Small-business lobby repositions on estate tax, now ready to deal

Democratic control of Congress has prompted the National Federation of Independent Business (NFIB) to change its tune on estate tax repeal and support a less ambitious approach.

The powerful lobby for small businesses has accepted that it can’t win an outright repeal of the tax in this political climate. So it has backed bipartisan legislation that would create a 35 percent tax on estates worth more than $5 million. 

 “We still believe that full repeal is where we need to go. Just looking at the current environment — the way Congress is set up — we don’t think it is immediately possible,” Chris Walters, manager of legislative affairs at the NFIB, told The Hill.

The NFIB is co-director of the 40-member-plus Family Business Estate Tax Coalition, which last week sent a letter to Congress urging passage of the legislation Sens. Jon Kyl (R-Ariz.) and Blanche Lincoln (D-Ark.) offered in 2009 during the budget debate.

Ten Democratic senators backed the measure, but it failed to garner enough support to be added to the budget. In addition to Lincoln, Democratic Sens. Max Baucus (Mont.), Jon Tester (Mont.), Maria Cantwell (Wash.), Patty Murray (Wash.), Ben Nelson (Neb.), Bill Nelson (Fla.), Mark Pryor (Ark.), Mary Landrieu (La.), and Evan Bayh (Ind.) supported the proposal last year.

“We believe we can still get those 10 Democrats,” Walters said. “And we’re going to push … to get the best deal possible.”

Before Democrats controlled Capitol Hill, the NFIB was arguably the most vocal advocate for permanent repeal of the estate tax, demonizing it as a killer of small businesses and jobs.

The group pushed for enactment of the Death Tax Repeal Permanency Act in 2005 and came close to securing repeal. The Senate was expected to take up the bill shortly after its August recess. But Hurricane Katrina and its aftermath threw Congress into chaos and delayed action on the estate tax.

The mishandling of Katrina later helped Democrats secure the majority in the next election. Their anti-repeal stance made it nearly impossible to clear an estate tax repeal bill through both chambers of Congress.

Since 2001, the estate tax has gradually been phased out until it was fully repealed in January. Barring congressional action, it returns next year to pre-2001 levels by socking estates worth more than $1 million with a tax that tops out at 55 percent.

The NFIB opposes that tax level and seeks to provide its members with some consistency on the tax. To accomplish this feat, it touts the Kyl-Lincoln proposal as part of the jobs agenda that is getting great attention on Capitol Hill. 

“If Congress is serious about creating jobs, they’re gonna need to act fast to fix some of these predictability issues,” Walters said, adding: “We’re really pushing the uncertainty issue up on the Hill.”

Kyl was also a strong advocate for repeal, but is now working with Senate Democratic leaders on the modified fix by pushing his proposal from last year’s budget. Efforts to index exemption levels for inflation are also being examined.

The Arizona senator recently told The Hill that he opposes creating an estate tax that is retroactive to January because it could create an endless stream of litigation as taxpayers cry foul over being taxed subsequent to receiving their inheritance.

He also floated the idea of presenting taxpayers with a choice of either abiding by current estate tax law or complying with whatever level of tax is created later this year.

Walters supports the idea of giving taxpayers a choice on the tax.

“Providing more flexibility is easier for business owners,” he said. “They would be more comfortable with an options-based choice rather than a mandate.”

It is unclear when Congress will tackle legislation addressing the estate tax.

Some observers recently told The Hill that the midterm elections in November might prompt congressional action on the tax as lawmakers risk political damage for not fixing the tax sooner and keeping taxpayers in the dark on the issue.

“We understand as we get closer to the election there will be pressure on various members of the House and Senate [to address the estate tax],” said Dick Patten, executive director of the American Family Business Institute, a group that still advocates for permanent repeal of the estate tax.

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