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Estate Tax Relief

The NASE Position:

 The NASE supports permanently raising the threshold of the estate and gift tax exemption to $5 million, to bring relief to micro-businesses and small farms.

Background:
The underlying objectives of the estate and gift taxes are that they serve a “wealth equalizing function” and create revenue. By taxing those families of decedents that have more than the current exemption limit, the goal is to reduce the wealth of the younger generation, leveling the playing field and redistributing economic power.

After the minimal exemptions designated by the tax code, families could pay up to 55 percent in taxes on the transfer of their estates, which includes land, buildings and equipment. Due to this tax, one-third of all small business owners will have to either liquidate part of their business or sell outright to pay estate taxes. Only six out of ten family businesses get passed on to a second generation, and only one out of ten make it to the third generation.

Not only is the estate tax debilitating to a small business when its owner has passed away, but the cost that owner must expend to prepare for the estate tax is also a burden that drains the business’s resources. Money spent on estate tax planning measures could have been reinvested into the company. Moreover, estate tax liability considerations frequently affect business decisions about investments and expansions.

Legislative Activity:
Legislation to repeal the estate tax was passed in the Bush Administration’s tax plan. However, this provision was phased in and requires passage of additional legislation to make the repeal permanent. For 2009, the estate tax exemption limit is $3,500,000 with a tax rate of 45%. There will be no estate tax in 2010. However, if legislation is not passed by the end of 2010, the estate tax exemption limit will revert to $1,000,000 in 2011 with a tax rate of 55%.

In the current Congress, legislation has been introduced by Rep. Randy Neugebauer (R-Texas) to make permanent the repeal of the estate tax. The Opportunity for Family Farms and Small Businesses Act of 2009 (H.R. 533) would permanently repeal the estate tax and increasing small business expensing with regards to dollar limitation to $200,000, and to $800,000 for reduction in limitation.

Rep. Earl Pomeroy (D-N.D.) has also introduced the Certain Estate Tax Relief Act of 2009 (H.R. 436), which would repeal new carryover basis rules to prevent tax increases and would retain the estate tax with a $3,500,000 exemption.

In the 111th Congress, it is unlikely with the Democratic majority that the issue of estate tax repeal or making permanent the increased exemption limits will be a priority.