Letter to Ed - Death to the Death Tax!
The Senate just voted 59 to 39 to pass the death elimination bill; nine Democrats joined most Republicans in voting for the repeal.
By Dr. Ed Brindley
Date Posted: 8/1/2000
A few years ago, I went with a contingent of forest products leaders to discuss a slate of issues with members of the U.S. Congress. One of the top five industry priorities was the repeal of the estate tax, commonly referred to as the "Death Tax." While I supported its repeal in principle, my business had not yet grown to the point that I fully understood its importance to me personally. Now I have studied the issue enough to know how negatively it will impact me and many of my friends in the industry if something is not done.
The estate tax ranges from 37% to 55% on a family’s after-tax savings. It covers all kinds of assets that are being passed on to the next generation – cash, property and businesses. Normally, a wide variety of taxes already have been levied on these assets, including capital gains, property, income, etc.
The death tax drives the nail in the coffin of many small businesses. Seventy percent of family businesses don’t survive through the second generation. Nine out of 10 family-owned businesses that fail within three years of the principal owner’s death cited the trouble paying the estate tax as a major factor in the company’s demise. Frequently, families must sell the company or assets to pay the tax bill, which consolidates more economic power in fewer hands. And as family businesses get swallowed up, many employees are given pink slips by the new owner.
Supporters of the estate tax paint it as a class issue. Either we give the "rich" a tax break or we provide assistance for the poor and senior citizens. However, it does not have to be an either-or issue. According to a report by The Heritage Foundation, this would be the picture 10 years after the repeal of the death tax:
• The nation’s economy would yield an average of $11 billion per year in extra output. An average of 145,000 new jobs would be created.
• Increased revenue from extra economic growth would more than offset the meager revenues realized from the estate tax.
Barney Frank, a Democratic congressman from Massachusetts, said about the estate tax, "The notion that you have an absolute right to be greatly rewarded by your good fortune in having a very rich relative seems to me a mistake." Congressman Frank insinuates that many heirs do nothing toward the creation of their inheritance. However, they are frequently integral to its success. While the deceased person may have technically owned the business, the family had poured its life blood into it and paid taxes on every dollar it made.
Many readers understand the sweat and tears that go into a closely held family business. But most of the bureaucrats in Washington have no idea how hard people toil to develop small businesses. The estate tax seems almost un-American in that it discourages hard work, saving and entrepreneurship.
Supporters of the death tax argue that a very small percentage of estates pay the death tax and that a well planned estate can pass on between $5 million and $8 million without any taxes. They also argue that this tax raises only about 1% of the federal budget. If that is true, then why is it so important to the treasury? It may hurt a relatively small portion of tax payers, but it hurts deeply those who have worked so hard to build both their companies and the country’s financial structure.
Last August, for the first time, Congress voted to completely repeal the death tax. Even though President Clinton’s own White House Conference on Small Business had made the repeal of this tax a top legislative priority, Clinton formally vetoed legislation repealing the tax.
The Senate just voted 59 to 39 to pass the death elimination bill; nine Democrats joined most Republicans in voting for the repeal. The House had already passed the repeal by over a two-thirds majority. Even if both houses of Congress had two-thirds majorities, it might not have been veto-proof. There is no assurance that some of the Democrats who crossed over would stick with their votes after the administration’s veto pressure. A Republican presidency might change this situation.
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