[Congressional Record Volume 143, Number 30 (Tuesday, March 11, 1997)]
[House]
[Pages H868-H874]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
TAX AND SPEND
The SPEAKER pro tempore. Under the Speaker's announced policy of
January 7, 1997, the Chair recognizes the gentleman from Maryland [Mr.
Ehrlich] for 60 minutes.
Mr. EHRLICH. Mr. Speaker, I am going to be joined by a number of our
colleagues tonight on the majority side to talk about a couple of
issues of great importance to the American people. The gentleman from
California [Mr. Cox] and I want to talk about an issue near and dear to
our hearts, reform of estate taxation and the way we tax success in
this country.
We are going to talk about the balanced budget, and the hope for
cutting the capital gains tax rate in this country.
Mr. Speaker, what we are really talking about tonight is tax and
spend: how we tax and why we spend so much in this country.
There are really two issues, when we think about it. One is how we
put the brakes on government, because the nature of government is to
grow always, at every level of government: local, State, and Federal.
That is pretty natural when we think about it, because it is the nature
of elected officials to want to please their constituents.
Unfortunately, that desire to please has given us an almost $6
trillion budget deficit in this country, an issue we will be talking
about in greater detail in the course of the evening.
How do we put the brakes on the nature of government? In Maryland, in
the Maryland Legislature, the Maryland General Assembly, where I came
from for 8 wonderful years, we have a constitutional requirement for a
balanced budget. We are striving for that same policy goal in this
House, as Members well know.
The second part of the equation is empowering people, how we are
going to empower the individual and not government. That is the logical
second part of the equation.
First of all, putting the brakes to government. I am pleased to sit
on the Committee on the Budget under the chairman, the gentleman from
Ohio [Mr. Kasich]. I am pleased to sit with Members from both sides of
the aisle who are serious about actually balancing the budget, what
should be a noncontroversial goal in American political discourse, but
it is. An awful lot of folks we represent do not understand why it is
so controversial.
As I said earlier, Mr. Speaker, it is the natural inclination of
people to please. It is the natural inclination of folks in public
office to please. We are politicians. We run for elections. We want
votes from folks. Usually we get those votes by promising people
something. Unfortunately, on both sides of the aisle over the last 3
decades in this town, we have garnered votes by promising more
government.
For whatever societal ill has come about, whatever real or perceived
problem is high on the national agenda, politicians have promised more
government because it is the easy thing to do. It is always easier to
say yes than say no. It is always easier to create one more law, to put
out one more regulation, to create one more agency, to pass one more
statute, because unfortunately, an awful lot of us run for election on
records, and those records are composed of what bills we have passed in
the legislature.
We do not measure success by how we have downsized government, we
measure success by how we have increased the scope of government in our
daily lives. That is very unfortunate. I think a lot of the folks
elected around here in the last couple of terms understand that is not
the appropriate measure of what we should be doing in this town,
because we simply cannot afford it.
There is a distinction between politics and leaders, between
politicians and leaders. Politicians respond to the natural inclination
for government to grow. Leaders will make the right decisions. Leaders
will say no, because part of leadership is saying no, and that is where
the Committee on the Budget is, particularly in the 105th Congress.
That is what we are going to deliver to the American people, a real
balanced budget with honest numbers.
The second part of the equation is, once we get government to stop
growing, how do we empower people? People want to be empowered. As
government loses power, individuals gain power. One, we empower people
to put more money in their pockets so they can decide how they will
spend their own hard-earned money.
[[Page H869]]
There are two issues I would like to discuss with my colleague, the
gentleman from California [Mr. Cox] this evening, and we may be joined
by another colleague, the gentleman from California [Mr. Radanovich].
They pertain to two major issues in the 104th Congress with a common
goal: how we will empower individuals, how we will empower people to be
successful in life.
I am joined by Mr. Cox, and I would first like to compliment him on
the great leadership he has shown with respect to the first issue,
which is the way we penalize success in this country through estate
taxation at the Federal level.
I know the gentleman has a number of comments on this subject, so I
yield to the gentleman from California [Mr. Cox].
Mr. COX of California. Mr. Speaker I thank the gentleman for yielding
to me, and I thank the gentleman for co-authoring this legislation with
me. We now have, as he knows, well over 100 sponsors, Democrats and
Republicans, in this Congress to do what California did by an
initiative of the people; that is, repeal death taxes, the taxes on
after-tax life savings, at the end of a lifetime of hard work.
