Estate Tax Repeal Heads For Vote

Mike Godfrey, Tax-news.com, Washington

06 June 2000

The campaign to repeal the US estate tax or so-called "death tax" is a long-standing one and with the Republicans vigorously seeking a repeal, it is small business people and farmers who have really come into their own in the fight for the abolition of what is deemed to be grossly unfair and discriminatory taxation.

Small business owners and farmers will always have problems as long as the estate tax exists. They can see that a potentially crushing tax burden imposed on their estates after death could mean that they are unable to pass on their businesses to their children and instead will be forced to sell up and ship out.

Internal Revenue Service records and independent studies show that in 1997 about 20 percent of taxable estates above the exempt level of $600,000 were limited partnerships, closely held stock, real estate or other typical assets held by small businesses and farms.

In contrast, two-thirds of those taxable estates consisted of stocks, bonds, mutual funds, cash or insurance. Of the $97.6 billion in gross taxable estates in 1997, almost half the value came from estates worth more than $5 million - and the 329 richest had a combined value of more than $24.6 billion.

Whilst the Republicans have been the main driving force behind the repeal of the estate tax, leading to a vote this week on legislation that would phase out the inheritance tax by 2010, a significant number of Democrats have also been persuaded that the "death tax'' is killing farmers and small entrepreneurs.

Republican Jennifer Dunn, a key figure in the push for repeal, said 'It's a tax that is initiated by death, and I don't think that should be a taxable event.'

'These are very often normal people who have worked hard all their lives.'

In fact, over 40 organisations have lent their support to a repeal, including the US Chamber of Commerce, the National Federation of Independent Business, the National Newspaper Association, a number of farm groups and associations of winemakers, florists, factory owners, grocers and insurance brokers.

Those seeking a repeal are really most worried about the least wealthy farmers and entrepreneurs, considered to suffer most from the estate tax burden. Richer people can generally can find loopholes and avoid the tax. If the repeal goes ahead, they will be even better off, which is why some do not support a full-blown repeal and are critical of the Republicans for being too bent on helping small businesses at the expense of losing important revenues.

Charles Rangel of the House Ways and Means Committee said 'The trouble with the Republican leaders' approach is that it gives colossal tax breaks to those who are already the most fortunate.' Rangel has proposed an alternative that would raise exemptions for farms and small businesses to $4 million per family and reduce all rates by 20 percent.

Treasury Secretary Lawrence Summers and Clinton's chief of staff, John Podesta, have indicated that they believe the tax serves a purpose by ensuring that the wealthy cannot entirely shield their incomes through tax shelters.

It is possible that President Clinton will veto the Republican repeal bill partly because of its cost, estimated at $50 billion a year when the tax ends in 10 years. If this is indeed the outcome the Republicans, as the champions of small businesses and farms, would be bitterly disappointed.

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