Death and Estate Taxes Rub Raw Family Legacies

Editorial, The Seattle Times, April 27, 1997

Coping with the inevitability of death and taxes is difficult enough without the government rubbing salt in families' wounds. But that is the effect of the current federal estate tax.

With federal budget negotiations now under way, the time is ripe for estate-tax reform.

When the federal tax was first enacted in 1916, the nations' wealth was significantly concentrated among a few wealthy patriarchs with large stakes in oil, railroads and manufacturing. Congress passed a "progressive" levy on these families to prevent their wealth from passing generation to generation unimpeded.

Times have changed. Today, farmers, ranchers, lumbermen, merchants, small, medium and large family business owners alike feel the crunch of estate taxes. The tax is imposed on the portion of inheritances that exceeds $600,000, at rates ranging from 18 percent to 55 percent. Some of the largest estates are taxed at a whopping 60 percent.

Critics of estate-tax reform argue that the current $600,000 exemption is quite comfy and any adjustments would only benefit the rich. But remember, the tax is levied on all assets in an estate, not just income. In many regions, the average value of a home can take up to half the exemption.

Although the drive for estate-tax relief has been led by Republicans, some Democratic legislators have taken up the cause. An elected official gets a quick education in estate taxes when a death results in surviving family members giving up a business — all because of an inability to pay the tax bill.

New York Congressman Charles Rangel has noted the negative impact of estate taxes on minority-owned small business. In many cases, he and others have found, family entrepreneurs determined that it was cheaper to sell off their life-long businesses than die owning them. An entire community loses when a small businesses is sold out to a large, distant corporation.

For those families able to bear heavy estate taxation, the burden is continually draining. An inordinate amount of time and energy is spent on lawyers and accountants every year. And the tax is a disincentive for investment and expansion as heads of family businesses grows older.

Various analyses have attributed significant losses in jobs, output and economic growth to the federal estate tax. For all this pain, the gain to the government is minuscule. Estate tax revenues amount to just over 1 percent of total federal revenues in 1995.

Two decades ago, Australia and Canada acknowledged the senseless job-killing effect of estate taxes and repealed them altogether. The White House says that would be extreme, but Treasury officials have signaled support for some targeted estate-tax relief.

Get on with it. The estate tax is out of date and out of step with the nation's proud tradition of supporting family-owned business.

Please e-mail us with your comments, death tax horror stories and suggestions on-line at feedback@deathtax.com.

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