ADVOCATEVolume 20, Number 5 September/October 2006 The Most Partisan Time of the Year Permanent repeal of the estate tax falls victim to congressional battle By Jody Milanese Government Affairs Manager s the 109th Congress concludes— with only a possible lame-duck Asession remaining—it is unlikely Senate Majority Leader William Frist (R-Tenn.) will bring the “trifecta” bill back to the Senate floor. H.R. 5970 combines an estate tax cut, minimum wage hike and a package of popular tax policy extensions. The bill fell four votes short in August. Frist switched his vote to no dur- ing the Aug. 3 consideration of the Estate Tax and Extension of Tax Relief Act of 2006, which reserved his right COURTESY ISTOCKPHOTO as Senate leader to bring the legisla- The estate tax—and other parts of the current tax system—forces business owners to tion back to the floor. Despite Frist’s pay exorbitant amounts of money to the government and complete myriad forms. recent statement that “everything is any Democrats who voted against that, as of now, there is no intension on the table” for consideration prior the measure would switch their of separating elements of the trifecta to the November mid-term elections, position in an election year. package before a lame-duck session. many aides are doubtful the bill can Frist has given a task force of Since failing in the Senate in be altered enough to garner three four senators—Finance Chairman August, there has been wide debate more supporters. Charles Grassley (R-Iowa), Budget over the best course of action to take Senate Minority Leader Harry Chairman Judd Gregg (R-N.H.), in achieving this top Republican pri- Reid (D-Nev.) has pushed hard to Policy Chairman Jon Kyl (R-Ariz.) ority. While Frist remains optimistic, defeat the estate tax cut. Although and Sen. Trent Lott (R-Miss.)—the most believe the measure cannot pass Democrats historically have sought a chance to come up with a strategy in this partisan environment. Some minimum wage increase, they for tweaking the trifecta bill so it can suggest that the Senate should vote opposed the bill because of the estate pass the Senate. before the election and, if it fails, try tax provisions—saying it would Meanwhile, Reid is increasing to move elements of the measure bankrupt federal coffers by giving pressure on Frist to pass the non-con- (such as the extenders) separately in a unnecessary tax breaks to the troversial “extenders” part of the lame-duck session. wealthiest Americans. package, which includes an extension Others propose the Senate Senate Republicans recently have of the research and development should vote on the same three- suggested sweetening the deal—pos- credit and state sales tax deductions, pronged package after the mid-term sibly with an extension of middle along with several other items. Some elections, when the estate tax issue class tax cuts—but there is wide companies and trade associations has lost some of its partisanship. skepticism over what elements could that benefit from the research and draw sufficient votes and whether development credit are urging House HOUSE PASSAGES and Senate leaders to abandon the In spite of the Senate’s difficulty, Inside the Advocate trifecta strategy and move tax exten- the House successfully approved Important Times Ahead (p. 4). ders to a separate measure. H.R. 5970 on July 29 by a vote of Endorsements Released (p. 7). House Majority Leader John 230-180. The House-passed version Remembering Lewis Shattuck (p. 9). Boehner (R-Ohio) has maintained continued on p. 3 ADVOCATE September/October 2006 Volume 20, Number 5 In This Issue © 2006 National Small Business Association Chair Paul Hense First Vice Chair Grafton “Cap” Willey Secretary Scott Hauge Treasurer Marilyn Landis Immediate Past Chair Malcolm Outlaw President Todd McCracken Editor 10 Rob Yunich NSBA FILE PHOTO Writers 4 IMPORTANT TIMES AHEAD FOR NSBA Molly Brogan Kyle Kempf NSBA Chair Paul Hense focuses on one of NSBA’s priority issues: the Jody Milanese inequities of the U.S. tax code toward small-business owners. Printing 7 SMALL BUSINESS VICTORY FUND ISSUES ENDORSEMENTS DigiLink, Inc. NSBA’s political action committee has issued its endorsements for the 2006 HOW TO REACH US House election. National Small Business Association 9 REMEMBERING LEWIS A. SHATTUCK 1156 15th Street NW Suite 1100 NSBA recently lost one of its most influential small-business advocates, when Washington, DC 20005 Lewis A. Shattuck passed away Aug. 6 at his home in Hardwick, Vt. Phone: 202-293-8830 Fax: 202-872-8543 Internet: nsba.biz MORE NSBA NEWS 6 Featured congressional races… 10 NSBA launches 2007 advocate award… The NSBA Advocate, published 11 NSBA At Work… 11 Your NSBA calendar… and more. bimonthly by the National Small Business Association, is one of the SAVE THE DATE: NSBA’S 70TH ANNIVERSARY GALA benefits of an NSBA membership. Notification of address changes Celebrating the 70th anniversary of the small business movement should be sent to NSBA, 1156 15th Street NW, Suite 1100, May 9, 2007 Washington, DC 20005. National Museum of Women in the Arts MISSION STATEMENT Washington, D.C. 1937 th 2007 NSBA is a volunteer-led associa- 70 tion. Our primary mission is to More information will Anniversary advocate state and federal policies that are beneficial to small busi- be available in the ness, the state, and the nation — Advocate and on LOGO DESIGNED BY ROB YUNICH LOGO and promote the growth of free nsba.biz. enterprise. 