Senate fails to find votes to end the death tax
Despite agriculture's urging, Congress last week failed to support a permanent repeal of estate taxes. Although the House of Representatives already had voted for full repeal, the U.S. Senate rejected legislation by a vote of 57 to 41.
The Senate vote was just three votes shy of the 60 needed for the measure to advance. The Senate vote killed efforts to permanently abolish the death tax, which California farmers and ranchers say is redundant and burdensome. The door is still open for compromise through new legislation.
"We're deeply disappointed that despite our numerous calls, letters and visits to Washington, D.C., our representatives failed to vote for removal of this unfair tax," said Paul Wenger, California Farm Bureau Federation first vice president.
Federal estate taxes make it difficult to pass family farms from one generation to the next, he said. In many cases, farmland must be sold in order to pay the estate tax obligation before passing down the farm to the next generation.
CFBF was very active in helping get the 2001 Economic Growth and Tax Relief Reconciliation Act passed. It includes a gradual reduction in federal estate taxes that began in 2002. Under current law, the estate tax will be phased out in 2010, but then will return in 2011 if the sunset provision is not repealed.
Monterey County farmer Benny Jefferson said his area has some of the most expensive cropland in the nation, and soaring values make death taxes on that land prohibitive.
"I'm the fifth generation farming on the same ground and my son is the sixth generation," Jefferson said. "It seems like every time somebody dies, we buy the ranch again. In Monterey County our ag land can sell for $50,000 an acre or more. At those prices, it doesn't take long for farms in this area to exceed any exemptions they've been talking about in Congress.
"As far as I'm concerned, Congress' inability to act on this thing is a blow to agriculture," Jefferson said. "This isn't about trophy ranches for rich people. We're talking about adopting tax laws that don't knock working people off their farms. The American public needs to know what's going on here."
Senate Majority Leader Bill Frist, R-Tenn., said after last week's vote that the vote for full repeal of the death tax sunset isn't the last one the Senate will consider this year. There is considerable discussion about compromise legislation.
Fresno County farmer Russel Efird said, "The unfortunate thing about the vote last week is that we still have estate taxes in place that are detrimental to agriculture, small business and families. I just hope that if there isn't a total repeal of the sunset provision, there will be exemptions put in place to allow me and others to pass on our farms to our children."
Since there was an unsuccessful vote for cloture in the Senate, Wenger said the issue might be dead this year, but added, "I think there probably will be another run at getting some kind of compromise on this issue.
"When we were in Sen. (Dianne) Feinstein's office in May with CFBF's National Affairs group, we reiterated that we are four years away from the sunset of the death tax repeal. We told her there's no reason for us to compromise this early in the game. We stressed to her that we are committed to getting death tax legislation that meets the needs of our California growers.
"Right now, with the costs of hurricane recovery, the war in Iraq and other ongoing issues, the federal budget doesn't look too good," he said. "Given these realities, Sen. Feinstein changed her position on complete elimination of the death tax to a willingness to consider compromise on something less."
Farm Bureau, however, continues to press for complete elimination of the death tax because "it's the only fair and right way to protect California's family farms," Wenger said.
"While we are pushing for full repeal, Congress appears determined to create a compromise in coming weeks," said Emily Robidart, CFBF's director of taxation and farm policy.
The gamble in holding out for full repeal, she said, is the unknown. The federal budget situation could improve or it could go south.
With the November elections looming, control of Congress could shift and make passage of full repeal—or a compromise that California farmers can live with—more difficult.
"Even if things get worse with the budget, I'd be surprised if Congress has the guts to go back to estate tax laws that were in effect 10 years ago," Wenger said. "That carried a 55 percent tax bracket with minimal exemption levels. In that time frame, the value of California real estate has increased dramatically.
"In the next couple of years Congress is going to experience a great deal of pressure on this issue and, if nothing else, they'll have to compromise," he said. "I feel the best compromise we can get today will be less than the one we can get in the future when the pressure really builds."
(Kate Campbell is a reporter for Ag Alert. She may be contacted at firstname.lastname@example.org.)
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