Claims that family businesses and farms would be threatened simply aren’t true.

Since George W. Bush moved into the White House and Republicans took control of Congress, they have sought total repeal of the federal estate tax. They temporarily succeeded in 2001, approving a law that reduced this tax gradually until eliminated in 2010. However, under this legislation, in 2011 the estate tax is scheduled to go back to 2001 levels. Congress will have to remedy this arbitrary and bizarre bit of budgetary and legislative trickery. The question is how.

Should Congress make the total repeal permanent? Or should the reform be tailored to protect those family farms and small businesses that repeal supporters say they care about? There is more at stake than most people realize.

The federal estate tax has been part of U.S. tax policy for most of the nation’s existence. Until the 20th century, it was used primarily in time of war or to meet other extraordinary revenue demands. The modern estate tax, instituted in 1916, has been used both to raise money and to limit the concentration of American wealth in the hands of a few. Only the nation’s largest estates have been taxed. Even before the 2001 change, the exemption was set so high that fewer than 2 percent of all estates were subject to the tax. By 2009, the nontaxable threshold will rise to $3.5 million ($7 million for a married couple). This, I believe, is where it should remain. At that exemption level, less than one-third of 1 percent of all estates will be taxed, and with respect to these, only the amount exceeding the exemption is taxed.

The claim that family businesses and farms would be threatened by this remaining tax simply will not wash. According to the nonpartisan Congressional Budget Office, almost all family businesses, even those that are heavily invested in land, machinery and other nonliquid assets, would be exempt under this proposal; the very few estates that are not exempt can pay their obligations over many years, claim reduced valuations for tax purposes, or rely on other existing tax provisions that will enable the businesses to continue.

When earlier this year the House of Representatives considered H.R. 8, a bill to permanently repeal the estate tax, I supported an amendment that would have permanently raised the exemption levels to the 2009 levels. Instead, the House approved a total repeal. The Senate is scheduled to consider this legislation when it reconvenes after the August recess.

If H.R. 8 is enacted as approved by the House, our country will suffer in at least four ways. First, over 10 years, repeal will cost about $290 billion in lost revenues and billions more in interest on additional debt. The federal budget is already deeply in the red. Unless we saddle future generations with more crushing debt, this bill would make it even more difficult to pay for the war in Iraq, Social Security, and health, education and other programs that most Americans need and value.

Second, harsh tax consequences are included in the repeal proposal which advocates studiously ignore. The law would shelter about 7,000 estates a year from estate taxes (estates which are so large that they exceed the $3.5 million/$7 million limit), but an additional 70,000 estates would become subject to the capital gains tax. This occurs because the president’s proposal would eliminate the “stepped-up basis” rule; this rule provides that when an inherited asset is sold, the heir does not owe capital gains taxes on any increase in asset’s value that occurred while the decedent owned it.

Third, the repeal would benefit the very wealthiest Americans at the expense of the rest of us. The Bush administration has already pushed through changes that cut taxes on dividends and capital gains, created new ways to avoid taxes and decreased income tax marginal rates. Repeal is part of a strategy to shift the overall tax burden away from wealth to work, from investments to wages, from the rich to the middle class.

The fourth loser is truth. Proponents of H.R. 8 have built their case on falsehoods, distortions and manipulation. Think tanks argue that the cost of administration of estate tax is almost as much as the revenue it raises. This is blatantly false. Drafters of the 2001 estate tax repeal wrote it as a temporary measure so that deficit projections would look less alarming. In fact, as a result of this and other tax cuts, we exchanged years of budget surpluses for record-setting deficits in just a few years. This law will make matters even worse. The president calls the estate tax a “death” tax to imply that the heirs of anyone who dies, as we all do, will be hit with this tax. Or at least, that small businesses and farms in our community will suffer. As noted, this is just not true.

The alternative I favor would amply protect these businesses – as they should be. Why insist on a total repeal? The only answer is that the administration and its supporters want to reward the very richest Americans and undermine a tax system that provides enough resources to fund programs that ordinary citizens depend upon. This is the reality, not the rhetoric. Reform of the estate tax is needed, but not total repeal.

Rep. Tom Allen represents Maine’s First Congressional District.