Estate Tax

Policy and Taxation Group advocates the repeal of the estate, gift and generation skipping tax

In Washington, old taxes rarely die or even fade away. Repeal of the World War I-era federal estate tax could mark the beginning of the end for what critics call the cruelest tax of all.

The vote for the estate tax repeal could also endear supporters to baby boomers who collectively stand to inherit $15 trillion from parents - the biggest transfer of wealth in history.
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At its heart, the estate tax repeal vote is between two fundamental tax philosophies: fairness for individuals versus fairness for society at large. On one side are GOP lawmakers and several dozen Democrats, voting for estate tax repeal, who say parents should be able convey to their children the gains of their lifelong labors - without paying estate taxes so exorbitant that children must sell the family business just to come up with the payment.

On the other side are those, voting again the estate tax repeal, who argue that phasing out the estate tax amounts to a tax cut for millionaires, and that tweaking it - not eliminating it entirely - will address the concerns of family farmers and businesspeople.

For Edward Vander Pol, the estate tax repeal vote can come none too soon.

The family-run trucking business in Auburn, Wash., which he and his brother inherited from their father, has already paid out $500,000 in estate taxes. They've used another $150,000 in capital from the business to hire accountants and lawyers, and buy life insurance, to try to ease the tax bite.

"My father started out with two trucks in 1936. Now we have 1,000," he says. "But the money is all in the trucks. There isn't a lot of cash around to send the IRS 55 percent of what it's worth."

As long as he can remember, the prospect of estate taxes driving the family out of the company - or the company out of the business - has been a worry. The number of family-owned trucking businesses is shrinking, and he believes so-called death taxes (estate tax) are a big factor in that trend.

In fact, fear of this estate tax is often bigger than the real bite, experts say. Only about 2 percent of estates wind up owing estate taxes, which cover the value of homes, land, equipment, savings, and insurance. The bigger the estate, the higher the estate tax rate. While the top rate is 55 percent, most families don't come close to paying the estate tax owed.

If you have a family-owned business, like 91 percent of the all businesses in America, chances are that after deaths in the family, the business will fail. In fact, nine out of 10 family businesses fail shortly after the death of their founders, and a big reason is the estate tax, which can range from 37 percent to 55 percent.

It doesn't take a stable of polo ponies to reach the maxmimn exempt level. Homeowners in much of San Francisco or parts of metropolitan Boston, and farmers at the edge of urban sprawl, are finding that their homes or land easily top that level.

Family-run businesses such as supermarkets, where most of the assets line the aisles, can be hit especially hard. Indeed, supermarkets are big players in the fight to repeal the tax.

"There are 30,000 items in a typical store, which could be worth from $3 million to $4 million. It's an asset-rich, cash-poor business that often makes a net profit of about a penny on $1 of sales," says Bill Greer, spokes-man for the Food Marketing Institute, an industry group in Washington. "That doesn't leave much for extra things like estate planning."

Studies have shown that most family businesses do not survive following the death of family leaders because of estate taxes. Heirs are forced to sell some of the assets to pay the estate tax and then must pay capital gains taxes on the assets that were sold.

Losing family businesses can hurt any community, which must look to replace the economic impact. But estate taxes also reduce the stock of capital in the economy as a whole. According to the Joint Economic Committee, during the last century the estate tax took a $949 billion bite out of the stock of capital.

The Americans Against Unfair Family Taxation Coalition believes that the repeal of the estate tax would provide an immediate stimulus to the economy. According to the National Association of Convenience Stores (NACS), "A new study by CONSAD Research Corp. shows that immediate repeal of the estate tax generates a significantly larger economic stimulus than phasing in repeal over a longer period; This analysis shows that immediate repeal would provide a stimulus to the national economy of between $29.4 billion and $31.2 billion in the first year following repeal."

Tim Hammonds, president and CEO of the Food Marketing Institute (FMI) and chairman of the Americans Against Unfair Family Taxation coalition, said, "Killing the estate tax altogether benefits the more than five million family businesses and households whose livelihood is threatened by this [estate tax] tax. It frees them from the burden of spending billions of dollars a year in estate planning and special life insurance to avoid or cover the [estate tax] tax. And it frees those billions to stimulate the economy at a time when we need it most.

"Those who argue that repeal [of the estate tax] would cost the government large sums of money fail to account for the capital gains taxes that heirs will pay when they sell inherited assets.

"In fact, what we are doing essentially is replacing the estate tax, with rates as high as 60 percent, with a 20 percent capital gains tax. We are simply making death a nontaxable event - a compelling policy for both moral and economic reasons."

While presidential candidates bicker over the size of a potential tax cut that may amount to nothing more than a minuscule feel-good measure and members of Congress square off over partisan tax planks, some "smaller" tax issues get overlooked. That's where the debilitating federal estate tax often finds itself.

Congress should repeal this estate tax, often known as the death tax, not only because it cripples family-owned business but also because it runs against the grain of values on which we stake our individual success. Maybe that's why polls indicate more than two-thirds of Americans support a repeal of the estate tax. Plus, the estate tax is levied on assets that have already been taxed by the federal government -- sometimes twice.

The estate tax can stymie all kinds of family businesses from restaurants to hardware stores to car dealerships. Moreover, it is notoriously inefficient. The estate tax accounts for less than 1 percent of federal revenue, yet its enforcement costs the government 65 cents for each dollar it brings in.

Phasing out the estate tax is the fair, equitable thing to do for families, the communities in which they have their businesses and the nation where hard work, savings and fairness should be honored, not taxed.

The information on this site provides an explanation of current estate tax provisions and the debate around repeal of the estate tax; analyses from members of Americans for A Fair Estate Tax, updates on Congressional action, tips and tools for action with direct links for contacting your Members of Congress and for writing letters to the editor of your local paper.