A liberal, and I know he is a liberal because he describes himself as
such in testimony before Congress, professor from the University of
Southern California where I went to college said, as an unrequited
liberal he was opposed to death taxes because they are so anti-liberal.
He called them virtue taxes.
If we think about it, it makes sense. We are familiar with the notion
of a sin tax, taxing tobacco or taxing alcohol or taxing gambling.
These are called sin taxes. But a virtue tax would be a levy by the
government on virtuous behavior, such as saving, investing, working,
avoiding conspicuous consumption and instead helping other people.
That, however, is what the death tax is. It tells someone during her
or his life that what they should really do if they can acquire any
earnings from their work is consume it. Do not save it, do not invest
it; use it up, use it up, but surely do not try and use it for the
purpose of making your family better off.
It is ironic, because what that does is act as a repealer on human
nature. After you get done putting food on the table and clothes on
your back and a roof over your head, as a human being the most powerful
incentive that you have to continue working is to help those that you
love.
So Congress in its infinite wisdom came up with a tax on that
virtuous behavior, on continued hard work even beyond what you need for
yourself, on saving, on investment, on the avoidance of conspicuous
consumption, and called it a death tax, for the reason that, I suppose,
we could extract a third time from someone that we had already taxed on
income during life, on capital gains during life, more money for the
benefit of everyone else.
That would be a great thing if it worked, but it does not, for two
big reasons. First, it does not yield much revenue. Less than 1 percent
of all of our Federal revenues is provided by death taxes, even though
every American knows that there is an army of tax lawyers and tax
accountants at work in the industry of avoiding this tax.
The second thing is, to the extent it is paid at all, rich people are
not the ones paying it. Rich people like Jacqueline Kennedy Onassis can
avoid this tax, as she did when she passed on her estate to her already
wealthy heirs with a state-of-the-art trust. Most of that tax liability
is thereby foregone.
Peter O'Malley, who many Americans who live outside of California
have now come to know as the owner of the Dodgers, at age 59 decided
that he had an estate planning problem. The Dodgers were a family owned
business. They are a local franchise and a local asset for us in
southern California. We certainly do not want it busted up.
But the O'Malley family, and Peter O'Malley specifically, looked at
the problems that would be faced for that family owned business if he
were to die and he had not liquidated or sold the Dodgers and passed
them on to some corporate owner. So with the death tax at 55 percent,
somebody like Peter O'Malley has a pretty big incentive to convert that
tax liability into a capital gains tax liability by selling the team
while he is still alive, and then taking those liquid assets and
putting them in the form of a trust or whatever, the fancy tax lawyers
and accountants come up with to avoid the tax at death, as wealthy
people are wont to do.
Rich people do not pay it, and it does not provide any revenues. It
does not work. It fails the test of empiricism, but what it does do is
change behavior all over America. Even worse than that, it busts up
small businesses; not, typically, Peter O'Malley's Dodgers. They will
not be busted up by the estate tax on Peter O'Malley's death, although
they might be moved out of L.A. as a by-product of the death tax. But
family farms, ranches, small businesses run by people who are cash-
poor, who have trouble meeting the payroll on a weekly basis, will get
busted up. Seven out of 10 family businesses, 7 out of 10 small
businesses in America do not survive the death of the founder. In 9 out
of 10 cases it is because of death taxes.
What happens is that if you own something that is an ongoing
businesses, the death tax is applied not to your income, not to your
wealth, not to your cash or liquid assets, but to the property, and the
only way to satisfy that tax is to sell the property in order to create
a liquid asset, since the Government will not accept your business in
exchange for the tax liability. They want cash.
{time} 2100
You have got to liquidate the business. You have to bust it up. And
what happens? The job creating potential of that business is destroyed
so no new people will be employed there. But worse yet, the people who
did work there lose their jobs. And what is their rate of tax? It is
not even the 55 percent, which is a confiscatory rate for a tax on
after-tax life savings. It is 100 percent. They pay a 100-percent tax
because their entire income has been wiped out. They have just lost
their jobs.
This is what is happening to family businesses, to small businesses,
to ranches, farms across America. It is responsible for the loss of
both new job opportunities and existing jobs.