2 September/October 2006 The Most Partisan Time of the Year (continued from p. 1) included a provision in which the many business owners. Under current businesses in the form of legal and estate-tax reduction gradually law, the estates of deceased business accounting fees, insurance premiums increases the individual exemption owners must pay the government up and appraisal fees. level to an estate size of $5 million in to 55 percent in taxes on all assets— Moreover, estate-tax liability con- 2015 and subsequently indexes the including land, buildings, equipment siderations frequently affect business exemption amount to inflation. and all other forms of property. decisions about investments and Estates ranging in size between the Because of this law, the death of expansions. It is a sad reality, but only exemption amount and $25 million a small-business owner forces the six out of 10 family businesses are are taxed at the top capital gains rate, outright sale (or liquidation) of a part passed to a second generation—and which is Because of this law, the death of a small-business only one out of currently 15 10 make it to the percent. In owner forces the outright sale (or liquidation) of a part third generation. 2011, the of their firm. Therefore, the estate tax forces Fortunately, capital gains entrepreneurs to make a difficult decision: either drain hope exists for rate and the the repeal of this estate tax capital from the business for expensive estate-planning antiquated tax. rate will measures or liquidate the business to pay the estate President increase to tax. Federal estate and gift taxes harm family-owned George W. 20 percent. businesses on an ongoing basis—starting long before Bush’s Economic Under Growth and Tax the House the death of the owner. Relief bill, estates larger than $25 million of their firm. Therefore, the estate Reconciliation Act of 2001, signed into are taxed at 40 percent starting in tax forces entrepreneurs to make a law in the 107th Congress, contained 2010, but decrease to 30 percent by difficult decision: either drain capital a provision that will gradually phase 2015. In 2015, the $25 million estate from the business for expensive out the estate tax until its elimination size also will be indexed for inflation. estate-planning measures or liquidate in 2010. This approach removes the burden of the business to pay the estate tax. Unfortunately, due to Senate the estate tax from the back of the Federal estate and gift taxes harm budget rules, the estate tax will return nation’s small businesses. family-owned businesses on an ongo- to life in 2011. To prevent this reversal This is not the first time the House ing basis—starting long before the and permanently repeal the estate tax, has managed to pass estate-tax repeal death of the owner. NSBA is an active member in the legislation. In June, after the Senate The owner of a business, in largest coalition of small-business failed to pass a cloture motion on per- preparation for the transfer of owner- advocates speaking out to ensure per- manent repeal of the estate tax, the ship of the company, must take vari- manent repeal. House quickly moved a compromise ous expensive estate-planning meas- NSBA remains engaged on all through that chamber. ures, such as purchasing insurance compromise legislation that has been House Ways and Means and/or creating trust funds to ensure offered—to ensure small-business Chairman Bill Thomas (R-Calif.) its future viability. owners are provided the relief, cer- introduced H.R. 5638 (the Permanent If these steps are not taken, the tainty and consistency they need Estate Tax Relief Act of 2006), which purchaser of the business will be left when it comes to estate planning. gained rapid momentum and passed to pay the estate tax. Either way, a NSBA hopes an agreement will be June 22 by a vote of 269-156. large portion of the business’ reached in the near future to end this The House-approved measure resources, which could be reinvested outdated and inefficient tax on fami- exempts estates worth less than $5 into the company, is wasted on these ly businesses.