Gop Pushes Big Cutbacks In Estate Taxes Is It A Way To Help Family Farms Or A Boon For Big Businesses?

If nothing is more certain than death and taxes, nothing seems more ill-timed than the tax on death.

That’s the sales pitch Republicans in Congress are making as they pursue an aggressive - and so far, surprisingly successful - campaign to build support for cutting the federal estate tax.

The fact that the estate tax has risen to the top of the tax-cutting agenda is a tribute to the power of the small-business and farm lobbies. Both groups have won sympathetic hearings both from Republicans and Democrats for the argument that the tax often forces heirs to sell family-owned businesses or farms to pay the tax collector.

Congress will be hard-pressed to find room in the budget this year for any tax cuts, and Republicans already are drastically scaling back last year’s ambitious tax-slashing plans. Even so, the estate tax cut is emerging as one of the few proposals most likely to slip through this year.

When House Speaker Newt Gingrich, R-Ga., last week picked the party’s top tax-cutting priorities he cited only three, putting estate tax cuts up with two perennial GOP favorites, capital gains tax relief and new credits for families with children.

“There is no reason you should have to talk with the IRS and the undertaker the same week,” he said.

Success could come at a cost, however. Cutting the estate tax could hamper Republicans’ efforts to shed their image as a party of the rich, because the tax is levied only on estates valued at $600,000 or more.

The estate tax, which applies only to assets in excess of $600,000, ranges from 18 percent to 55 percent depending on the value of the estate. (The 55 percent rate kicks in at the $3 million level.) In addition, assets left to a spouse are not subject to the tax. This means that only 1.7 percent of all estates are expected to be taxed in 1997, for total revenues of about $19 billion.

Yet even that proposal has garnered Democratic support. Sen. Max Baucus, D-Mont., supports a deep cut in the tax because, he said, “As I listen to farmers, ranchers and small-business owners, one topic comes up every time: that’s the estate and gift tax.” Those groups tell him about “the burden (the tax) puts on agricultural producers and small businesses and how hard it is to hand down an operation to your sons and daughters,” he said.

The estate tax has been debated for years, with critics arguing that it is an unseemly way to raise revenues and that it amounts to a tax on wealth that has already been taxed.

“It makes the federal government the biggest grave robber in the world,” said House Majority Leader Dick Armey, R-Texas.

House Minority Leader Richard A. Gephardt, D-Mo., recently released Treasury Department data showing that more than half the benefits of eliminating the tax would go to about 1,700 taxpayers a year.

“To put it simply,” Gephardt said, “that means that about $50 billion over the next five years would go to just a handful of families - those with estates of $2.5 million or more.”

Even some Republicans privately concede this is not the best message for the party to be sending. But the issue is being “driven by a confluence of interests that have surfaced on this issue,” said one Republican strategist.

At the forefront of those interests is a group that has been a key GOP ally: the small-business lobby. Also pushing for relief are farmers, a constituency that enjoys broad bipartisan support.

Both groups insist that the tax unfairly hits family businesses and farmers who are not the wealthy scions of fortune that critics of the tax would make them out to be. While farms and family business assets may look large on paper, heirs may have to liquidate them to pay the tax.

For example, take the case of Lee Ann Goddard Ferris, whose family has a 2,600-acre cattle ranch in Idaho that grosses about $350,000 a year. Testifying before the Senate Finance Committee, she said that after her father died in 1993 an attorney calculated that when her mother dies, the estate tax will be $3.3 million.

“My father’s death was the most devastating event that any of us has ever gone through,” Ferris said. “The second most devastating event was sitting down with our estate attorney after his death. I’ll never forget his words: ‘There is no way you can keep this place, absolutely no way.”’

The Clinton administration and other Democrats acknowledge this is a problem. An administration proposal would leave families owing the same amount but give them better payment options. Current law allows family-owned enterprises to defer the tax on $1 million of an estate, paying it over a 14-year period at 4 percent interest. The plan would increase the deferred estate value to $2.5 million and lower the interest rate to 2 percent.

Republicans, by contrast, are pushing a far broader proposal. GOP leaders have proposed increasing from $600,000 to $1 million the amount of assets excluded from the estate tax. They also have proposed substantial additional breaks for family-owned businesses, with no limit on the size of the business.

That means it is not just mom-and-pop corner stores that could benefit. Four of the five largest private companies in America are family owned, according to a report from the Center on Budget and Policy Priorities.

“Farmers and small-business people are being used as poster children to provide a very large tax break to two kinds of people - people with larger estates and some of the largest businesses in the country that happen to be family owned,” said Iris J. Lav, associate director of the center.