WASHINGTON—Tire dealers, retreaders and other small-business owners are lining up in support of a House bill to phase out the estate tax. Reps. Jennifer Dunn, R-Wash., and John Tanner, D-Tenn., introduced the Death Tax Elimination Act Feb. 25. The bill would gradually reduce the estate tax—which currently has a top rate of 55 percent—by 5 percent annually until complete repeal in 2010. Some 105 of their colleagues, mostly Republicans but including 15 Democrats, have signed on as co-sponsors.
Because of punitive estate taxes, 70 percent of all family-owned businesses do not make it to the second generation and 87 percent don't last until the third, Ms. Dunn said in a prepared statement.
``Today, the death tax destroys family businesses and stifles investment that leads to increases in jobs and personal income,'' she said. ``In the 106th Congress, we have an opportunity to enable people to live a higher quality of life by phasing out the death tax.''
Another congressman, Christopher Cox, R-Calif., has introduced separate legislation to rescind the estate tax all at once. Rep. Cox has expressed support for the Dunn-Tanner bill, and they for his, but Rep. Dunn said a gradual phaseout will be cheaper and easier to implement.
Ms. Dunn and Mr. Tanner also cited figures showing that the estate tax has never raised much money for the federal government. A Joint Economic Committee study demonstrated the individual income tax raised more in 1998 alone than the estate tax has since its passage in 1916, they said.
Groups such as the National Federation of Independent Business, Citizens for a Sound Economy and the National Automobile Dealers Association have come out strongly for the Dunn-Tanner bill. So has the Tire Association of North America, said Gary Petty, TANA senior vice president.
``Small businesses rarely have access to the kind of liquidity required by Uncle Sam,'' Mr. Petty said.
Current tax laws give small businesses a $600,000 exemption from the estate tax, but that is paltry for most family businesses today, Mr. Petty said. A business valued at $1 million would still be taxed on $400,000 of its value, he said. The federal estate tax rate for that amount is 34 percent, meaning a tax bill for $136,000 cash.
A $2 million business would be taxed at a 43-percent rate for $1.4 million of its value, making a total estate tax of $602,000, he said.
Current law phases in an increase in the exemption to $1 million by 2005, but that is slight relief at best, he added.
The International Tire and Rubber Association, while not treating the estate tax as a front-burner issue, certainly supports its repeal, said ITRA Government Relations Director Roy E. Littlefield III.
``It would be wonderful if they could do it,'' Mr. Littlefield said. The ITRA was asked to join a coalition of 60-plus associations in support of estate tax repeal, ``and we probably will,'' he said.
The Death Tax Elimination Act was assigned to the House Ways and Means Committee. No hearings have yet been scheduled for the bill, but supporters hope for a hearing in March or April, said a spokeswoman for Ms. Dunn's office.