Diehards for Estate Tax Repeal

The long fight to repeal the estate tax could end this year with a compromise that would preserve this levy on inherited wealth but at a lower tax rate and higher exemption level.

If Congress does nothing, the estate tax goes away in 2010, only to come roaring back in 2011 at the high rates that were in effect before 2001. The estate tax phaseout was part of the 2001 tax-cuts legislation, whose provisions were limited to 10 years in order to contain their cost.

Business groups settled for this quirky situation in 2001, thinking they could win permanent repeal later.

The political winds changed, however, when Democrats took over Congress after the 2006 election. Most Republicans supported estate tax repeal, contending the tax makes it hard to pass on small businesses and family farms to the next generation. Most Democrats, however, contend only the wealthiest families are subject to the tax, and taxing them is a fair way to raise revenue.

Now many business groups that once held out for permanent repeal are ready to compromise in order to end the uncertainty over the estate tax’s future. Groups ranging from the American Farm Bureau Federation to the Wine & Spirits Wholesalers of America sent senators a letter urging them to pass legislation that would permanently cap the estate tax rate at 35 percent and exempt $5 million in assets from the tax.

“Permanency and certainty are the required components of any estate tax relief legislation,” the letter read.

Quitters, cried the American Family Business Institute in a statement issued Monday.

“As so often happens, business groups already are running for the barricades, before the fight begins, seeking compromise instead of victory,” said Dick Patten, the institute’s president. “We don’t consider a 35 percent tax rate an acceptable compromise. What it is is highway robbery.

“Full repeal is the only viable policy for bringing true ‘permanency and certainty’ to family businesses,” Patten said.

The institute wants Congress to let the estate tax expire, as scheduled, at the end of this year. It has set up a website, NoDeathTax.org, to campaign for its cause.

“Let the fight take place next year when the choice will be between no ‘death tax’ and a 55 percent death tax, which is the rate families would face in 2011 under current law,” Patten said. “That’s the fight we want to have. We want Congress to choose between a zero rate, which would trigger business expansion and hiring, and a 55 percent rate, which would destroy additional jobs.”

That’s a fight businesses aren’t likely to win, however.

Most business groups—including the National Federation of Independent Business, a former repeal diehard—have concluded it’s better to settle for a lower rate now so that business owners can make intelligent estate planning decisions.

Otherwise, 2010 could be a crazy year for family-business owners. If they die that year, their heirs would get their estates tax-free. Sounds like a good estate-planning strategy—unless you’re the ailing business owner, wondering if those family members gathered by your hospital bed are there to wish you well or pull the plug.

”Junior, you’ve got a strange look in your eyes.”

---

Kent Hoover is the Washington bureau chief for bizjournals.