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John Thune (R – South Dakota), Chairman of the Senate Republican Conference, and Kevin Brady (R – Texas), Chairman of the Congress Joint Economic Committee, have re-introduced bipartisan legislation in the Senate and House of Representatives, respectively, to repeal permanently the United States federal estate tax, better known as the death tax.
Thune and Brady's bill, the Death Tax Repeal Act of 2013, is nearly identical to legislation introduced in the 112th Congress that garnered the bipartisan support of 223 Representatives and 38 Senators. It is, they said, "intended to eliminate this punitive tax on family farms, ranches and businesses upon the death of an owner."
In 2012, estates paid a 35 percent tax after an inflation-adjusted USD5m exemption, and, prior to the enactment of the American Taxpayer Relief Act (ATRA), the tax was scheduled to revert this year to 2001 tax law with a USD1m exemption and a 55 percent top tax rate. ATRA prevented that change, but, instead, indexed the 2011 exemption for inflation – to USD5.25m for 2013 – and set a 40 percent tax rate.
"The federal government has no place forcing grieving families to pay a tax on their loved one's life savings that has been built from income already taxed when originally earned," said Thune. "Currently more than 70 percent of family businesses do not survive to the second generation, and 90 percent of family businesses do not survive to the third generation."
Thune noted that a study by former Congressional Budget Office Director Douglas Holtz-Eakin, found that repealing the death tax would create 1.5m additional small business jobs and would reduce the unemployment rate by almost 1 percent. He stressed that "death should not be a taxable event."
"What kind of government swoops in upon your death and takes nearly half of the nest egg you've spent your entire life building?" asked Brady. "The death tax remains the number one reason family owned farms and businesses don't survive to the next generation and it's time to end this immoral tax once and for all in America."
Orrin Hatch (R – Utah), Ranking Member of the Senate Finance Committee, joined the bipartisan group of members of Congress in backing the bill Hatch, a longtime backer of full repeal of the tax pointed out that it is an unfair tax on farmers, ranchers and small business owners "who pay taxes on nearly every aspect on their lives – from what they earn to what they buy – are then taxed again upon their death."
"This bill puts a nail in the coffin of the death tax by repealing it for good," he added. "It protects small farms and businesses since the value of what's passed on is locked in their land and their businesses. And this bill is bipartisan – showing how widespread support is for curtailing this onerous and unfair tax."
The American Farm Bureau Federation (AFBF) also welcomed the proposed legislation. While significant tax relief was enacted last year to help farmers cope with estate taxes, the AFBF believes that permanent repeal is still the best solution to protect all farms and ranches. The value of family-owned farms and ranches is usually tied to illiquid assets, such as land, buildings and equipment. With 85 percent of farm and ranch assets illiquid, producers have few options when it comes to generating cash to pay the estate tax.
"Individuals, family partnerships and family corporations own 98 percent of our nation's 2m farms and ranches," said AFBF President Bob Stallman. "When estate taxes on an agricultural business exceed cash and other liquid assets, surviving family partners may be forced to sell land, buildings or equipment needed to keep their businesses running. This not only can cripple a farm or ranch operation, but also hurts the rural communities and businesses that agriculture supports."
In September last year, the Tax Foundation confirmed that the estate tax could not be justified on the grounds that it raises revenue, as it is looked on as the smallest source of revenue of any major tax in the US. In 2011, it raised roughly 0.05 percent of all federal revenue, and, in 2012, projections showed that the estate tax would only raise 0.42 percent of federal tax collections. In addition, revenues are kept artificially low as taxpayers make economic decisions to avoid the estate tax, such as by making charitable donations.
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