found that only three to five percent of family businesses were able to qualify. The Democratic alternative is no better. Moreover, we all know that unless a tax is pulled out by the roots, it will grow back.

True, the 10 years it takes to eliminate the tax is far too long. But, this is our best opportunity to lock into the law a date certain for repeal. Once it's locked in, we can come back next year and the year after, and try to move the repeal date forward.

President Clinton has threatened to veto the bill when it reaches his desk. Or, he can choose to make death-tax repeal an important part of his legacy. But with bipartisan majorities in Congress on our side, we are convinced that it is only a matter of time before the death tax is laid to rest.