[Congressional Record Volume 143, Number 14 (Thursday, February 6, 1997)]
[Senate]
[Pages S1108-S1109]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. DORGAN:
  S. 288. A bill to amend the Internal Revenue Code of 1986 to provide 
families with estate tax relief, and for other purposes; to the 
Committee on Finance.


                The Family Estate Tax Relief Act of 1997

 Mr. DORGAN. Mr. President, I introduce the Family Estate Tax 
Relief Act of 1997. This legislation is nearly identical to my bill 
from the 104th Congress with one major change.
  My new legislation still targets substantial estate tax relief to 
help preserve one of our Nation's most important economic assets--its 
family run small businesses. But it also increases the existing 
$600,000 unified estate and gift tax credit, which is available to 
everyone.
  Of course, increasing the unified credit will further reduce the 
estate tax burden now imposed on many families trying to transfer their 
businesses to the next generation. It also will help any families 
wishing to pass along to the children or grandchildren some stock, 
proceeds from a life insurance policy or other assets acquired over 
many years.
  The main thrust of this legislation remains the preservation of 
family farmers and other family run businesses. These businesses are 
the major creators of new wealth and jobs in this country. However, 
they face a number of obstacles to succeeding, ranging from price 
gouging by tough international competitors to excessive U.S. 
regulations. That is why it is not surprising to find, for example, 
that we have lost some 377,000 family farms since 1980, a decline of 
some 23,500 family farms every year.
  Since 1980, we have lost some 9,000 of our family farms in North 
Dakota. At the same time, we see that only a small fraction of other 
family run businesses survive beyond the second generation.
  When families have to sell their farms or board up their Main Street 
businesses, those families lose their very livelihood. Moreover, our 
communities lose the jobs and services those family businesses provide.
  I have been approached on many occasions at town meetings by North 
Dakotans who say it is virtually impossible for them to pass along 
their farm or business--which has been the family's major asset for 
decades--to their children because of the exorbitant estate taxes they 
would pay. They think it is unfair, and I agree.
  Unfortunately, our estate tax laws force many family members who 
inherit a modestly sized farm, ranch, or other family business to sell 
it, or a large part of it, out of the family in order to pay off estate 
taxes. This is especially onerous when the inheriting family members 
have already been participating in the business for years and depend 
upon it to earn a living.
  I think that we must take immediate steps to breathe new economic 
life and opportunities into our family businesses and the communities 
in which they operate. It seems to me that a good first step is 
correcting our estate tax laws so they do not unfairly penalize those 
working families.
  There are a few provisions included in our estate tax laws to help a 
family keep its business running long after the death of the original 
owner. But for the most part, these provisions are either too modest or 
too narrowly drawn to do much good.
  Now I also understand that there are some complicated estate tax 
planning techniques available for those wealthy

[[Page S1109]]

enough to hire sophisticated and costly tax advisors. Clearly some 
estate planning devices may reduce the estate tax burden imposed on 
some family businesses upon the death of a principal owner. But for 
those less affluent families inheriting a family business--where such 
estate planning tools were unavailable for whatever reason--the estate 
taxes will ultimately force them to amass a pile of debt, or to sell 
off all or a large part of a family business, just to pay off their 
estate taxes. I think that this is wrong, and it runs counter to the 
kinds of policies that we ought to be pursuing in support of our 
family-owned businesses.
  That is why I am introducing the Family Estate Tax Relief Act to 
rectify this matter, and I urge my colleagues to consider joining me in 
this endeavor.
  The Family Estate Tax Relief Act of 1997 would provide three 
significant measures of estate tax relief to those families hoping to 
pass along their businesses or other assets to the next generation.
  First, my bill would increase the existing unified estate and gift 
tax credit from $600,000 today to $1,000,000 in the year 2004. The 
amount of the existing credit has not been changed for nearly a decade, 
and its benefit has been reduced by more than 35 percent due to 
inflation over this period. Moreover, even 3-percent inflation for 
another 7 years will rob an additional 20 percent of the real value of 
the unified credit. This provision will prevent erosion of the credit's 
real value by inflation.
  Second, my bill allows a decedent's estate to exclude up to the first 
$1,000,000 of value of the family business from estate taxes so long as 
the heirs continue to materially participate in the business for many 
years after the death of the owner. The full benefit of this new 
$1,000,000 exclusion is available to couples trying to pass along the 
family business without the complicated tax planning tailored to one 
spouse or the other that is sometimes used today.

  Together, these two proposals would eliminate estate tax liability on 
qualifying family business assets valued up to $2.0 million. This would 
eliminate the burden of estate taxes for the majority of family run 
businesses.
  Third, my bill would allow the executor of a qualifying estate who 
chooses to pay estate taxes in installments to benefit from a special 
4-percent interest rate on the payment of estate taxes attributable to 
a family business worth between $2.0 and $3.0 million. In other words, 
my bill would also lighten the estate tax burden on the next $1 million 
of estate assets.
  The parts of my legislation targeted to family run businesses expand 
upon the well-tested approaches found in sections 2032A and 6601(j) of 
the Tax Code.
  For example, we currently provide a special-use calculation for 
valuing real estate used in a farm or other trade or business for 
estate tax purposes, where a qualifying business is passed along to 
another family member after the death of the owner. To benefit from the 
special-use formula under section 2032A, the inheriting family member 
must continue to actively participate in the business operation. If the 
heir ceases to participate in the business, he or she may face a 
substantial recapture of the estate taxes which would have been paid at 
the time of the original owner's death.
  In enacting this provision, Congress embraced the goal of keeping a 
farm or other closely held business in the family after the death of 
the owner. However, in the case of family farms, special-use valuation 
primarily helps those farms adjacent to urban areas, where the value of 
the land for non-farm uses is often much higher. But section 2032A does 
not help many farms located in truly rural areas of the country where 
farming is the land's best use. This provision also provides little 
help for families transferring other nonfarm small businesses under 
similar circumstances. My legislation would correct these glaring 
shortfalls in current law.
  In addition, my bill would increase the benefit of the existing 
preferential interest rates under section 6601(j) that apply to farms 
and other closely held businesses. The benefits of the current 
provision have been significantly reduced by inflation over the past 
several decades, and my bill simply increases the amount of estate 
taxes that qualify for a special 4-percent interest rate if paid to the 
IRS in installment payments over time.
  Moreover, my bill includes several safeguards to ensure that its tax 
benefits are truly targeted at the preservation of most family 
businesses.
  Finally, I plan to offset any estimated revenue losses from this bill 
by offering another legislative package to close a number of outdated 
or unnecessary tax loopholes for large multinational corporations doing 
business in the United States. As a result, passing my estate tax 
relief proposals will not increase the Federal deficit. But passing the 
Family Estate Tax Relief Act will help to preserve the economic 
backbone of this country and to help thrifty parents to help their 
children.
  Again, I urge my colleagues to join me in supporting this much-needed 
legislation.
                                 ______