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“In the Know”
FEI’s Private Company Roundtable Email Update
July 22, 2010
With July 4th behind us, there are only a few weeks to go before Congress adjourns for its annual August recess. Polls have tightened in many key Congressional and Senate races indicating that this election season will likely be one for the history books. Republicans thinking of taking back Congress might come up short as incumbents of either party still remain in dangerous positions as voters continue to reject those tied closely to Washington.
Despite an extended recess in sight, our leaders in Congress continue to pass and propose many key legislative initiatives that will impact private companies. The estate tax issue is presently being discussed in Congress and is important to many private companies. Senators Blanche Lincoln (D-Ark.) and Jon Kyl (R-Ariz.) have submitted a proposal that would require the Senate Finance Committee to amend H.R. 5297, Small Business Jobs and Credit Act of 2010, to permanently set the estate tax rate at 35 percent, with a $5 million exemption amount phased in over 10 years and indexed for inflation. While FEI ‘s Committee on Private Company Policy supports full repeal of the estate tax, there are many budget constraints that prohibit this from becoming a reality. The Lincoln/Kyl proposal is the strongest yet, certainly better than the 55 percent tax rate and $1 million exemption that will hit American businesses in 2011 and far better than the 70 percent rate during the 1970’s.
The Issue Analysis section of this email highlights the estate tax in detail. The Lincoln/Kyl proposal is a critical amendment that is being discussed in the Senate this week. Look to the Call to Action section to find out how you can get involved by contacting your Senators TODAY to raise support for this vital and timely issue.
The August recess may be in sight, but there is plenty of legislative work time before then.
Sincerely,
Don Robillard
Co-Chair, Private Company Roundtable
Tim Anglim
Co-Chair, Private Company Roundtable
Issue Analysis: The Estate Tax- Past, Present…and Future?
A Historical Prospective
The estate tax is nothing new to American families and businesses. It began in 1797 with the passage of the Stamp Act, originally designed to help finance wars, the act required that a federal stamp be placed on all wills that were then used to pay off debts incurred during the war - first case being a naval war on France in 1794. Over the next 119 years, the “estate tax” came and went whenever the United States found itself in a costly conflict. In 1916, the estate tax was revisited. The first “official” estate tax held a $50,000 exemption and the tax rates ranged anywhere from one percent to ten percent depending on the size of the estate.
During the 1920’s, 1930’s and 1940’s, the estate tax continued to be expanded and was used to help redistribute wealth. The top tax rate in the 1940’s peaked at 77 percent. Fast forwarding to more modern times, the estate tax began taking the shape that Americans are familiar with today. The 1960’s and 1970’s brought the closing of many loopholes that tax reformers felt were unfair. The efforts reached its peak in the 1976 tax bill, when the estate and gift taxes were combined. During the 1980’s, the top rate fell from 70 percent to 50 percent.
A Current Problem
With the passage of the Economic Growth and Tax Relief Reconciliation Act of 2001, it was expected that the estate tax would officially disappear by 2011. It was designed to phase out the estate tax, with a decrease in rates until finally being repealed for the 2010 calendar year. Unfortunately, the United States Congress has refused to act on the issue. The year 2011 will bring back a 55 percent tax rate and a $1 million dollar exemption. Many American businesses are finding themselves in dangerous territory. While proponents of the estate tax view it as a needed tax on the wealthy, opponents believe that it unfairly targets American families who might have to liquidate a business in order to pay the tax burden that would come with such a high tax rate of 55 percent. This would not only hurt families, but would also endanger countless employees who would find themselves unemployed in an already fragile economy. Economists have determined that 170,000 to 250,000 jobs per year are lost because of the estate tax.
A Future Nightmare?
The United States is staring into the face of the estate tax that holds a 55 percent tax rate and a $1 million exemption. It is a reality that will come true on January 1, 2011, if Congress does not act. With the economy of the United States standing on fragile footing, it is vital that elected leaders in Washington act quickly in order to protect American businesses.
There have been proposals in Congress designed to offer a lower estate tax. There is currently a proposal by Senators Blanche Lincoln (D-Ark.) and Jon Kyl (R-Ariz.) that would require the Senate Finance Committee to amend H.R. 5297 Small Business Jobs and Credit Act of 2010, to permanently set the estate tax rate at 35 percent, with a $5 million exemption amount phased in over 10 years and indexed for inflation. It would also provide a “stepped up basis” for inherited assets. The amendment would require the Senate Finance Committee to offset the difference in revenue loss between President Obama’s proposal – 45 percent tax rate and a $3.5 million exemption – and the Lincoln/Kyl Proposal. It is unclear what revenue raising proposals would assist in paying for the offset, but they would come from within the suite of estate and gift taxes. The amendment also carries an optional retroactivity clause that provides an election for deceased taxpayers to either retain this year’s estate tax rate, or file under the provisions of the new bill.
The amendment would also need 60 votes in the Senate for passage. This could be the only significant legislative proposal that Republicans support prior to the 2010 midterm elections.
Call to Action: Estate Tax
As Roundtable members, you can assist FEI on getting the message out on the need for a lower estate tax. If you would like to assist FEI in making sure that private company voices are heard on the national-level, we would encourage you to contact your Senators TODAY by clicking here. Under each Senator is the link to their email address. If you would prefer to call your Senators directly, click on your elected official to find their contact information. Tell your Senators that you support the Lincoln/Kyl Estate Tax Proposal.
If you do contact your Senators, please let Tyler Roberts in FEI’s Government Affairs office know that you have assisted in the effort to help secure a fairer estate tax for America’s businesses.
Upcoming Events/Roundtable News:
Our next Roundtable teleconference will be on September 29, 2010 at 2:00PM EST. FEI will be sending out details in the coming weeks. Please stay tuned to your inbox for more information.
Other important items to keep on your calendar:
· On September 20-21, 2010, FEI will hold its inaugural Washington Policy Conference in Washington, DC. The conference will provide a unique opportunity to FEI members to share information, ideas and experiences on current regulatory and legislative initiatives with high-ranking government officials and industry experts. Our goal is to bring together business and government leaders and discuss a number of issues, including:
- Prospects for tax reform and its impacts on America’s competitiveness.
- Exploring varying business risks and opportunities on the horizon.
- New legislation and regulations and their impact on senior-level financial executives and their companies.
- Fiscal and economic policy and its impact.
- Energy: Strategies, policy & best practices for American business.
To register for the conference, click here.
For further information on the Private Company Roundtable, or to discuss upcoming events, please contact Tyler Roberts, Policy Analyst, at troberts@financialexecutives.org or 202.626.7807.
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