The White House Conference on Small Business, whose conferees were
appointed by President Bill Clinton, made repeal of death taxes, not
moderation of death taxes, not reform of death taxes, but repeal of
death taxes their No. 4 priority out of over 50 legislative proposals
to help small business in America. This is how great a concern this
issue is to small business.
We talk a lot about tax simplification. Do you know how many pages of
the Internal Revenue Code are cluttered up with the death tax alone?
Eighty-two pages of legalese that no American can possibly understand
without the help of a fancy tax lawyer and tax accountant. That is just
the Code itself.
Then there are several hundreds of pages of tax regulations
interpreting those 82 pages that, again, you have got to have paid
professionals to interpret and understand.
So what happens is that while the Government does not get the revenue
from the tax, as I said, less than 1 percent of our Federal revenues
comes from this source, tax lawyers are getting some money. Tax
accountants are getting some money. There are a lot of trusts and
avoidance techniques that are set up that people are investing in. All
of it is make work. No economic product as a result of all this. It is
an insipid, wasteful and, I daresay, immoral system.
I will close with this point and yield back to the gentleman by
explaining why I go so far as to say this is immoral. I mentioned the
reasons that this is a virtue tax, that it directly discriminates
against savings, work, investment, the avoidance of conspicuous
consumption, so on, but it is even worse than that. It goes further
than that in the injury that it inflicts on Americans.
I was talking to a city council representative in one of the cities
that I represent. It is a part-time city council. And in his real life,
in his working life, outside of politics, he is an estate planner and a
tax lawyer. He told me that in a recent day, just before I had spoken
with him, he had spent the afternoon with one of his clients on his
client's deathbed as that man was passing away. And in the hours that
he spent with him, he had him sign documents.
[[Page H870]]
This was at a time when his wife and his children, his family would
have loved to be with him and spend their last moments with him while
he was spending his last day on Earth. But instead he was with a lawyer
signing documents.
This lawyer said to me, this city councilman who also represented his
neighbors on the city council, that none of the papers that he had his
client sign had any economic effect. There was really no real life
consequence to any of these things except this: that if you signed the
papers, you did not owe the tax and if you failed to sign the papers,
your family would lose the life savings that you had put together so
that they could keep on going.
So the man signed the papers, was deprived of those final moments
with his family. The Government got no money. The tax lawyer got paid
and the tax lawyer came to his Congressman and complained, this is not
what Government should do to American citizens in their final moments
on Earth.
It is an immoral tax besides being a failed exercise in collecting
revenue. I mentioned, less than 1 percent of the revenues are provided
by death taxes. Sixty-five cents of every dollar collected are consumed
either in administrative costs by the IRS or compliance costs by
Americans who are seeking to avoid their tax liability through legal
means, hiring tax lawyers and accountants and so on, who are hiring tax
lawyers and tax accountants to help them fill out the paperwork so they
can pay the death taxes that the Government is not getting appreciable
revenue from in the first place.
This is a miserable idea to have on the books. It is a failed
exercise. Whatever good intention there may have been behind putting it
on the books in the first place, we now have nearly a century of
experience with it. It deserves to die. The death tax deserves to die,
and we should repeal it. And that is why I am so happy to see so many
Members here on the floor fighting for that effort.
Mr. EHRLICH. Mr. Speaker, I again congratulate the gentleman on his
great leadership with respect to this issue. We have been joined by two
of our great colleagues, Mr. Radanovich of California and Mr. Hayworth
of Arizona. What I would like to do is, Mr. Cox, I would like for you
to comment on this question as well, because you have pointed up some
very pertinent facts concerning the history of this very unfair tax.
You pointed out that it began as essentially a tax on the very, very
wealthy. And it has come to represent a real punishment scheme against
middle class folks in this country, particularly small business people.
I will just cite a recent study from the Center for the Study of
Taxation wherein it is estimated that over a 7-year period, GDP would
increase $79.2 billion, 228,000 more jobs would be created and private
capital would increase $630 billion simply by the repeal of this very
unfair tax.
And I have to point out one further fact, the wonderful thing about
measuring Government not by how much it grows but by how much it
contracts is your bill, H.R. 902. How many pages did you earlier state
this particular tax takes up in the code?
Mr. COX of California. In the Internal Revenue Code, 82 pages.
