By Cindy Zirkle, Jeff Carlson and Paula Cruickshank, CCH Washington Staff Writers

The issue of estate taxation returned to the legislative spotlight on July 12, 2000, as Congress prepares to vote this week on repealing or modifying the tax, and public policy analysts issue reports and statistics about estates in order to sway votes.

New Policy Analyses

The most recently released studies on estate taxes were conducted by The Center on Budget and Policy Priorities and The Brookings Institution, and they argue that the Death Tax Elimination Bill of 2000 (HR 8), if passed in its current form, would result in a windfall for the wealthiest Americans. While supporting certain modifications to the estate tax, the reports' authors opposed outright repeal.

Deputy Director Iris J. Lav of The Center on Budget and Policy Priorities reported that, in 1997, the estates of fewer than 43,000 (or 1.9 percent of the 2.3 million people who died that year) had to pay any estate tax.

In addition, the largest 5 percent of all estates (representing 2,400 with assets exceeding $5 million) paid nearly half of all estate taxes. This means about one-half of the total estate tax was paid by the estates of the wealthiest one of every 1,000 people who died (approximately $3.4 million paid per estate), according to the report. By extension, the report contends, a full repeal of the estate tax would result in half of the tax cut going to these few estates, averaging in a $3.4 million tax cut for each.

Lav contended that only a small fraction of the estate tax is paid by estates containing small family businesses and farms. She pointed out that current estate tax law already includes sizable special tax breaks for family businesses and farms.

The total exclusion under the unified credit system for most estates that include a family-owned business is $1.3 million in 2000, rather than the $675,000 exclusion applicable to most estates. This means that a couple owning a family business could exempt up to $2.6 million from estate tax rather than $1.35 million for most couples. Moreover, there are special-use valuation rules and estate tax deferrals followed by installment payment arrangements for estates with family-owned businesses and farms.

According to Lav, "the law can easily be changed to exempt from the estate tax a substantially larger amount of assets related to family-owned farms or businesses, and this can be done without repealing or making other sweeping changes in the estate tax."

She noted that Rep. Charles B. Rangel (D-N.Y.) had sponsored a Democratic alternative that would have provided targeted relief to family businesses and farms.

A separate report issued by Senior Fellow William Gale of The Brookings Institution showed that only 3 percent of estates in 1997 consisted mainly of farms or small businesses.

"These figures imply that the vast majority of estate taxes are paid by people who own neither farms nor small businesses, and that scaling back or eliminating the estate tax is a very blunt instrument for dealing with the issue."

These two policy reports on estate taxation are available on the web sites of The Center on Budget and Policy Priorities at http://www.cbpp.org and of The Brookings Institution at http://www.brookings.edu.

Action in Congress

Senate leaders on July 12 reached a procedural compromise on estate taxes that will allow each side to offer 10 amendments, including a stand-alone Democratic alternative proposal. The agreement ends the threat of a Democratic filibuster and ensures a vote on the Death Tax Elimination Act of 2000 by July 14. Debate on the measure is slated to start on July 13.

Senate Minority Leader Thomas A. Daschle (D-S.D.) told reporters that the Democratic alternative would ultimately allow estate tax relief for all but about 0.7 percent of those estates which remain taxable. Specifically the proposal would increase the general exemption from $1.35 million per couple to $2 million in 2001 and to $4 million by 2010. The family-owned business exemption would increase from $2.6 million per couple to $4 million in 2001 and $8 million by 2010. Total cost of these components over 10 years is estimated at $64 billion.

The Republican-backed Death Tax Elimination Act would repeal the entire estate tax over a 10-year period at a cost of more than $100 billion. The House passed this bill in June.

In addition to the alternative bill, Daschle said one of the amendments would address prescription drugs, but added he was not sure what other amendments would be offered.

Senate Majority Leader Trent Lott (R-Miss.) told reporters on July 11 that he might try and move a proposal to repeal the federal gas tax with the estate tax bill.

While Daschle expressed hope that a final vote on the bill could take place the same day, Democratic aides were more skeptical, saying it's more likely a vote would take place on Friday, July 14, they said.

White House Position

President Clinton would veto HR 8 in its current form. The administration believes that repeal of estate and gift taxes would be "fiscally unwise," reducing the overall fairness and progressivity of the tax system and lowering the level of charitable giving by as much as $6 billion annually, noted a Statement of Administration Policy by the Office of Management and Budget on July 12.

White House Deputy Press Secretary Jake Siewert said that the Democratic alternative is "much better targeted" than the GOP proposal in terms of helping to relieve the estate tax burden on small businesses and family farms. He also spoke favorably about the long-term cost of the Democratic plan which is estimated to be less than half that of the GOP package between 2011 and 2020. The administration policy statement called the GOP proposal "dangerously backloaded," costing more than $750 billion between 2011 and 2020 as the baby boom generation starts retirement.

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