The U.S. House of Representatives approved the Death Tax Repeal Permanency Act of 2005 by a vote of 272-162. The vote is the first major step in a full and permanent repeal of the estate tax, or what is commonly called the death tax.
The provisions of the estate tax repeal currently increase exemption amounts, reduce tax rates over time, and provide a complete repeal of the estate tax in 2010. However, the repeal only allows for the full benefits if a farmer dies in 2010. However, if Congress approves this bill, it would make that repeal permanent.
Proponents of the full repeal say farmers are double taxed on their death and force family members to deal with an undue burden.
"It's a death warrant for small-to-medium sized family businesses," says Jim McAdams, National Cattlemen's Beef Association president.
"One of my earliest childhood memories is watching my father suffer the loss of his father, and at the same time get hit with a huge financial blow to our family business. We were threatened with the loss of our family operation and massive taxes on the inflated value of our land and assets at a very painful time," McAdams explains. "For my entire life, this tax has had major ramifications for my own family business and it is destructive to farmers and ranchers nationwide."
McAdams explains that many cattle producers are forced to sell off land, parts of the operation, or the entire ranch to pay off tax liabilities. "In an asset-rich and cash-poor business like ranching, the appraised value of rural land is extremely inflated when compared to its agricultural value," he says.
The House rejected, 238-194, a Democratic substitute from Rep. Earl Pomeroy of North Dakota that would have increased to $3 million the amount of inheritance that can be excluded from the tax from 2006 through 2009, and then made permanent the $3.5 million exclusion scheduled to take effect under current law in 2009.
According to the Center on Budget and Policy Priorities, "very few people leave a taxable estate that includes a family business or farm. Only six of every 10,000 people who die leave a taxable estate in which a family business or farm forms the majority of the estate."
Wholesale repeal of the estate tax may not be needed, explains Iowa State University Ag Economist Roger McEowen. Because farms are eligible for special treatment under current law, a higher exemption, such as $3 million should adequately cover nearly all family farms. Currently the total exemption for most estates that include a family-owned business is $1.3 million in 2001, rather than $675,000. A couple can exempt up to $2.6 million of an estate that includes a family-owned business or farm.