Group Says Estate Tax Repeal ‘All Style'

April 4, 2001

Americans for Sensible Estate Tax Solutions (ASsETS) says the legislation before Congress to repeal estate taxes is all style and no substance. The House is expected to consider H.R. 8, the "Death Tax Elimination Act of 2001," perhaps this week. "The House wants to pass estate tax repeal in the worst way -- literally," said Eric Hoffman, executive director of ASsETS, a coalition that advocates reforming, rather than repealing the tax.

"The House Ways and Means Committee made all the right noise last week about providing relief, but the devil is in the details. All this bill does is guarantee that heirs will continue to get hit with estate taxes for the next 10 years," he added. Many farm organizations are behind the estate tax repeal effort.

Actually, the bill that the House will consider repeals estate, gift and generation-skipping taxes in 2011 by imposing a "carryover basis" regime when determining the value of assets, meaning that heirs will be liable for taxes on assets valued from the time of their purchase, Hoffman said. Imposing a carryover basis will lead to high record keeping costs for taxpayers and requiring taxpayers to keep records that could be used against them in the event of an audit.

"Carryover basis is a wolf in sheep's clothing," Hoffman said. "It creates administrative nightmares and empowers the IRS to intrude in family transactions. Congress tried this in 1976 and quickly scrapped it. It was a bad idea then, it's still a bad idea today."

H.R. 8 also disproportionately benefits larger estates by repealing both the 5% surtax and rates in excess of 53%. It also replaces the unified credit with a unified exemption.

Last week Congress' Joint Committee on Taxation pegged the costs of outright repeal of the federal estate tax at $662.2 billion -- a figure that represents one-third of the entire tax-cutting package supported by President Bush.

"Congress says it wants repeal but they can't afford it. Immediate estate tax repeal is such a budget buster, they've cobbled together a political promise that will look good on C-Span but ring hollow in 2011," Hoffman said.

To provide immediate estate tax relief for their constituents, members of Congress should immediately raise the estate tax exemption levels, lower the top tax rates for estates and adjust for inflation, he added. This type of reform legislation would immediately repeal the tax for 99 percent of Americans and 8 out of 10 estates that annually are subject to the tax.

"I think most folks would rather have a guaranteed higher exemption now and pay nothing, rather than have some ‘congressional promise' to gradually reduce rates and still have to cough up based on current exemptions," said former U.S. Senator Alan K. Simpson (R-WY), who supports ASsETS efforts to reform the estate tax.

Currently, estate taxes are imposed on estates above $675,000 for an individual and $1.3 million for a couple. In 1998, according to the latest Internal Revenue Service data available, 47,483 estates were impacted by the estate tax. Estimates based on IRS data show that only 780 were small businesses with significant business assets and 650 were family farms with significant farm assets.

ASsETS is a coalition of economists such as James Galbraith, professor at The University of Texas at Austin and Neil Harl, professor at Iowa State University; charitable organizations such as Minnesota Council of Nonprofits and Frank Minton, president of Planned Giving Services; tax experts, such as Jonathan Blattmachr, partner at Milbank, Tweed Hadley & McCloy; members of the insurance community, such as the Association for Advanced Life Underwriting and the National Association of Insurance and Financial Advisors; and agriculture organizations such as the National Farmers Union. The web site is at http://www.assetscoalition.org.