Mr. EHRLICH. Your repeal takes up 7 lines. That is what we should be
about in this town.
I know I have a small businessman, a good friend, Mr. Radanovich,
waiting to speak on this issue. I welcome the gentleman and I welcome
my friend, Mr. Hayworth from Arizona. I yield to the gentleman from
California, Mr. Radanovich.
Mr. RADANOVICH. Thank you very much, Mr. Ehrlich.
As my friend and colleague, Chris Cox from California is one of the
many from the 52 Members of the California delegation that traveled to
his State back and forth, many of us spend long hours, as do you from
Arizona, on the airplane back and forth. I managed to get hold of an
incredible book that I would spend my time reading going back and forth
across this country. It is called ``Undaunted Courage.'' It is by
Stephen Ambrose. It is the story of the discovery or actually the
mapping of the Louisiana Purchase by Meriwether Lewis. And he was sent
out in the 1800's, 1804, by the third President of the United States,
Thomas Jefferson, to explore what was recently purchased as an addition
to the United States. I read with fascination and interest the stories
of risk that that man took, Lewis and Clark, both of them, and their
party, in coming across to discover this new land and map out this
continent.
I cannot help but think what either Meriwether Lewis or Thomas
Jefferson would have thought had they realized that this country had
come to the point where the U.S. Government is taking away wealth from
not even the rich, I mean this is middle-class stuff here, and that
they are actually into income redistribution.
It was fascinating to make that comparison of when you go back and
you are privy to so much here in Washington about how this country
started and the founding principles and the people and the ideas they
had and such hope that they had for the American people, then come to
find out that we are in a situation where we are charging capital gains
and we are imposing a death tax on the American people. Frankly, I just
do not think it was really what they intended when they put this
country together with the ideas that they, the founding ideas that they
came up with.
So it is unfortunate, I think, that we have come to this position,
what we the American people have allowed to become commonplace, which
ought to be considered either the extreme or the absurd by us in this,
in the form of those types of taxes.
Granted, there are those that would argue that income redistribution
is good for the poor and gives a leg up to the poor and needy. And I
just have to say that that is not the case and that the American
people, who are very generous people and who are encouraged under
freedom to take care of their weaker neighbors, do not have to resort
to a government-imposed tax to redistribute wealth in this country.
It punishes accomplishment. It punishes success. It is an
infringement on the rights of the family institution in this country
and really is counterproductive. Unfortunately we have gotten to the
point in this country, I guess that is my observation, that this is
accepted. This is the norm. I cannot help but think about those early
explorers of this continent and the Founders of this Nation who had, if
they had any idea what kind of taxes this Government was imposing for
the various reasons that they do, they would be rolling over in their
graves right now.
Mr. EHRLICH. I agree with the gentleman and I really think the
gentleman has hit the bottom line. At some point in this country, in
this very House, the collective decision was made to punish success and
punish risk in the capitalistic society. When you think about that, it
really makes no sense.
I have another question for the gentleman from California, but first
I want to recognize our good friend, Mr. Hayworth of Arizona, who I
know has some very articulate views on these two issues.
Mr. HAYWORTH. Well, I thank my colleague from Maryland.
Mr. Speaker, as I was listening to my two colleagues from California,
I thought some incredibly valid points were made this evening in this
Chamber to the rest of the American people. My colleague from Orange
County pointing out in a very poignant fashion the human toll, the
emotional equation that was sacrificed in the name of accounting
brought about by this radical redistribution of wealth, this success
tax, this death tax, and my colleague from northern California, the
first vintner to work in elective office as a constitutional officer
since the third President of the United States, Mr. Jefferson, history
will provide us the answer whether or not my colleague from northern
California will follow Mr. Jefferson as time passes, but you ask the
question historically, what would our founders say, not only explorers
such as Meriwether Lewis, not only figures such as Thomas Jefferson,
but one of those great men who really had a life that in many ways
paralleled Jefferson's, overlapped, Jefferson's indeed one of the other
founders of this Nation, Dr. Franklin of Pennsylvania, Benjamin
Franklin, not only one of our founders but, at the time of this
emergence on the American scene, one of
[[Page H871]]
our great humorists and philosophers. And I believe it was Dr.
Franklin, in his writings for Poor Richard's Almanac, who said there
were two certainties in this life: death and taxes.
