Support for estate tax repeal grows.
Republicans in Congress and candidates across the country supported permanent repeal of the estate tax. In 2012, more than 400 candidates signed pledges to "eliminate the death tax." Gov. Mitt Romney, while stumping for the presidency, used his support of full estate tax repeal to tout his tax plan for rural America. In a late October speech in Iowa, Romney told a crowd of farmers and business owners, "He's [President Obama is] planning on raising the death tax pretty significantly. My own view is we ought to kill the death tax. You paid for that farm once, you shouldn't have to pay for it again." Incumbent Republican House members who joined Romney in supporting full estate tax repeal included Speaker John Boehner (Ohio), Majority Whip Kevin McCarthy (California), Vice Chairman of the House Republican Conference Cathy McMorris Rodgers (Washington) and Chairman of the National Republican Congressional Committee Pete Sessions (Texas).
High-profile Republican Senate candidates who campaigned to fully repeal the estate tax included: George Allen in Virginia, Josh Mandel in Ohio, Dean Heller in Nevada, Ted Cruz in Texas, Deb Fischer in Nebraska, Rick Berg in North Dakota and Denny Rehberg in Montana. In the absence of 60 Senate votes for full repeal, House Republicans passed H.R. 8 in August to prevent the looming "fiscal cliff." The bill extended all 2012 tax rates, including the estate tax at a $5 million exemption and 35% rate. Unfortunately, this tax extension bill was left to die in the U.S. Senate.
While Republicans campaigned for full repeal of the estate tax late into fall, the Democratic caucus remained split on how to handle the issue legislatively. Rep. Brady's Death Tax Repeal Permanency Act gained seven Democratic cosponsors in the House of Representatives and 33 Democratic House members who had voted at least once in the past for full repeal remained supportive, albeit not vocally. Democratic estate-tax repeal pledge signers included Sen. Joe Manchin III from West Virginia and Rep. Mike Ross from Arkansas. This support for full repeal by rural Democratic members created difficulty for the caucus in presenting a consistent message on the estate tax.
Disagreements about the estate tax within the Democratic caucus became more publicly apparent when the Senate voted to extend "middle-class" tax rates without fixing the estate tax, allowing it to return at a 55% rate and a $1 million exemption through inaction (S. 3412). The first iteration of the Senate Democratic tax bill called for the estate tax policy in President Barack Obama's FY 2013 budget proposal--an increase to a 45% estate tax rate with a $3.5 million exemption. But after strong objections from more conservative Democratic senators favoring a lower estate tax rate and other Democratic senators preferring an even higher estate tax rate, the entire estate tax portion of the Democratic tax bill was removed and the bill was passed narrowly along party lines, with no estate tax provision at all.
At the time of this bill's passage in late July, the Joint Committee on Taxation (JCT) released estimates showing that the scheduled hike in the estate tax allowed by the early version of S. 3412 would have affected an additional 50,000 families, including 24 times the number of farms and 13 times the number of small businesses, as 2012 rates. Rural Senate Republicans, led by John Thune of South Dakota, author of the Senate estate tax repeal bill (S. 2242), took to the floor in July to share the JCT statistics with their colleagues. Following the July vote on S. 3412 and release of the JOT statistics, a number of rural Senate Democrats quickly offered a bill to extend current estate tax rates, but it gained sparse support among the rest of the caucus.
Part of the final "Fiscal Cliff" deal passed in the early morning hours on January 1, 2013, included a deal to permanently extend the current $5 million exemption including "portability" with a spouse to potentially double the exemption. The tax rate on estates over the exemption level was increased to 40%. However, by making the tax permanent Congress has helped family business owners to better plan for passing the company on to the next generation. The estate tax will now be easier to reduce or eliminate because of a much friendlier "baseline" revenue yield from a permanent 40% rate and $5 million exemption, rather than a permanent 55% rate and $1 million exemption that raises much more revenue.
With a more favorable political environment and growing support for tax reform in 2013, Congress ought to be able to design a tax code that does not include an unfair double-tax at death. Most countries, including Russia, Sweden, China, Canada and Mexico, do not have an estate tax. Among nations that do have an estate tax, the average rate is 24% (less than half of the 55% U.S. death tax that was scheduled for 2013). In a competitive global economy and with sputtering U.S. jobs numbers, Congress should be enacting tax policies that keep family businesses in the United States and encourage job growth. This year, let's build on growing support to bury the death tax once and for all and work to maintain tax certainty for America's main economic engine--family businesses.
Palmer Scheming is chairman of the Family Business Coalition in Washington, D.C., a collection of industry groups and organizations working to achieve better tax policy for private family businesses in all 50 states. He can be reached at email@example.com.
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|Title Annotation:||BUSINESS Matters|
|Date:||Jan 1, 2013|
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