Another Pathway to Estate Tax Reform: the ASSET Act

As the owner of car dealerships, I often joke that when I pass on, I likely will have enough issues at St. Peter’s gates that I don’t want to have hanging over my head the livelihoods of the 1,500 dedicated employees who work at my 15 locations and 20 franchise dealerships in Florida, Pennsylvania and the Washington, D.C., metro area.

And yet, my employees’ livelihoods and the small business I built are very much at stake unless Congress acts to address the estate tax. If no consensus emerges regarding repeal, there’s a middle ground to get it done that simplifies the tax code and ensures that individuals pay their fair share.

I’m kept up at night by concerns that when I pass away, my heirs might have to liquidate our thriving small businesses in order to pay the federal estate tax. To prevent a forced liquidation, I have for years paid as much as $700,000 annually in life insurance so that my estate would have enough funds to cover the Internal Revenue Service tax liability. I could have been reinvesting those funds more meaningfully in our businesses and our employees if the current estate tax were not looming in the distance. I am not alone in this situation. We all know of farmers, ranchers and other family-run businesses that consider selling at an inopportune time in order to ensure that the tax man will get his share.

During the past 50 years, the tax has generated only around 1 percent of total federal tax collections, and in 2015 it brought in $17.1 billion, or only around half of a percent of total tax revenue. The distortive effects of the estate tax and the disproportionately low amount of revenue actually raised make a new solution essential.

In the current tax debate, the House majority is proposing full repeal of the estate tax after doubling the exclusion, and the Senate majority has proposed higher exclusion amounts without full repeal.

As an alternative, Congress could create an alternative means of collecting an “estate tax” while taxpayers are still alive and working. This approach would establish a voluntary, simplified method for Americans with large estates to pay a fair share of taxes, but without the distortions and inefficiencies created by the current estate tax.

In previous years, bipartisan legislation (known as the American Solution for Simplifying the Estate Tax Act, or ASSET Act) was introduced by Reps. Andy Harris (R-Md.), Don Beyer (D-Va.) and Alex Mooney (R-W.Va.) to implement an alternative estate tax structure.

The ASSET Act permits individual taxpayers to opt in to a new system in which death would no longer be a taxable event, thus contributing to economic growth and preserving the stability of companies. Small business owners, farmers, ranchers and others will not have to fear the tax liability imposed under the existing estate tax and will not have to dismantle profitable companies, sell farms and ranches, over-purchase life insurance, and waste their money on lawyers and accountants with sheltering strategies.

Under this alternative structure, individuals could make a “down payment” on their estate taxes during their earning years and then the government would rely upon traditional capital gains taxes to generate revenue from estate assets when sold. A taxpayer may opt in to this approach by agreeing to pay a small additional percentage of his/her adjusted gross income each year through the life of the taxpayer, but the IRS would not levy a tax against the estate of such a taxpayer at his death. Taxpayers must pay the additional fee for a minimum of seven years before they can take full advantage of the ASSET Act system and the choice is irrevocable to prevent taxpayers from gaming the system.

The ASSET Act means that business owners could better plan for the orderly succession of their companies, avoid forced liquidations and preserve local jobs. And, the government can avoid losing significant capital gains tax revenue that it would have realized had the asset been sold at the right economic opportunity in the future. The ASSET Act thus ensures stability for vital engines of our economy.

Individuals with very large estates or who expect to accrue such large estates now spend a great deal of time and significant money on strategies to shelter their assets from the estate tax. When these strategies are successful, the government receives nothing. The ASSET Act eliminates the incentive to hide assets from the IRS and to engage in unproductive strategies and avoidance schemes, so individuals will “stay within the system” and contribute their fair share of taxes to the U.S. Treasury.

I am hopeful that if outright repeal does not attract sufficient support to be included in a final tax reform package, Congress will study the ASSET Act, fine tune it and enact it. My employees and thousands like them are counting on it.

Jack Fitzgerald is c
hairman of Fitzgerald Auto Malls and founder of Americans Standing for the Simplification of the Estate Tax.

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