January 2013

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View from the Hill Say Goodbye to the Federal Estate Tax: A Creative Solution Death of the ���death tax��� would be a tonic to the small-business sector and the economy. By Jack Fitzgerald Note from the editor: This month we depart from the usual View From the Hill voice of a guest lawmaker and feature the following contribution from the head of a business leaders��� organization dedicated to permanent repeal of the federal estate tax. The debacle surrounding the fiscal cliff is indicative of the ideologically challenging budget issues that Congress has been unable to resolve for years. However, much of the uncertainty surrounding our nation���s economic and tax situation could have been resolved long before pundits coined the term, ���fiscal cliff,��� because there are situations where bipartisan support and a creative solution has been identified. One such area is the federal estate tax. The leaders of Americans Standing for Simplification of the Estate Tax (ASSET) have advocated for several years a strategy for permanently replacing the federal estate tax in a revenue-neutral manner. At a time of slow growth and glum economic forecasts, elimination of the ���death tax��� would be a tonic to the small-business sector and unlock hundreds of billions of dollars of underutilized capital for reinvestment in the economy. This bold stroke could bring together a broad bipartisan coalition that has been growing in the wings for years and make a down payment on fundamental tax reform for the next Congress. For progressives, the ASSET reform replaces a dysfunctional tax by closing loopholes for high-end taxpayers and increasing capital gains levies. For conservatives, the change would eliminate a barrier to savings, investment and entrepreneurship, funded by a modest tax burden on those who most directly benefit. This revenueneutral reform creates common ground across the political spectrum for a progrowth change in tax policy. If ever there was a tax that virtually begged for repeal, it is the estate tax. This outdated levy generates nominal income for the Treasury. It constituted only 0.32 percent of federal revenue in 2011, enough to fund the federal government for less than a day. But it is an Olympic contender for unintended consequences. Recent studies confirm that estate tax revenues are more than offset by high compliance costs and income tax revenue losses. The Tax Foundation, a nonpartisan research group, has suggested that the estate tax is an overall revenue loser for the Treasury���s coffers and costs taxpayers more in preparation expense (compliance costs) than the tax raises in revenue. A study released in August by the Tax Foundation concluded that, ���the compliance costs associated with the estate planning industry exceed the revenue yield of the tax itself.��� The tax has reduced total capital stock in the U.S. economy by $1.1 trillion since 1916. Other research has documented the wasteful diversion of productive resources to the estate planning industry and challenged the tax paradoxically as a barrier to income and wealth mobility. ASSET remains active in advocating replacement of the estate tax because we have personally witnessed how it damages the economy. As smallbusiness leaders we have seen how the tax can lead to the destruction or devaluation of family businesses, many of which lack the liquidity to cover estate tax liabilities upon the death of the owner. This is a tax on small firms and workers��� jobs, diverting investment and deterring growth. It cannibalizes productive enterprises while yielding few rewards. The federal estate tax was fully repealed by a prior Congress, but it was permitted by political gridlock and fiscal dysfunction to resurrect itself, despite a bipartisan chorus of critics. Now, the tax is at risk of being preserved by the sheer weight of the looming fiscal carnage. It doesn���t have to end this way. We have laid out a blueprint for how the estate tax could be replaced by a temporary levy to make up for lost revenue, as well as using a change from stepped-up to carry-over basis to tap new capital gains revenues. This approach has the potential to engage thoughtful legislators from across the political spectrum, taking one large issue off the table while improving the tax code. The ASSET proposal throws a lifeline to congressional leaders looking for bipartisan solutions to both the deficit growth and the fiscal cliff that can permanently improve the tax code. We hope they grasp it. Jack Fitzgerald, owner of Fitzgerald Auto Group, is president of Americans Standing for the Simplification of the Estate Tax. www.SimplifyEstateTax.org January 2013 | Construction Equipment Distribution | www.cedmag.com | 75 75_view from the hill_KP.indd 75 12/21/12 2:44 PM

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