Briefing Memo
“Outside the Box on Estate Tax Reform: Reviewing Ideas to Simplify Planning”
Hearing in the Senate Finance Committee
April 3, 2008

Committee Chairman Max Baucus used his opening statement to frame the issue on the “uncertainty” theme – need for Congress to make a permanent estate tax law for tax planning purposes.

Witness Statements

Mr. Dennis Belcher, Partner, McGuire Woods LLP, Richmond, VA

Ms. Shirley L. Kovar, Shareholder, Branton & Wilson, APC, San Diego, CA

Dr. Roby B. Sawyers, North Carolina State University, Department of Accounting, Raleigh, NC

Ms. Diana Aviv, President and Chief Executive Officer, Independent Sector, Washington, DC

Each of the witnesses represents industries that benefit from maintaining the current death tax in its general form. The first three witnesses made technical recommendations to expand the death tax loopholes that they can promote to their clients. The final witness, Diana Aviv, was the only witness to engage in ideological support for the death tax.

Dennis Belcher: Expanded deferred payment plan

Belcher seemed to come closest of the panel to “seeing the light”, but he realizes too much personal gain from tax planning to support repeal. He explained that his family had previously dealt with the death tax and nearly lost the family farm and trucking business, but were saved due to the deferred payment plan (tax delayed for 4 years after death, then paid in 10 annual installments).

Though Belcher at one point admitted that the deferred payment plan resulted in a misallocation of resources for his family’s business (forced to spend money on tax that would have been used to purchase more trucks), he nonetheless considered it an acceptable solution for solving the liquidity problem. He stated that the “deferred payment plan allows families to plan ahead” for the death tax.

Shirley Kovar: Portability of spousal exemptions

Kovar addressed the interests of her industry, the American College of Trusts and Estates Council, in helping their clients maximize spousal benefits. Currently, when one spouse dies, the surviving spouse generally cannot take advantage of the deceased spouses exemptions, except through inter vivos giving or through creating complex trusts. She wants Congress to make portability a permanent benefit.

Roby Sawyers: Reunification of death, gift and Generation Skipping Tax exemptions

In 2004, the exemption amounts for the federal estate and gift taxes were decoupled, resulting in a current federal estate tax exemption of $2 million (in 2008), while the gift tax exemption remains at $2 million. Sawyers complained that this discourages small business owners from making orderly lifetime gifts and engaging in business succession planning. It also discourages the distribution of family capital to younger generations.

Sawyers also addressed the general uncertainty of the future of the death tax under current law, which “puts CPAs and other tax practitioners in an awkward position as properly advising a client as to the benefits of making lifetime gifts requires an assumption as to whether the estate tax will indeed be repealed.”

Diana Aviv: Maintain estate tax at highest possible rate for sake of charitable giving

Ms. Aviv is President of the Independent Sector, a trade association of charities, non-profits, and foundations. Her organization has previously lobbied against death tax repeal, and today she was present to represent their view that the death tax is an appropriate policy tool for inducing charitable contributions. She stated that “Tax policy motivates giving, both the amount of the gift and the timing” and that “If there were further cuts in the rates or increases in the exemptions it would severely impact charity income.”

However, Ms. Aviv made clear that she has a very different view of “charity” than most Americans, one that is more interested in leveling wealth disparity and redistributing life earnings, than in actually helping the less fortunate and in improving quality of life. For instance, she explained her view that “There are too many people of immense wealth who have benefited from large windfalls who are not giving as they should” and “It is the government’s job to make sure that all people of all generations start out equal.” It should be no wonder that her focus today was that “reforms of the estate tax must not benefit the few at the cost of the many.”

Senator Kyl made a very pointed response to her testimony when he stated "I've never like charitable giving to be based on the force of the government where it can either take your money or you can give it to charity.” Further, Kyl explained that “You get some successful small businesses and they're going to be contributing to the community. And they don't do it because of estate planning, they do it just because they want to, and then you force the sale of the business and it's all gone."

For more information please contact:

Adam Nicholson
Director of Research
American Family Business Institute
adam.nicholson@nodeathtax.org
Office: 202-969-2444, ext. 228