[Congressional Record Volume 143, Number 8 (Tuesday, January 28, 1997)]
[Senate]
[Pages S698-S699]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                    FAMILY HERITAGE PRESERVATION ACT

  Mr. KYL. Mr. President, last week, I introduced legislation to 
enhance the economic security of older Americans and small businesses 
around the country. The bill, known as the Family Heritage Preservation 
Act, would repeal the onerous Federal estate and gift tax, and the tax 
on generation-skipping transfers. Fifteen Senators have joined me as 
cosponsors of this very important initiative.
  Mr. President, most Americans know the importance of planning ahead 
for retirement. Sometimes that means buying a less expensive car, 
wearing clothes a little longer, or foregoing a vacation or two. But by 
doing with a little less during one's working years, people know they 
can enjoy a better and more secure life during retirement, and maybe 
even leave their children and grandchildren a little better off when 
they are gone.
  Savings not only create more personal security, they help create new 
opportunities for others, too. Savings are really investments that help 
others create new jobs in the community. They make our country more 
competitive. And ultimately they make a citizen's retirement more 
secure by providing a return on the money invested during his or her 
working years.
  So how does the Government reward all of this thrift and careful 
planning? It imposes a hefty tax on the end result of such activity--up 
to 55 percent of a person's estate. The respected liberal professor of 
law at the University of Southern California, Edward J. McCaffrey, 
observed that ``polls and practices show that we like sin taxes, such 
as on alcohol and cigarettes.'' ``The estate tax,'' he went on to say, 
``is an anti-sin, or a virtue, tax. It is a tax on work and savings 
without consumption, on thrift, on long-term savings. There is no 
reason even a liberal populace need support it.''
  At one time, the estate tax was required of only the wealthiest 
Americans. Now inflation, a nice house, and a good insurance policy can 
push people of even modest means into its grip. The estate tax is 
applied to all of the assets owned by an individual at the time of 
death. The tax rate, which starts at 37 percent, can quickly rise to a 
whopping 55 percent--the highest estate tax rate in the world.
  As detrimental as the tax is for couples, it is even more harmful to 
small businesses, including those owned by women and minorities. The 
tax is imposed on a family business when it is least able to afford the 
payment--upon the death of the person with the greatest practical and 
institutional knowledge of that business' operations. It should come as 
no surprise then that a 1993 study by Prince and Associates--a 
Stratford, CT, research and consulting firm--found that 9 out of 10 
family businesses that failed within 3 years of the principal owner's 
death attributed their companies' demise to trouble paying estate 
taxes; 6 out of 10 family owned businesses fail to make it to the 
second generation; 9 out of 10 never make it to the third generation. 
The estate tax is a major reason why.
  Think of what that means to women and minority-owned businesses. 
Instead of passing a hard-earned and successful business on to the next 
generation, many families have to sell the company in order to pay the 
estate tax. The upward mobility of such families is stopped in its 
tracks. The proponents of this tax always speak of the need to hinder 
``concentrations of wealth.'' What the tax really hinders is new 
American success stories.

  With that in mind, the 1995 White House Conference on Small Business 
identified the estate tax as one of small business's top concerns. 
Delegates to the conference voted overwhelmingly to endorse its repeal.
  Obviously, there is a great deal of peril to small businesses when 
they fail to plan ahead for estate taxes. So many small business owners 
try to find legal means of avoiding the tax or preparing for it, but 
that, too, comes at a significant cost. Some people simply slow the 
growth of their businesses to limit their estate tax burden. Of course, 
that means less investment in our communities and fewer jobs created. 
Others divert money they would have spent on new equipment or new hires 
to insurance policies designed to cover estate tax costs. Still others 
spend millions on lawyers, accountants, and other advisors for estate 
tax planning purposes. But that leaves fewer resources to invest in the 
company, start up new businesses, hire additional people, or pay better 
wages.
  The inefficiencies surrounding the tax can best be illustrated by the 
findings of a 1994 study published in the Seton Hall Law Review. That 
study found that compliance costs totaled a whopping $7.5 billion in 
1992, a year when the estate tax raised only $11 billion.
  The estate tax raises only about 1 percent of the Federal 
Government's annual revenue, but it consumes 8 percent of each year's 
private savings. That is about $15 billion sidelined from the Nation's 
economy. Economists calculate that if the money paid in estate taxes 
since 1971 had been invested instead, total savings in 1991 would have 
been $399 billion higher, the economy would have been $46 billion 
larger, and we would have 262,000 more jobs. Obviously, the income and 
payroll taxes that would have been paid on these gains would have 
topped the amount collected by the Government in estate taxes.
  There have been nine attempts to reform the estate tax during the 
last 50 years. Few would contend that it has been made any fairer or 
more efficient. The only thing that has really changed is that 
lobbyists and estate planners have gotten a little wealthier. Probably 
the best thing we could do is repeal the estate tax altogether. That is 
what I am proposing in the Family Heritage Preservation Act.
  Mr. President, the National Commission on Economic Growth and Tax 
Reform, which studied ways to make the

[[Page S699]]

Tax Code simpler, looked at the estate tax during the course of its 
deliberations just over a year ago. The Commission concluded that ``it 
makes little sense and is patently unfair to impose extra taxes on 
people who choose to pass their assets on to their children and 
grandchildren instead of spending them lavishly on themselves.'' It 
went on to endorse repeal of the estate tax.
  I invite my colleagues to cosponsor the Family Heritage Preservation 
Act.

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