But I do not believe even Dr. Franklin, with his prescience, could
have told us that today this constitutional republic would tax people
upon their death. Of course, in the wake of the largest tax increase in
American history visited upon the American Nation of the 103d Congress,
when our current majority was in the minority, when three of us amongst
the four were private citizens, a retroactive tax increase at that.
Mr. Speaker, colleagues, I have been across the width and breadth of
the Sixth District of Arizona, visiting with a variety of constituents
in a variety of town hall settings. And from retirement communities in
Sun Lakes to high school classes in Fountain Hills to gatherings in
Flagstaff and, indeed, this Saturday in Payson, AZ, on topic continues
to come up. It is this death tax so onerous, so oppressive that we pay
with a human toll that even as eloquent as the numbers my colleague
from Maryland offered tonight, takes a human toll not only on the
families affected, as my colleague from Orange County, CA pointed out,
but also upon what could be the creation of new jobs, the expansion of
wealth, the preservation of small businesses.
That is why I am so pleased that my colleague, Mr. Cox, has
introduced his legislation. That is why I am honored, as the first
Arizonan to serve on the House Committee on Ways and Means, where we
have jurisdiction over these issues of taxation.
{time} 2115
While I am so enthralled with the majority on that committee, the
gentleman from Texas, Mr. Archer, and many others, who want to throw
off the yoke of oppressive taxation to offer true compassion to the
American people, not some formula for the radical redistribution of
wealth that would tell the American public that Washington knows best,
but a notion that people could truly put their families first and in so
doing could provide for others through the virtues of our free market,
that is the challenge that confronts us today.
From Fountain Hill to Sun Lakes to Flagstaff, I am hearing from
constituents of all ages of their very genuine concern about the death
tax, their very real reservations about our entire system of taxation,
and a notion that, yes, some tax must be paid, of course, but why would
we punish success? Why would we punish people who have taken risk, who
have provided jobs, who have helped to build the economy? What is
inherently selfish about that? For it is not greed; it is, instead,
benevolence and true compassion through the free market to offer jobs.
While many in this Chamber may disagree, and if there is a major
philosophical divide in this 105th Congress amidst this era of good
feelings and bipartisanship, it is of course the notion that our
opponents believe, many of them, that a centralized government
redistributing the wealth knows what is best. We say the contrary is
true; that the American people, working families, since this tax
extends now not to the super wealthy but to those of moderate means,
who have worked all their lives, to, yes indeed, working families, by
allowing those families to provide for themselves, by allowing the
fruits of their labor to be invested, we will in fact continue to build
this economy and continue to be the envy of the world.
So I am honored to be here. I certainly appreciate the efforts of my
colleague from southern California, and I thank the gentleman from
northern California, and my good friend, who makes, in essence, a half
an hour or 45-minute commute from his district in Maryland, and we
invite him out West to catch up on his reading from time to time and
also visit with some of our constituents. I think we understand what is
a truth which stretches from coast to coast and, indeed, to the 49th
and 50th States of our Union as well.
Mr. EHRLICH. I thank the gentleman for his invitation, it is
accepted.
Mr. HAYWORTH. Indeed.
Mr. EHRLICH. I wanted the gentleman from Arizona and my classmate,
the gentleman from California, to respond to this question, but I will
first direct it to the senior member of this group, the other gentleman
from California, Mr. Cox.
We have talked about the state of the law. We have not talked about
how it got to be what it is. We talk about success, and the gentleman
from Arizona and the gentleman from California were very eloquent, but
when we think about it, risk is really at the bottom of success,
because what do we do in a free society? We encourage folks, companies,
individuals, sole proprietors to go out and risk sometimes their life
savings to start a business, to expand their business. Within
successful risk we have jobs and jobs creation.
I have a quote from Chairman Greenspan, who appeared before the House
Committee on the Budget last week and in front of the Senate Committee
on Banking, Housing and Urban Affairs in February. On capital gains
this time. Think about these words: ``I think it is a very poor tax for
raising revenue.'' This is a quote. ``And, indeed, its major impact, as
best I can judge, is to impede entrepreneurial activity and capital
formation. While all taxes impede economic growth to one extent or
another, the capital gains tax, in my judgment, is at the far end of
the scale.''
Think about those words from the chairman. Think about what we know.
