U.S. Senate may skirt full repeal of death tax this week
With the November elections on the horizon, the U.S. Senate this week took up the politically charged issue of repealing the death tax. Although a direction for the legislation, which is vitally important to California farmers and ranchers, was not clear at press time (3 p.m. June 5), it's widely believed the Senate is not prepared to accept full repeal.
The U.S. House of Representatives, however, did approve full repeal in legislation it passed last year.
California Farm Bureau was very active in helping get the 2001 Economic Growth and Tax Relief Reconciliation Act passed. It included a gradual reduction in federal estate taxes, beginning in 2002. By 2010 the tax will be fully repealed, but will spring back to life in 2011—if the act's sunset provision is not removed.
"We all realize the death tax is wrong," said CFBF First Vice President Paul Wenger. "Congress recognized that when it approved the 2001 act.
"People should not be penalized for saving and investing all their lives. And, those who worked hard and paid down their mortgages should not fear their families will have to remortgage that property over and over again as it moves from generation to generation."
Advocates for repealing the sunset provision are relieved that a Senate floor vote will finally take place, as time for correcting the flaws in the 2001 act is running out. But Washington insiders say Senate Democrats are opposed to full repeal. They suggest proponents might not get any further than a procedural vote.
The Senate is expected to vote on the estate tax repeal bill by the end of the week.
The vote on this issue is fraught with political consequences for Democrats from Republican-leaning states and for Republicans from states in which the electorate is more closely divided, according to analysis from "Congress Daily." Sen. Jon Kyl, R-Ariz., and Senate Finance ranking member Max Baucus, D-Mont., have ramped up discussions in recent weeks aimed at finding a compromise that would shield most estates from the tax, but leave it in place for the wealthiest heirs. Proposals range from an increase in the value of an estate excluded from taxes to a progressive tax rate structure.
In general, whether there is action on estate tax this year will come down to a struggle between pragmatists at the center—such as Kyl and Baucus—and those on both sides of the aisle who see no action as preferable to a compromise.
"We're not sure the exemption levels some members of Congress are talking about now will be adequate for California farmers and ranchers, who have the highest land values in the nation, as well as the most expensive operating environment," Wenger said. "The worst thing that could happen is to have an exemption so low that it is meaningless for California farmers."
Wenger pointed out that California farmland is more than quadruple the average value of farmland in other states. And, he said there are areas of California, and elsewhere in the nation, where agricultural land values vary by hundreds of thousands of dollars an acre.
"Many farmers face a land-rich, cash-poor situation," Wenger stressed.
"It will be a lost opportunity to help ensure the future of the nation's food production capability if the Senate and Congress cannot protect farmland from excessive, crippling taxation," Wenger said. "In this situation, we have to impress on members of Congress that the high-cost, high-tax situation faced by California farmers has not changed.
"It would be an injustice not to meet the needs of our growers—families who help produce more than $32 billion worth of agricultural products each year," he said. "That's true for us and for farmers in other states who may not have the cash flow necessary to pay inheritance taxes and instead are forced to sell their property.
"We've spent a good deal of time in Washington, D.C. talking with our representatives and we understand that the House punted this issue to the Senate with the expectation that full repeal would never be approved during this Congress," Wenger said. "We continue to believe the only fair way to deal with the death tax is through full repeal.
"We also know that this Congress does not have the intestinal fortitude to get the job done," he said. "In the meantime we'll probably have to live with something between the 2001 act's full repeal in 2010 and some kind of larger exemption on estates and lower tax rates.
"We continue to emphasize that California's situation is unique because of the high land values and high costs we must contend with. Whatever Congress does, we will continue to make this point."
For more information on what Farm Bureau members can do to help repeal the sunset provision and ensure the elimination of the death tax, go to www.cfbf.com and click on the FARM TEAM icon. The Web site also provides updated information on the bill's status.
(Kate Campbell is a reporter for Ag Alert. She may be contacted at firstname.lastname@example.org.)
Permission for use is granted, however, credit must be made to the California Farm Bureau Federation when reprinting this item.