A major reason cited for repealing the estate tax is that it “is killing family business,” including family farms. But the facts simply do not support this contention. FAMILY FARMS "To keep farms in the family, we are going to get rid of the death tax," noted President Bush. Yet a recent New York Times article (April 8, 2001, "Focus on Farms Masks Estate Tax Confusion") notes that the American Farm Bureau Federation, one of the leading voices calling for repeal of the estate tax, cannot give a single example of a farm lost to the estate tax. A farmer in Iowa is quoted in the article as saying the emphasis on repeal of the estate tax to save family farms is misplaced because "for most farmers around here, the estate tax is not high in their minds ... what we need are better crop prices." His comments are echoed by a South Dakota farmer, John Sumption, who recently testified at a Senate Finance Committee hearing about the estate tax. Mr. Sumption argued for modification of the estate tax by raising exemption levels, as was proposed by the Democrats in their alternative to the estate tax repeal bill in the House, and he testified: "Mr. Chairman, I am not an expert on tax law, but I know about family farmers. They are my friends and neighbors. They are not worried about estate taxes, because, for the most part, they don’t have to pay them. They are worried, however, about the prices they receive for their crops and livestock, about good public schools for their kids, about local community services, paying for prescription drugs and being able to pay their bills in retirement. And, of course, they are always worried about the weather." (Mr. Sumption’s full testimony can be found at on the Senate Finance Committee website.) The data supports Mr. Sumption’s point. According to 1999 data recently released by the IRS, only 6.8% of estate tax filers have farm assets. Indeed, only 2.8% of those filers with farm assets pay any tax. (And they have up to 15 years to pay with reduced interest rates.) According to the New York Times, "The average value of these farm assets was $440,000, only about a third of the amount that any married couple could leave untaxed to heirs." The New York Times also notes that family farms are given an extra exemption beyond the $675,000 ($1.35 million for couples) that is currently exempt from the tax. (This income exclusion amount is scheduled to increase to $1 million ($2 million for couples) in 2006.) "[A] farm couple can pass $4.1 million untaxed, so long as the heirs continue farming for 10 years." Of course, this is the rub. Many heirs do not want to continue doing family farming. They are already adults, often with families of their own, pursuing their own careers. When a family farm is willed to them, they often may choose to sell the farm, not because of the estate tax, but for other unrelated reasons. Estate Tax Returns and Farm Assets: 1999 Size of Gross Estate No. of Returns No. of Filers with Farm Assets Pct. with Farm Assets No. with Farm Assets Paying Estate Tax Pct. with Farm Assets Paying Estate Tax $600K but under $1 mil 49,898 3,353 6.72% 1,016 2.0% $1 mil but under $2.5 mil 40,779 2,869 7.04% 1,338 3.3% $2.5 mil but under $5 mil 8,626 556 6.45% 308 3.6% $5 mil but under $10 mil 3,050 178 5.84% 115 3.8% $10 mil but under $20 mil 1,083 74 6.83% 46 4.2% $20 mil or more 577 51 8.83% 41 7.1% Total 103,993 7,083 6.81% 2,865 2.8% Source: IRS, Statistics of Income, unpublished data, March 26, 2001. At the same time that President Bush would do away with the estate tax to "save" family farms, his budget plan, according to one source, would cut funding to agriculture next year by $1.7 billion (or 8.3% below the FY 2001 level adjusted for inflation). He also fails to allow for emergency farm assistance to ameliorate the current farm recession. (See the House Democratic Leadership site) Finally, the President would eliminate the Wetlands Reserve Program, under which farmers receive a payment in return for preserving marshy habitat on their property. Already 1 million acres have been protected under this program. The Bush budget would get rid of all $162 million provided this year for a program that both helps farmers and protects the environment. As The Washington Post notes in an editorial, farm crop supports will be cut by nearly $10 billion because the Bush administration does not continue what was dubbed "emergency" spending in the past to avoid budget caps. This illustrates an ironic aspect that runs through many of President Bush’’s proposals. It’s more than giving with one hand and taking away with the other, since the "gift" is often not worth much. Farmers don’t need estate tax repeal. It’s a gift with little value. Farmers do need all of the other things that Mr. Sumption mentions. But, if the estate tax is repealed, there will be less government revenue to provide all of those benefits. SMALL BUSINESS There is no uniform definition of small business in this country. For regulatory purposes a small business can be comprised of up to 1,500 employees or up to $17 million in revenue, depending on the type of business it is. (The Small Business Administration generally describes small business as up to 500 employees.) For tax purposes the criteria to determine whether it is small can be based on gross assets, gross receipts, number of shareholders, or a combination of factors. The thresholds for taxation, like regulatory matters, depend on type of business and type of tax. For the estate tax, assets of a small business are calculated. A recent Joint Committee on Taxation report, Overview of Present Law and Selected Proposals Regarding the Federal Income Taxation of Small Business and Agriculture, (March 27, 2001, JCX-19-01) provides data on different types of corporations and their asset size. According to the report:

• 99.6% of Nonfarm Sole Proprietorships have receipts less than $1 million;
• 92.1% of S Corporations have assets less than $1 million;
• 83.3% of Partnerships have assets less than $1 million; and
• 88.1% of C Corporations have assets less than $1 million.

In other words, the estate tax will not affect the vast majority of couples since the income exemption is currently $1.35 million for a couple and scheduled to increase to $2 million by 2006. In most cases, if those owning a small business are being taxed under the estate tax, it is because they are unlike most small businesses and have considerable wealth from their businesses or they have wealth accumulated from holdings outside their small businesses. Moreover, as with family farms, careful estate planning for most small businesses means that they can avoid most if not all estate taxes. There are special rules for small businesses that insure that the value of capital is assessed at use value instead of at market value, helping to reduce the assessment of equipment and other property. In fact, according to the IRS, of the 2.3 million people who died in 1998, only 780 left an estate with significant business assets. A Treasury Department analysis found that estates that included family businesses paid less than 1% of all estate taxes.