Taxes

ISSUE

Under current law, estates over a certain dollar value are taxed by the federal government upon death of the estate owner(s). Estate taxes are particularly onerous in the case of family-owned small businesses, farms, and ranches, which subject such entities to an additional layer of taxation that others do not incur. Frequently, the penalty forces heirs to sell the family business just to satisfy the federal estate tax liability. Estate tax relief is a major concern to NTCA and its locally owned and operated small, rural cooperative and commercial incumbent local exchange carrier (ILEC) members.

BACKGROUND

In recent years, significant efforts have been made to restructure, or eliminate entirely, federal estate taxes. In 1997, partial relief was finally secured when Congress and the President enacted the Taxpayers Relief Act of 1997. Under this act, the initial amount of an estate that is exempt from federal estate taxes was increased to $625,000 in 1998, $650,000 in 1999, $675,000 in 2000 and 2001, $700,000 in 2002 and 2003, $850,000 in 2004, $950,000 in 2005, and $1,000,000 in 2006 and thereafter.

The Act also added an additional Family Owned Business Exclusion that could be combined with the general exemption for a unified credit of up to $1.3 million annually which began in 1998. The Family Owned Business Exclusion started at $675,000 in 1998 and phases down to $300,000 by 2006 so that the combined credit would never exceed the $1.3 million maximum. Despite this significant positive change, there continues to be a need for, and support for, full relief from federal estate taxes.

NTCA POSITION

NTCA believes the complete elimination of federal estate taxes is vital to the maintenance of small businesses such as commercially operated ILECs, and the farms, ranches, and other enterprises that many cooperative operated ILEC members are engaged in.

The promise that a business will pass from one generation to another is often the principal motivation for the ongoing prosperity of the business. For the present generation of owners, the prospect of future appreciation represents a legacy for their heirs. It also represents a personal guarantee of retirement security. In addition, rural communities have difficulty retaining young people who often leave for urban locations to seek more lucrative employment. For those who do remain in rural communities, the ability to survive can often boil down to whether they can afford to inherit an active interest in a small family-owned business.

Recognizing that the majority of small businesses in America fail, developing appropriate means of revitalizing rural communities is a major goal of most NTCA members. Current estate tax law serves to thwart this goal, because rather than allowing for capital to be put to creative uses in economically deprived areas, hard earned assets are instead unnecessarily taxed away. Failing to protect these businesses from unusual twists in the tax code only ensures that local ownership will be forfeited through the forced sale of the enterprise. Heirs who are fortunate enough to retain ownership are often prevented, by the imposition of estate taxes, from offering competitive compensation in the form of wages, health, and retirement benefits to their employees.

Perhaps the most unfortunate aspect of federal estate taxes is that for all the damage they inflict on countless Americans, the revenue they generate for the federal Treasury is a mere one percent of total federal receipts. The social and economic costs of the estate tax greatly exceed the revenue it produces for the government. The tax is counterproductive to the national economic goals that have long been promoted by prosperous family enterprises. Accordingly, the nation should no longer foster a policy that forces a family-owned business to be sold just to pay taxes. Indeed, such policy, without question, constrains the entrepreneurial spirit of all Americans.

NTCA has joined forces with the Family Business Estate Tax Coalition, an affiliation of 100 small-business organizations, to demonstrate support for estate tax relief legislation. Together the coalition represents six million family-owned businesses, farms, and ranches all across the nation. NTCA and its coalition partners will continue to aggressively fight for the complete elimination of all federal estate taxes.

The National Telephone Cooperative Association (NTCA) is a national trade association comprised of more than 500 locally owned and operated small, rural cooperative and commercial incumbent local exchange carriers located throughout the nation. For more information, contact Tammie S. Logan at 703-351-2038.