Cong122.doc. 4-15.

BACKGROUND. Conservatives and conservative congressmen have fought long and hard to repeal the federal estate tax, commonly called the death tax. Congress enacted this tax 3 times to pay for wars and then speedily repealed it but reinstated it in 1916 to help fund WWI as a temporary tax. A 1-yr. repeal occurred in 2010, the tax roaring back in 2011. A 2012 tax bill enacted a top estate tax rate of 40%, up from 35%. An exemption protected up to $5 million in assets, indexed to $5.34 million in 2014. Total assets of farms and businesses easily top $5.34 million, causing inheritors to either sell all or part of a business or property. Many have worked diligently to build strong family businesses and farms, hoping to pass along their success and opportunities to future generations.

THE BILLS. Conservative Rep. Kevin Brady (TX.) introduced HR 1105 in the House, and Sen. John Thune (SD), with 27 co-sponsors, introduced S. 860, the Death Tax Repeal Act, in the Senate, later as an amendment to the FY2016 budget. Significantly, the bills maintain a provision called “stepped up basis” that allows capital gains on estates to escape taxation if passed to heirs.

OBAMA GREED. The Obama Regime not only wants to retain this tax but raise it to 60%, the 2nd highest rate in the world, threatening to veto repeal. The president says money better used for jobs and worker training programs, though 2/3rds of jobs stem from small and family-owned operations. Earlier this year, the president proposed changing the death tax to levy a new capital gains tax on inherited assets totaling more than $200,000 acquired by married couples or more than $100,000 for those acquired by single individuals. Suppose an individual leaves stock worth $500,000 to an heir. When purchased, it cost $100,000. That means $400,000 of gain currently untaxed, because the capital gains tax does not apply to this transfer, and the law allows the heir to sell it and figure gain based on the stock’s stepped-up basis of $500,000. The Obama Administration would end this formula by imposing capital gains tax on the transfer of the asset to the heir. Critics of this tax grab state that it would hike the death tax rate to 57%. Factoring in state inheritance taxes, some heirs could pay 68%. Thus, Obama would tax estates as both capital gains and inheritance.

PROPONENTS. The 60 Plus Association, a conservative group of older citizens, and the National Black Chamber of Commerce support repeal. The latter decries the tax hurting small minority businesses beginning to accumulate wealth. These business owners want to pass along their shops to their children, not sell at lower prices to pay the tax and eliminate the opportunity for the next generation and other jobs that could arise. Additional supporters include the National Cattlemen’s Association, Farm Bureau, American Trucking Association, General Contractors of America, National Association of Manufacturers, and National Federation of Independent Business. A 2014 survey of 1,000 by the American International Auto Dealers Assoc. shows that 61% believe this tax inherently unfair. Likely voters who favor repeal outnumber supporters by 3-1. When asked if it is fair or unfair to tax earnings while earned and again after the earner dies, 84% consider the tax unfair, as a double tax. 73.2% of Republicans favor repeal, compared to 50.3% of Dems and 61.3% of Independents. Income level was irrelevant to respondent preference. The majority of both men and women favored permanent repeal, regardless of age. A Nov. 2015 survey by Public Opinion Strategies found support for repeal by a 60%-35% margin. Many polls since the 1990s show widespread public support for repeal, from 60%-80%.

OPPONENTS. Liberals argue that repeal panders to the extremely wealthy GOP base and supporters. They contend that the tax hits only the super rich who can afford it. However, billionaires often shelter billions into foundations, charitable deductions, nonprofits, etc., escaping both the estate and income tax.

NTF POSITION. Estate assets should not fall victim to this tax, because this money already suffered erosion from income taxation during a decedent lifetime. Imposing a tax rate of 40% on savings hurts the economy and families that have saved and built small businesses in local communities. It damages farms and ranches and discourages savings and small business development, causing havoc for future generations trying to continue a family business. A study by the Joint Economic Comm. shows that ending the tax would increase federal tax revenue by encouraging additional investment. The report called this tax a major cause of dissolution of family businesses and a great hindrance to economic activity, because many businesses lack the liquid assets to meet the steep death tax rate. Targeted businesses sell parts of companies, close branches, lay off employees, or liquidate inventory. Future generations are left economically depressed. Rep. Kristi Noem (SD) declared that her family had to borrow money to pay the estate tax after the death of her father in a farm accident, taking 10 yrs. to pay back the loan. This tax discourages and punishes the traditional American virtues of hard work, thrift, savings, and investment, while encouraging reckless consumption of resources. The tax forces thousands to engage in complicated and expensive estate planning to minimize their exposure. It is a veritable employment boon for estate tax attorneys and accountants. A Tax Foundation study revealed that repeal would increase U.S. capital stock by 2.2%, boost GDP, and create 139,000 jobs. This tax has removed $1.1 trillion in capital investment from the U.S. economy. Less capital formation means slower economic growth, which results in decreased tax revenue for the federal government. This tax comprises a mere fraction of revenue collected by the IRS. The tax, according to the IRS, in 2013 raised only $12.7 billion, half that raised in 2001, 0.5% of total federal tax receipts, thus a shrinking source of government revenues. Revenue generated covers less than one day of D.C. spending. Repeal is one step toward a pro-growth tax code. A Foundation report states that the U.S. has a very high top marginal rate on estates worldwide, 4th among all nations in the Org. for Economic Cooperation & Development. American family businesses lie at a competitive disadvantage with global competitors. The average death tax rate in OECD nations is 15% compared to the U.S. 40% rate. 11 nations, including Norway and Sweden, have repealed this tax entirely. Repeal will remain a vital issue as the 2016 presidential campaign season approaches.

TAKE ACTION NOW. Contact your 2 senators today to support and vote for S. 860. The livelihoods of future generations of NE small business owners, farmers, and ranchers depend on passing this legislation. Use the information above to lobby your senators.
Congressional Contact Information

Research, analysis, and documentation for this issue paper done by Nebraska Taxpayers for Freedom. This material copyrighted by Nebraska Taxpayers for Freedom, with prior permission granted for its use by other groups in the NE Conservative Coalition Network. 4-15. C

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