US House Looks At Death Tax Repeal
by Mike Godfrey, Tax-News.com, Washington
20 March 2015
The burden that the estate tax places on family businesses and farms was the subject of a recent hearing of the House of Representatives Ways and Means Subcommittee on Select Revenue Measures.
Until 2012, above a USD5m cap, estates paid a 35 percent estate tax, more commonly known as the “death tax.” The tax was scheduled to revert in 2013 to 2001 tax law, with a USD1m exemption and a 55 percent tax rate, but the enactment of the American Taxpayer Relief Act indexed its USD5m exemption for inflation and set a 40 percent tax rate.
In his opening statement, Subcommittee Chairman Dave Reichert (R – Washington) said “family business owners and farmers work hard for their entire lives with the goal of passing on the fruits of their labor, but face the sometimes insurmountable hurdle of the death tax. And in addition to the actual tax liability the death tax imposes, merely planning for it – regardless of whether these businesspeople and farmers end up owing it – is yet another challenge.”
He congratulated Kevin Brady (R – Texas), a senior member of the Ways and Means Committee, on introducing the Death Tax Repeal Act of 2015, to which Reichert is a co-sponsor. “I thank Kevin Brady for his work to provide much needed permanent relief to families across the country, by [seeking to repeal] the death tax once and for all,” he said.
Participating in the hearing, Brady added that “this tax is not about reducing income inequality. Because it’s not the super-rich that pay this tax. No, it’s the small business owner whose assets are tied up in buildings, machines, and property that pays the estate tax. It’s his or her spouse and children that have to sell that business he built to pay Uncle Sam.”
He called the death tax “an immoral tax,” adding that “it disproportionately affects small businesses and start-ups. The tax burden on these business owners is already too high during their lifetime – most pay a marginal tax rate over 50 percent. And then when they die, the federal Government swoops into the funeral home and takes another 40 percent of those assets.”
Opponents to the Bill point out that the death tax affects relatively few families, especially after the exemption amount was raised to USD5m in 2010. The Subcommittee’s Ranking Member, Richard Neal (D – Massachusetts), had concerns that, “while our nation’s farmers and small businesses have legitimate concerns about the estate tax, it is my hope that they are not being used to end the estate tax for our nation’s wealthiest.”
He pointed out that an inheritance tax has “long been recognized as a legitimate way to fund government operations and prevent concentrations of wealth,” and that the Tax Policy Center (TPC) recently revealed that “only 20 small business and farm estates nationwide owed any estate tax in 2013. Furthermore, TPC estimate those 20 estates owed just 4.9 percent of their value in tax, on average.”
In a report in September last year, the Heritage Foundation confirmed that it raises only tiny amounts of revenue for the federal Government, and said increased jobs and growth would arise from canceling the death tax. It estimated that the repeal of “the federal estate tax (and related gift taxes) would boost US economic growth by more than USD46bn over the next 10 years and generate an average of 18,000 private-sector jobs annually.”
In a recent study, the Tax Foundation also found that, “as estate taxes become narrow-based, meager revenue sources, with high administrative costs, repeal becomes a strong option. Thirteen OECD countries or jurisdictions have repealed their estate or inheritance taxes since 2000.”
It noted that US estate tax receipts have declined significantly over the last fifteen years, from USD38bn in 2001 to an estimated USD20bn in 2015. By its calculations, repeal of the tax “would gradually increase the US capital stock by 2.2 percent, boost gross domestic product, create 139,000 jobs, and eventually increase federal revenue.”
Following the hearing, it is now expected that the Ways and Means Committee will move to a markup of the Death Tax Repeal Act, and the House will then pass it, contrary to the wishes of President Barack Obama.