Permanent Repeal Protects Families
Benjamin Franklin is credited with saying, “In this world, nothing is certain but death and taxes.” While this may be true, I am certain the combination of the two is unwarranted and unnecessary.
On April 13, the House of Representatives passed H.R. 8, Death Tax Repeal Permanency Act of 2005, sponsored by my friend and colleague, Rep. Kenny Hulshof (R-Mo.). In doing so, we took another step towards completing the repeal of the death tax by a vote of 272-162. This tax is not only inherently unfair, but it reaches far
beyond those that actually receive the tax bills and is an incredibly inefficient tax for the government to collect.
The gradual repeal of the death tax began in 2001, but if Congress does not act, the full tax will return in 2011. If this is allowed to happen, individuals, family farms and businesses will be subjected to a tax of 41 percent to 55 percent, or in some cases even 60 percent.
Throughout a person’s life, the federal government taxes nearly every aspect of it. We tax the wages that people earn through their careers. If they put money in the bank, we tax the interest. If that individual takes that money and starts a business, we tax the profits that the business produces and we tax the wages that his or her employees receive. If they invest some of their money, we tax the investment returns that the individual earns.
The examples go on and on. People spend their whole lives paying taxes. Upon their death, is it really fair to tax the wealth that people have built over their lifetime, while they have been paying taxes on the very income they used to build the wealth? Absolutely not.
These examples should be reason enough to eliminate the tax, however, knowing the effects this tax has on the economy provides even more justification. Many of those who pass along wealth to their heirs do so in the form of businesses or properties. When an individual dies, these assets are sometimes assessed for more cash that their estates have on hand. When this happens, families who inherit these businesses must somehow come up with the cash to pay the tax bills.
Sometimes these families, who just lost a loved one, are forced to liquidate all or part of the very businesses they inherited in order to raise the necessary money. This is unacceptable.
Some of my colleagues on the other side of the aisle never met a tax they didn’t like. And some even support the death tax with the misleading argument that it only affects very few families in this country. That’s not true. Rather, Americans understand how unfair the tax is, so more and more families are selling their business before they die in order to avoid it. For instance, The Polling Company found that nearly twice as many people sell their business or property before they die, than are actually directly affected by the estate tax. They do this to save their family from the burden of compliance with the tax after their death and because they can then begin passing money to their heirs prior to their death, under the gift tax exemption rules.
In fact, many property or business owners pay thousands of dollars in estate planning prior to death. According to the National Association of Manufacturers, the average small- to medium-size manufacturer spends more than $52,000 a year on estate planning.
Furthermore, in 2003 the Joint Economic Committee found that the cost of compliance with the death tax was roughly the same as the revenue collected, and that the distortionary effects of the tax resulted in losses to the federal income tax system that also was roughly the same size as the tax revenue.
For each business that is sold, for each farm that is sold, for every dollar that goes into estate planning, or every dollar that is withheld from investment, the lives of American workers are affected. When these costs are considered, it becomes clear that the lives of thousands of Americans that never see a death tax bill are impacted.
For many different reasons, on April 13, 42 Democrats joined nearly all House Republicans in once again clearly stating it is time to repeal this tax. Some may have been directly impacted by the tax at sometime in the past. Others may have known friends or family members that have been impacted in the past. Still others may have done so because of the concerns they have over this tax’s effect on the economy. Whatever the reason, as we now watch the Senate, all would agree that when that 109th Congress ends, we must be able to say that the death tax did not survive.
The bottom line is, the American marketplace is a place for opportunity. Americans build their family-owned business from the ground up, some with the dream of passing it on to future generations.
We all have family-owned businesses in our Congressional districts, and we owe it to our constituents to eliminate this inherently unfair and unreasonable tax.
Rep. Clay Shaw (R-Fla.) is a member of the Ways and Means Committee.