Estate Tax Will Not Fade Away
As estate tax law now stands per last year’s legislation, the tax is being gradually phased out and is set to disappear in 2010. But then, under a “sunset” provision, the legislation would expire and the tax would reappear in 2011, reverting back to its previous levels.
HOUSE ACCEPTSThe U.S. House of Representatives voted by a margin of 256 to 171 in favor of total repeal. In the Republican-held House, 214 Republicans voted in favor, along with 41 Democrats and one independent.
Republican leaders noted that phasing out the tax and bringing it back in full force did not make economic sense. House majority leader Dick Armey (R-TX) stated that business people would have to plan to “die on time” in order to preserve their estates for their successors.
Democrats who opposed permanent repeal said that doing away with the estate tax would eliminate $55.8 billion in tax revenue in 2012 and that it would reduce revenues by more than $700 billion in the following 10 years.
It was also argued that the primary beneficiaries of this tax elimination would be some of the wealthiest people in the United States.
Representative Earl Pomeroy (D-ND) proposed alternative legislation that would increase exempted assets from $1 million to $3 million in January and would make that exemption permanent. This would provide faster tax relief, he said, and exempt 99.7% of all estates. His measure lost by 231 to 197.
Senate majority leader Tom Daschle (D-SD) then announced that permanent estate tax repeal would come up for a vote on the Senate floor by June 28.
REACTION TO HOUSE VOTEKevin W. Holland, vice president, communications and information services, Air Conditioning Contractors of America (ACCA), noted, “The same day the House voted to permanently repeal the death tax, ACCA’s board members were on Capitol Hill en masse pointing out to their congress-men and senators the absurdity of the current ‘temporary’ death tax phaseout. In fact, under current law, in order to take advantage of the phaseout, small contractors actually have to ‘plan to die’ in 2010 — because after that, the tax returns.
“Right now, contractors are spending thousands of dollars each year on insurance, lawyers, and accountants just to minimize the effect of the death tax on their families and businesses. This is money that contractors could invest back in their businesses and communities if they didn’t have to divert it to help reduce potential burdens on their children.
“We need permanent repeal of this onerous tax, and we need it now. Passage of this legislation would not only restore fairness to a system that penalizes small business owners, but would immediately pump money back into America’s local communities.
“This is an economic stimulus bill, a fairness bill, and a family bill. We hope the Senate will finally follow the House’s lead on this important legislation and hope contractors all over the country will call their Senators and urge them to vote for permanent death tax repeal.”
John McNerney, executive director, government and labor relations, Mechanical Contractors Association of America (MCAA), said, “Estate tax relief has long been a legislative priority of MCAA and the MCAA/NECA [National Electrical Contractors Association]/SMACNA [Sheet Metal and Air Conditioning Contractors’ National Association] Alliance.
“We stress not only the unfairness of paying a confiscatory levy on hard-earned assets transferred to keep family-run businesses operating from one generation to the next, but also the inefficiency of estate planning, and insurance purchases that divert funds from enterprise and workforce investment.
“That sort of misallocation of resources is even greater now with the incremental changes in taxable amounts and rates declining to 2010, and then miraculously springing back to 2001 rates in 2011.
“While we grant the widely reported fact that the prospects for permanent repeal in the Senate in this election year are dim at best, we continue to press nevertheless with the support of the conclusion of the Congress’ own Joint Economic Committee 1998, as follows: ‘The estate tax is a leading cause of dissolution for family-run businesses. Large estate tax bills divert resources from investment and employment…’
“The estate tax raises very little, if any, net revenue for the federal government. The distortionary effects of the estate tax result in losses under the income tax that are roughly the same size as estate tax revenue.”
Bill Trombly, president of the Plumbing-Heating-Cooling Contractors — National Association (PHCC), stated, “PHCC is encouraged by the actions of the House to make death a nontaxable event. Hopefully, the strong House vote will provide some momentum for the Senate, which will vote on the permanent repeal measure later this month.”
PHCC executive vice president Ike Casey added, “Making death tax repeal permanent has been a long-standing priority for PHCC. We are pleased the House addressed the one-year temporary nature of the repeal provisions, a major concern expressed by our members. PHCC will advocate with various members of the Senate to ensure that the death tax is not reinstated in 2011.”
SENATE REJECTSSince Daschle had indicated this legislation would be brought up around June 28, proponents on both sides of this issue expected to have two to three weeks to lobby their senators. But then the majority leader suddenly opened debate just days after House approval and, at the end of the first day of debate, called for all amendments to be brought to the floor the next day for a vote.
Senate Democrats proposed two alternatives to complete repeal, which they said would exempt the majority of family-owned businesses. Both measures were defeated.
Under Senate rules, Republicans then needed a minimum of 60 votes to bring a vote on permanent repeal to the floor. The final tally was 54 to 44, six votes short. A total of 45 Republicans and 9 Democrats supported repeal.
CONTRACTORS RESPONDPHCC noted that a number of its contractor members moved quickly on this issue, sending e-mail letters to their senators. The association questioned the logic of those senators voting against permanent repeal. “Death should not be a taxable event either in 2010 or 2011,” said Casey. “The one-year temporary nature of repeal makes it nearly impossible for our members to conduct any estate tax planning.”
Republican leaders have promised to make permanent repeal of the estate tax an issue in this fall’s Congressional elections, and they will be highlighting the vote of individuals in the House and Senate who are involved in tight races.
If the new Congressional lineup after the elections favors the Republicans, permanent repeal could be revisited in the future.
Publication date: 06/17/2002