WASHINGTON, D.C. — The nearly 100-year-old federal estate tax would be repealed if bills working their way through the U.S. House and Senate become law.
Legislation in both chambers of Congress call for the repeal of the estate tax while maintaining stepped-up basis. Last week, the House bill (HR 1105) was passed by its Ways and Means Committee and sent to the full House. The bill, titled the Death Tax Repeal Act of 2015, was introduced in February by Rep. Kevin Brady (R-Texas).
In the Senate, a companion bill (S. 860) was introduced March 25 by Sen. John Thune (R-S.D.) and referred to the Committee on Finance.
The country has had an estate tax every year but one since 1916, when it was created to make money for the government and to prevent a build-up of wealth, said Roger A. McEowen, director of the Iowa State University Center for Agricultural Law and Taxation. The tax was eliminated for 2010 but returned the following year.
"The estate tax has outlived its purpose," he said. "There’s no reason for it anymore. It’s not necessary because there’s a more even distribution of wealth. The estate tax suppresses wages, slows economic growth and destroys jobs."
Under current law, the exemption for federal estate taxes is $5.43 million per person and $10.86 million per couple. Any amount over the exemption level is taxed at a graduated rate of 18-40 percent.
The exemption has risen from $1 million in 2003 to $3.5 million in 2009, to $5 million in 2011. It has been indexed regularly for inflation since then.
"While the exemption has gone up 250 percent in the last few years, at the same time, land values have increased more than 200 percent," noted McEowen, also a professor of agricultural law at ISU. "For many farmers, the land is the biggest part of their estate."
Despite the increase in the exemption over the years, "For a lot of people, they’re about exactly where they were several years ago because those land values have gone up significantly."
The House is expected to take up the bill in mid-April and those in favor of the repeal should contact their legislators before then, said Pat Wolff, tax specialist with the American Farm Bureau Federation.
The current action in Congress is considered the "pre-season" for what may happen in a couple of years, she said. President Barack Obama doesn’t support a repeal of the estate tax and with next year’s national elections on the horizon, there’s a short window for getting anything done on the legislation this year, she explained.
"Everyone believes that come this fall, Congress will be about elections rather than legislation," she said. "But there hasn’t been a repeal vote in the House in over 10 years and this will establish a record to get ready for 2017, when both sides think they’ll have the upper hand."
The estate tax generates less than 1 percent of all federal revenues, McEowen said. "I think this will pass easily in the House and Senate," he predicted. "Whether there would be enough votes to override a presidential veto, I don’t know.
"On the House side, many of them own small businesses. It’s true on the Senate side too, but particularly in the House. This is something they understand and know about."
During testimony March 18 before the House Ways and Means Committee, Tennessee farmer Brandon Whitt said the estate tax has had a negative impact on his family’s business.
"Agriculture looks different on farms from state to state but we all face the same reality that an uncertain tomorrow can bring," he said. "Why should uncertainties over estate taxes be added to these (burdens)? Our job is hard enough as it is."
Whitt and his wife are the seventh generation on the farm and operate it with his father-in-law, who had to sell some of the farm’s land to pay estate taxes. The land was later developed. "We believe that our farm adds value to our town, that our neighbors value our open space, that our customers value having a local food source and that our farm market creates a sense of community," he testified.
Bobby McKnight, a seventh-generation cattleman from Texas, also appeared before the committee. "Many farm and ranch families are asset-rich and cash-poor, with most of the value of their estate attributed to the value of the land they use to raise cattle and grow food and fiber for consumers around the world," he told the legislators.
"Strong export demand has been one of the driving forces in the increase in the value of crop and pasture land in almost every state, not to mention the pressure from commercial development. Combined together, the increase in the value of farmland has many farm and ranch families concerned that they may trigger the estate tax simply through increasing land values."