Think about what the gentleman hears in Arizona, what the two gentlemen
hear in California, what we hear every day, what we have lived. And my
question to Mr. Cox is, how did we get to where we are? How did the
gentleman, who has been a great leader on these issues, and others in
this body have been great leaders on these issues, how did we fail to
send the right message to the American people that we will no longer
penalize risk in this free society?
Mr. COX of California. Like so many things, and I thank the gentleman
for yielding, these taxes were born of good intentions. Like so many
government programs, they started out as simple things and grew into
complexity and, in fact, inefficient complexity, so much so that they
fail utterly in achieving the intended purpose. Capital gains is a
perfect example.
As recently as 1978, capital gains taxes were even higher than they
are now. And in 1978 there was a bipartisan effort to reduce that rate
of tax on capital gains. Because back then, in 1978, people knew if we
called it capital gains, the country might not understand what we were
talking about. They understood it for what it really was, a penalty tax
on savings and investment.
On a bipartisan basis, I remember the gentleman from California, my
Senator, Alan Cranston, my Democratic Senator, fought very hard to
reduce that penalty tax on savings and investment because it was
depriving people of the opportunity to work. It was killing jobs, to
put it quite simply.
So we reduced the rate of tax in 1978 from a very punitive nearly 50
percent down to 28 percent. And the truth is that, although all the
government revenue estimators predicted that we would lose money,
because after all we made the rate of tax lower, the next year, what
happened? The Treasury of the United States collected more money in so-
called capital gains taxes, it is actually a penalty tax on savings and
investment, than they had the year before. And the same thing happened
the next year and the next year.
It was $9 billion that the government got in 1978. They were getting
$11 billion from that tax at a lower rate of 28 percent in 1980.
Mr. KINGSTON. Would the gentleman yield for a question?
Mr. COX of California. Of course. Be happy to yield to my colleague.
Mr. KINGSTON. Would the revenue from capital gains taxes go up
because there were more transactions, because people no longer hoarded
their money but they went back into the marketplace and traded goods?
Mr. COX of California. That is precisely what happened. Capital gains
realization, and we have the data on that as well as we do on revenues,
skyrocketed. So what happened in 1981? We passed the Economic Recovery
Tax Act and reduced that rate of tax still further, all the way down to
20 percent from an initial high rate of 48 percent.
And once again the government revenue estimators said if we reduce
the rate of tax on capital gains of course
[[Page H872]]
we will get less taxes. And they ignored 3 years of history when they
said that. But we then found in 1981, 1982, 1983, 1984, 1985, all the
way to 1986 that revenues went up and up and up, from that basic $9
billion at the high rate of 48 percent, to $50 billion at a rate of 20
percent.
And why did it stop in 1986? The gentleman asked how we got here from
there. Because Congress decided this had been such a successful
experiment moving the rates down, they wondered what would happen
empirically if we raised them, and they raised the rate of tax on
capital gains back up again. Revenues fell off to $33 billion from $50
billion in 1 year.
And as of now, as we debate here tonight, the Internal Revenue
Service's most recent data are that we still have not got back up to
the level of capital gains revenues to the Treasury of the United
States that we had in 1986, 10 years later.
That is how we got there from here, with the best of intentions. And
our Government revenue estimators, even now in 1997, are telling this
Congress that if we reduce the rate of tax on capital gains, the
Government will lose revenues. Where have we heard that before?
If we did not like all the empirical evidence from America, we could
look at Mexico and other countries that have had this same experience
and we could find that, as my colleague points out, there is more
economic activity stimulated. When we have a more moderate rate of tax,
the Treasury makes out better.
So if we are worried about education, the environment,
transportation, national defense, national security, anything that we
would expect our national Government to do, we would have more
resources to do it by plucking the goose more gently. But these
punitive high rates of tax on savings and investment are killing the
country, killing job creation.
Ultimately, the rich do not pay because the rich have salted away
enough already. The people that pay are the ones who pay with their
jobs. If we have a death tax that literally causes the business, their
place of employment to be busted up, of course they lose their jobs. Of
course they pay a 100-percent rate of tax. Of course they are the ones
bearing the entire burden on their shoulders.
I wanted to make one more point and yield back. We have talked about
how we are punishing success with the death tax. We are also not just
punishing people of modest means, we are punishing people who can
barely scrape by, because there is nothing in the death tax that says
you have to be making money.
