Compromise Unlikely on Estate Tax Repeal
Some small business owners suggest keeping the tax but raising the exempt amounts, USAToday reports. Senator John Kyl, Republican of Arizona, has proposed raising the exemption to $5 million and imposing a graduated rate that reaches 30 percent on estates worth more than $30 million, but this proposal has not found enough supporters, the New York Times says.
Many business owners, and Republicans in Congress, object to the tax on principle, because it means a levy on money that has already been taxed, and they want it wiped out, USAToday reports. Senator Trent Lott, Republican of Mississippi, said that Republicans should take a hard line, the Times reports, but Senator Jeff Sessions of Alabama thinks that Republicans are willing to consider a compromise.
Currently the tax applies to estates valued at more than $2 million for individuals and $4 million for couples. The highest rate is 46 percent on amounts over the exempt numbers. Under current law, the exempt rates will continue to rise and the rates fall until 2010. The tax will be repealed for one year and then return in 2011.
“We were foreseeing ourselves putting this over the line,” said Dick Patten, executive director of the American Family Business Institute, the Times reports. But while Patten says he still hopes to pass repeal this year, he is also looking to make it a campaign issue in 2008.
The National Federation of Independent Business (NFIB) estimates that unknown numbers of small businesses and family farms spend millions on tax advice or are forced to give up their businesses or farms because they cannot pay the federal estate tax.
A Congressional Budget Office study of IRS data shows, however, that in 2000, when exempt amounts were lower, only 485 small businesses owed the tax, and of those, 164 could not pay it, USAToday reports. There are currently nearly 6 million small employers in the US and 18 million sole proprietors.
Estate taxes are not a factor in whether children take over a business, says Shel Horowtz, a self-employed marketing consultant, according to USAToday. He favors leaving the tax unchanged. But H.S. Wright, owner of the Seattle Hospitality Group which employs 40 people, wants the tax abolished. He has paid $25,000 over the years for estate tax planning advice to minimize the impact of the tax on his estate, USAToday reports.
On the state level, high profile individuals in Washington State are collecting signatures for an initiative to repeal their state’s estate tax, which was reinstituted by the Legislature last year to help finance public education, the Seattle Post Intelligencer reports.
In 2005, the Washington estate tax applied to an estimated 210 estates, valued at more than $2 million. It exempts farms and timberland if they constitute at least half the value of the estate, the Post-Intelligencer says. The state estate tax may be deducted from the federal estate tax.
Education supporters and unions, backed by financial leaders including Bill Gates Sr., are working to defeat the initiative, while other prominent business leaders and former police officer and longtime leader of the John Birch Society, Dennis Falk, are driving the repeal effort. Falk co-chaired a successful movement in 1981 that ended Washington’s gift and inheritance tax.
A recent survey supported by the Tax Foundation shows that Americans are united in their opposition to the federal estate tax, the Hawaii Reporter says. An overwhelming 68 percent of adults favored complete elimination, said Tax Foundation President, Scott A. Hodge.