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PrintHouse Votes to Repeal Estate Taxes
By Catherine Hubbard, Sarah Borchersen-Keto and Paula Cruickshank, CCH Washington Staff Writers
The House of Representatives on April 4, 2001, approved The Death Tax Elimination Bill of 2001 (HR 8) to phase-out estate taxes over the next 10 years. The bill passed by a vote of 274 to 154, with 58 Democrats crossing party lines to join a unified Republican majority. HR 8 is estimated to cost $4 billion in the first year, $40.5 billion in the first five years and $185.5 billion over 10 years--a revision from earlier estimates.
The bill now heads to the Senate, where this year it faces an uncertain fate. Last year, estate taxes were repealed by both houses of Congress, but a promised presidential veto awaited the measure after passage, making it politically easier for lawmakers in an election year to vote for a bill that would never become law. Now, a new president stands ready to sign the repeal measure, but a reluctant Senate will be moving more slowly.
Specifically, the plan would phase down rates and repeal the federal estate, gift, and generation-skipping transfer taxes over 10 years and would simplify portions of the generation-skipping transfer tax rules prior to repeal. The plan is another component of President George W. Bush's $1.6 trillion tax cut proposal.
Supporters said the bill would protect owners of small businesses and family farms from a tax that forces their heirs to sell the business in order to pay estate taxes. "It's a tax on people who work hard," said committee member Jennifer Dunn (R-Wash.). Committee member Philip Crane (R-Ill.) said, "it's time for us to put an end" to the tax. He said the estate tax was created to fund wars "that have long since ended." House Ways and Means Committee Chairman William M. Thomas (R-Calif.) said that "repealing the estate tax will lift an especially unfair burden from family farms and small businesses."
However, opponents argued that the bill's effects would phase-in too slowly. "Nothing happens for 10 years," complained committee member Fortney Pete Stark (D-Calif.). He called the plan "a Republican hoax."
The House defeated a substitute amendment by House Ways and Means Committee ranking member Charles B. Rangel (D-N.Y.) that would have increased the current estate tax exclusion from the current $675,000 to $2 million beginning January 1, 2002. Committee member Robert T. Matsui (D-Calif.) said the Democratic plan would have provided "immediate relief."
President Bush called the House passage "a victory for fairness and a vote for economic growth." Bush said that the House vote is "an important first step toward restoring fairness in the tax code by eliminating double and triple taxation that results from the death tax." White House Press Secretary Ari Fleischer said the president is "cheered by the fact that the House of Representatives ...is agreeing with him that the estate tax ... is wrong and should be abolished."
Meanwhile, House and Senate Small Business Committee members, participating in a joint roundtable discussion also on April 4, applauded the action, but stated the need to do more to help America's small businesses, especially in simplifying the complicated tax code.
In a survey of roundtable participants, repeal of the death tax stood at the top of the list of tax relief proposals, followed by repeal or reform of the alternative minimum tax (AMT) system, a tax rate reduction, and 100-percent deductibility of health care.
Sen. Christopher "Kit" Bond (R-Mo.), chairman of the Senate Small Business Committee, told the roundtable that for most small businesses "the death tax means thousands of dollars spent on estate planning, lawyers and life insurance. Just think of the new jobs that small firms could produce without these unproductive expenditures."
House Small Business Committee chairman Rep. Don Manzullo (R-Ill.) added that the death tax is "draining our economy." Calling it a "destructive and immoral tax," Manzullo said the death tax "stifles growth, kills jobs, discourages savings, drains resources, ruins family businesses and farms, and penalizes small-, middle-class entrepreneurs."
Bond noted that while President Bush's tax plan holds great promise for small business, "additional relief is essential" not only because of the high tax burden, but also because of time and energy spent completing tax forms.
To that end, Bond has introduced the Small Business Works Act of 2001, which seeks to ease burdens on the self-employed and small firms. In the House, Manzullo has introduced the Small Employer Tax Relief Act of 2001. Manzullo's bill would, among other things, accelerate the health insurance deduction for the self-employed to 100 percent.
Rep. Nydia Velaquez (D-N.Y.), ranking Democratic member of the House Small Business Committee, told the roundtable that she would be voting against the Death Tax Elimination Act of 2001 because relief for small business will not occur before 2011. Meanwhile, Velaquez called for cooperation in order to target those portions of the Internal Revenue Service code that are particularly onerous to small business.
Ben Cooper, senior vice president of government and public affairs at Printing Industries of America, said there has been a decline in new entrants to the printing industry since 1997 because "it's just too expensive." He added that there is an array of penalties for going into business, and "minimal" tax incentives to encourage existing entrepreneurs to stay in the field. "This government is doing everything it can to prevent success by small business," Cooper said.
Another participant, Edward Karl, director of the taxation division of the American Institute of Certified Public Accountants, urged Congress to consider allowing small businesses to set their own fiscal year. Under such a system, companies would be able to set the end of the fiscal year at a time that most suited their business cycle.
Meanwhile, Mark Heesen, president of the National Venture Capital Association, said the AMT system is "particularly cruel to entrepreneurs," noting that it frequently results in a higher tax payment than required by the regular income tax system.