What the death tax says is even though individuals paid property
taxes on their assets throughout the lifetime of their business, year
in and year out, even though they paid income taxes, we do not care if
they have any net income in this business, we will take a look at their
balance sheet and see what assets they have, and we will force them to
liquidate them and pay taxes on their net asset value.
So let us say that an individual is, as farmers like to call
themselves often, cash poor and land rich. The only way an individual
could have any money is to sell off the whole farm. That is what the
Government wants them to do. That is what they want that family to do.
They want the family farm to suffer. Bust it up, sell it, corporatize
it, get rid of it, as long as the Government gets its death taxes.
The only people that are unlucky enough to be in this position are
the folks who are cash poor because they could not hire the tax
lawyers, the fancy accountants to do the tax avoidance trusts that all
the rich do to avoid paying this tax, which is why less than 1 percent
of our Federal revenues come from this.
Even then this is the most inefficient way that the Government could
imagine to collect tax because, guess what? We do not know what this is
worth. We do not know what the property is worth. If it has been a
family business for a long time, they have not been selling it back and
forth, it is not a marketable asset. And if they are busting up the
business, it is no longer a going concern, so what is this asset worth
all by itself?
So the family, the heirs, the people who are trying to carry on that
business, but cannot, have to get in a lawsuit with the IRS. And how
often does this happen? Right now, as we debate here tonight, there are
10,000 active lawsuits over the question of valuing the estate under
the death tax. That eats up all the money that the Federal Government
might have gotten out of it because we have to argue for years in court
about what the thing is worth.
It is a hideous example of government run amok. Perhaps with the best
of intentions it was put on the books in the first place, but it does
not work and the death tax deserves to die.
Mr. EHRLICH. I thank the gentleman for the history lesson. I
appreciate it very much. I think we all do.
Only in this town do people think that when we raise taxes we
generate additional revenue. It just does not work that way, and the
gentleman's numbers speak for themselves. History, the empirical
evidence, speaks for itself.
We have been joined by our friend, the gentleman from Georgia, Mr.
Kingston, who I know is over there chomping at the bit as well. I
welcome him to our discussion here tonight.
Mr. KINGSTON. Mr. Speaker, I thank the gentleman for yielding. I
wanted to talk about three people who I know to be constituents and I
have changed their names only.
One is a man who worked hard all his life and had a good income, was
not wealthy, he made about $40,000 a year his last couple of years.
That was the peak of his income. He saved his money all his life,
buying Exxon stock or IBM, the blue chip stuff in the 1960's and the
1970's. Now that stock has tripled in value and he has accumulated
assets and he cannot sell it for a medical emergency or long-term care
in his retirement now because of the huge capital gains tax.
Another person. A widow. Lives out on Whitmarsh Island. I represent
the coast of Georgia. Whitmarsh Island is a beautiful barrier island.
Actually, it is not a barrier island, but it is an island. Waterfront
property. The woman bought the land with her husband in the 1960's, and
in the 1960's this property, which is 2 or 3 acres, was worth $25,000.
Today that same piece of property is worth $500,000. Husband is dead.
She is now a widow. She is on a fixed income and she has a fixed income
of about $15,000 a year.
If she sells the property to raise money for long-term care, she is
taxed at the $500,000 tax bracket or whatever she can get for the
property. Again, she would be helped by a capital gains tax relief.
{time} 2130
Another one, a young person, somebody who is about 38 years old,
bought some land in a commercial-residential mix area, an area that was
going commercial. It was a house. He paid $35,000 for it 10 years ago.
Today that land is worth about $50,000. So he would have a gain of
about $15,000. Revco came in, the drug store, and offered to buy that
land from him. He did the math on it and found out that after paying
the capital gains on it, he would not have made any money off it after
holding it for 10 years. So he says to Revco, ``No, I don't choose to
sell.'' What does Revco do? They move elsewhere. That is two or three
jobs right there in his neighborhood that would have been created, that
needed to be created, that could not be created because the capital
gains tax said no deal.
The tax system is slowing down the economy, slowing up potential for
growth, and penalizing our elderly. Those are 3 real life examples that
I know of.
Mr. EHRLICH. I thank the gentleman from Georgia. I think it is very
important that we in these discussions talk about real people in real
life in real situations facing real problems because of the real burden
we place on people in this town.
