The Administration strongly opposes H.R. 8, which would repeal the
estate and gift taxes. Repeal of these taxes would be fiscally unwise,
would reduce the overall fairness and progressivity of the tax system,
and would harm charitable giving. The President would veto this
legislation repealing the estate and gift taxes if it were presented to
him.
The Administration believes that such a tax reduction would harm the
important priorities of maintaining fiscal discipline, paying down the
national debt, extending the solvency of Medicare and Social Security,
and maintaining core government functions such as education and fighting
crime. The Administration estimates that this legislation, when fully
phased in, would cost close to $50 billion annually, far more than the
stated costs of the bill, because most of the cost is delayed to beyond
the first five years.
While the Administration supports appropriately targeted estate tax
relief for small business and family farms, a tiny fraction of the tax
relief provided under this measure accrues to these important sectors of
the Nation's economy. Only the wealthiest two percent of all estates pay
any estate tax at all. The estate tax promotes the integrity and
fairness of the overall tax system by acting as a backstop to the income
tax, ensuring that even income on which income tax is deferred or
avoided is ultimately subject to at least some tax. In addition, recent
studies suggest that repeal of the estate tax could reduce charitable
gifts and bequests by close to $6 billion annually.
The Administration worked with the Congress in 1997 to lift the
burden of the estate tax on the vast majority of small businesses and
family farms. The Taxpayer Relief Act of 1997 raised the effective
deduction for qualified family-owned business interests to $1.3 million
($2.6 million for a couple), which exempts almost all family farms and
small businesses from the estate tax. Current law also allows small
businesses and farms to exclude part of the value of real property used
in their operations. Those few businesses and farms that are subject to
this tax can pay it in installments over 14 years at below-market
interest rates.
The Administration would be pleased to work with the Congress to
continue to help relieve the estate tax burden on small businesses and
family farms, and to make the estate tax simpler and fairer in a
fiscally responsible way. The Administration believes the Democratic
alternative, which would reduce rates, increase the unified credit, and
close loopholes, offers fair relief in a fiscally responsible manner. In
addition, the Administration would support relief targeted at the estate
tax burden attributable to appreciation in long-held principal
residences. The Administration would support these proposals as part of
a balanced framework that pays down debt, strengthens Social Security
and Medicare, provides tax relief to middle-income families, and funds
critical initiatives.
Pay-As-You-Go Scoring
H.R. 8 would affect receipts; therefore, it is subject to the
pay-as-you-go requirements of the Omnibus Budget Reconciliation Act of
1990. The Administration has not yet completed its estimates of the
costs of the bill; however, based on estimates of revenue losses made by
the Joint Committee on Taxation, the absence of any offsets could cause
a sequester of Federal resources.
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