Opinion

The estate tax and jobs

Rep. Joseph R. Pitts Congressman, Pennsylvania 16th District
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One of Sweden’s most profitable exports in recent decades has been IKEA, the furniture and home goods retailer. IKEA stores have spread to 39 countries and customers will travel hours to reach the nearest store. Their stylish but inexpensive products have made IKEA one of the world’s most recognizable brands.

But technically IKEA isn’t Swedish anymore. Because of especially high estate taxes, IKEA moved their headquarters to the Netherlands. After losing one of their premier brands, the Swedish government repealed the tax in 2004. Since that time, it’s estimated that over 4,000 wealthy Swedes have returned to live—and pay taxes—in their native country. Unfortunately, IKEA still won’t be moving back in.

The United States also realized that the estate tax was bad for the American economy and in 2001 Congress began to gradually decrease the rate of taxation and the number of individuals subject to the tax. This year, the tax was totally eliminated.

Unfortunately, Senate procedures caused the 2001 tax bill to be modified so that the tax will revert to Clinton-era levels in 2011. This has made estate planning for family businesses and farms extremely difficult. Many need two separate plans for what to do should the business owner pass away this year or next year.

Before 2001, the government taxed the transfer of an estate worth more than $1 million at a 55 percent rate. Handing down a business or family farm to a son or daughter required extensive estate planning to ensure that property or equipment did not have to be sold to pay the tax. However, the sudden death of a business owner could be devastating.

In the case of family farms, the business may be land-rich but cash-poor. Instead of keeping the farm in the family, parcels have sold to developers to pay the estate tax. In the 16th Congressional District, I’ve met with many farmers who could see a decades-old family farm turned into a housing development if the full tax comes back next year.

Estate planning, because of its complexity and the need to hire a good lawyer, is both time-consuming and expensive. This is money and time spent on managing the estate, not managing and growing the business.

While many would like to think that the estate tax only affects the wealthy, every American pays a price in reduced economic growth and job opportunities.

A recent study by Dr. Douglas Holtz-Eakin, former Director of the Congressional Budget Office, found that full and lasting repeal of the federal estate tax would have a dramatically positive effect on the economy. According to his estimates, the current jobless rate could fall by almost 1 percent.

Repeal could increase small business capital by over $1.6 trillion. Small business owners would create an estimated 1.5 million new small business jobs since they could hire with the confidence that the business would not have to be radically restructured after they pass away.

At the beginning of this Congress, I introduced H.R. 1960, Permanent Repeal of the Death Tax. This bill would keep the estate tax from returning next year, or ever again. I don’t think that the Democrat-controlled Congress will seriously consider the bill, but I think it’s the best way to ensure that businesses and farms go to families and not the government.

There’s a strong temptation for Congress to bring back the estate tax since at least on paper it appears to bring in lots of tax revenue. But projected revenue rarely matches actual money brought into the treasury because individuals take action to reduce their tax liability. However, a strong job market enhances government revenue.

I don’t think we want to see American businesses fleeing to other countries. Sweden had to learn the hard way by watching one of their most iconic brands move across the sea. We should learn from their example and avoid the consequences of lost jobs and slower economic growth.