Die, tax, die

Free Lance-Star
Editorial


Virginia legislators should cleanly kill the unfair estate tax

TAX-HUNGRY POLITICIANS thought they'd found an easy mark. Dead people, they discovered, don't mind being taxed twice. And so, the infamous "estate" tax was born. Having paid a levy once when their money was income, the dead (or, more accurately, their estates) were required to ante up again--sometimes as much as 16 percent for the privilege of being six feet under. Now that could change, and not a moment too soon. For the death tax is not only unfair, it's counterproductive.

A study by Congress found that the death tax had reduced the supply of investment capital in the nation by $497 billion. Taxing estates discourages savings and investment, and is the primary cause of the dissolution of family businesses. Nationally, notes Virginia Commonwealth University, over 80 percent of small businesses are family-owned, and these firms generate 78 percent of all new jobs, 60 percent of the nation's employment, and 50 percent of its gross domestic product. Small businesses represent the core of our nation's economy. Yet when an owner dies, his business often must be sold to pay the death tax.

The same is true for farms: Of the 49,000 farms in Virginia, 98 percent are family-owned. A few hundred acres, some livestock, and expensive farm machinery can push the farmer's estate up into the millions. With hungry developers eyeing the land, who can blame heirs for selling the family farm to pay off their tax debts?

While the death tax can be traumatic to business owners and farmers, on a national level enforcing it costs as much as the tax brings in. Since there is no net gain and a concurrent loss of investment capital, killing the assessment is a no-brainer. Indeed, Congress is phasing out the federal death tax, and 32 states are following suit.

Legislation is pending in the General Assembly that could do the job for Virginians. Both House Speaker Bill Howell and Senate Finance Chairman John Chichester agree on the desirability of ending the tax, but the legislation passed by the two houses differs markedly.

HB 40 calls for full repeal of the death tax; SB 504, a partial repeal. The Senate legislation establishes a $10 million upper limit for death-tax exclusion--as if basic fairness applies only to people of a certain net worth. Further, the Senate measure limits the repeal to "closely held businesses" and "working farms." Defining those terms would keep lawyers and accountants racking up the fees as they try to manipulate estates to match the code.

Passage of the House legislation, which would bring a clean end to the tax, is the right thing to do for Virginia. If death-tax abolition fails, an exodus of some the commonwealth's most productive residents could be one outcome as they move to states without the levy. The subsequent loss of other taxes--to say nothing of the drawdown of the reservoir of wisdom and business acumen of this group--will hurt Virginia in the long run.

The Senate should concur with the House and bring a compassionate, swift, and total end to the unkindest tax of all--the death tax.