Continuously serving Kosciusko County since 1854
U.S. Sen. Evan Bayh visited Hand Industries Inc. Tuesday talking with employees and local folks about a permanent end to the estate tax.
"I'm here because this is a good site to talk about repealing the estate tax, also known as the death tax," Bayh said.
Hand Industries is a family-owned business, which began in 1957, in its second generation of operation.
"I'm a strong advocate for repeal of the death tax, for three principal reasons: It's good for the economy, would simplify the tax code and the fundamental fairness to everyone," the former state governor said. "It's good for you, it's good for the economy."
The estate tax is one of the principal reasons that 70 percent of all family-owned businesses do not survive through the second generation, and 87 percent do not make it to a third generation, the senator said, "and that's a disturbing situation."
Instead of allowing families to pass their businesses to the next generation of entrepreneurs, the estate tax often forces these families to liquidate their assets. Family members are faced with the daunting task of trying to cover the tax bill with assets - such as farms and businesses - that cannot be quickly converted into cash.
"Most jobs are generated by small to medium-sized companies," he said, adding the Fortune 500 companies employ as many people now as they did 25 years ago. "The vitality of our small business sector is very important."
Last year 793 Indiana families paid more than $260 million in federal estate taxes. A recent study found that elimination of the estate tax would immediately save taxpayers as much as $23 billion in expenses related to estate planning and life insurance policies to pay for the tax.
With the estate tax permanently repealed, Hoosier families and businesses could put their money to better use, for example, for investment in capital and job creation, he said.
Bayh said the federal government figures its budget on a yearly basis and estate taxes go into the general fund, an account, Bayh said, known as the "Great Abyss" in Washington.
Revenue losses would inevitably be recouped by other measures.
Prior to full repeal of the estate tax, part of a $1.35 trillion tax cut signed by President Bush in June 2001, the tax rate will drop to 45 percent and the "exemption" level will increase to $3.5 million. Since the tax bill expires in 10 years - at midnight on Dec. 31, 2010 - on Jan. 1, 2011, all the provisions in the bill revert to current law.
The estate tax repeal really lasts for only one year unless it is revisited and extended by the administration.
The estate/gift tax rate drops from 55 percent to 45 percent by 2007. The wealth exemption goes up from $675,000 to $1 million in 2002. It rises to $3.5 million by 2009, the year before full repeal. These figures are doubled for couples.
In 2004, the family-owned business deduction, currently at $1.3 million, is repealed because the general exemption will have increased to $1.5 million in 2004.
The state tax credit phases out by 2005. In 2002 it is reduced by 25 percent, in 2003 by 50 percent, in 2004 by 75 percent and the state tax credit is completely repealed in 2005.
If payment is made for a state inheritance or estate tax liability, that amount can be deducted as an expense from the estate assets, which reduces the taxable amount.
The estate and generation-skipping transfer tax is repealed effective Jan. 1, 2010. Bayh is visiting with Hoosiers at businesses and farms in Madison, Columbia City, Columbus, Lebanon, Richmond, Winchester, Scottsburg, Muncie, Crawfordsville and Franklin.