Speaking of real small business people, I know the gentleman from
California [Mr. Radanovich] recently married, and we all congratulate
the gentleman, our good friend. He has a real life story of his own.
Mr. RADANOVICH. My appreciation to the gentleman from Maryland and my
wife in the gallery says to say hello.
Mr. Speaker, the comment that I did want to make is that, first, in
reference to starting business and what you had eloquently said earlier
about
[[Page H873]]
the fact that those who take the risk should get the reward.
One of the things I find very, very interesting in having taken a
certain amount of risk on my own in the private sector is that there
are a lot of people that are there that want a piece of that that may
not have taken that certain element of risk and it is very, very
important to understand that that is part of the reward from stepping
out and doing something that might be out of the norm, in creating
wealth or in any venture. Those who take the risk deserve the reward.
They should not be redistributed.
The final point that I want to make, unfortunately I have to leave
the Chamber, it is when government begins to get too big, when it
becomes too large in the great scheme of things in America, when it
begins to assume too many responsibilities from the American people,
when it becomes activist in social issues and begins to get involved in
social engineering, you do have to dream up quite a few different ways
to raise revenue. What might be the norm, and how to levy taxes on,
say, sales tax or income tax, which has even been accepted as the norm
these days, you can go the extreme on issues such as capital gains and
estate taxes. It is because I believe that government has gotten far
too involved in social issues that they have gone so far as to levy
taxes in areas where the Constitution never meant them to be in the
first place.
Again, it is not the responsibility, I think, of the Federal
Government to be enhancing the social network or to be getting involved
in social activism. I would read in the Good Book that there is a story
in the Bible that talked about the man who gave equal amounts of money
to three different people and he punished the one who hoarded the
money. It is the responsibility of Americans, I think, with the money
that they have been blessed to be able to earn, to regenerate that, to
create jobs with it, to reinvest it in their community, to create jobs
for many, many people. It is not up to the Government to take that
money away and penalize that person for their own initiative and
somehow be responsible for that moral obligation of creating wealth and
providing jobs in the community of Mariposa or Timonium or in Tempe or
in some of those other areas. It is not Government's responsibility to
be doing that. It is the individual wealth creator's responsibility to
be doing that. Again, it is just another example of somehow, somewhere
through the process of government getting way too big and getting
involved in way too many things that they have dreamt up this idea that
they should social engineer this country and, oh, by the way they are
going to impose a death tax and they are going to impose a capital
gains tax to fund this thing and, by the way, is the social fabric of
this country any better over the last 30, 40, 50 years? I say no,
absolutely not. Not only have they decided to get into the business of
social activism by imposing taxes of such an abnormal nature as these,
they have made things worse and they have done a poorer job of it.
I think that is sum and total what we face when we are in Washington,
us being freshmen and having the privilege of being here with the
gentleman from California [Mr. Cox] and the gentleman from Georgia [Mr.
Kingston], is that we have the ability now to change something like
that. But somebody has to understand whose responsibility is it to
create wealth in this country, whose responsibility is it to create
jobs, and that is something that is a moral imperative that should not
be the responsibility of the Government.
Mr. EHRLICH. Well put. I thank our colleague from California.
The gentleman from Arizona earlier used the phrase that folks, quote,
want us to throw off the yoke of oppressive taxation.
My inquiry to my good friend is, is there anybody in Arizona who
thinks they could do better with a few more bucks in their pocket, who
believes that a cut in the capital gains rate, or elimination of
capital gains differential in this country, will result in an awful lot
more economic freedom and capital formation and jobs and wealth
creation?
Mr. HAYWORTH. I thank the gentleman for yielding. To answer his
question, what I hear from people of various political persuasions,
indeed if we return briefly to the political season, one of the areas
of discussion was the notion of helping working families. As our
colleague from southern California has pointed out, as our colleague
the gentleman from Georgia has recounted with real-life experiences, as
I hear in town hall meeting after town hall meeting, there is an
insistence, not born of greed but of genuine compassion and old-
fashioned Yankee ingenuity, that people want to hang on to more of
their money to save, spend and invest as they see fit on their
families, not rejecting the notion of compassion but to truly be
compassionate. And so what I hear, to answer my colleague's question,
is widespread interest in changing, repealing as my colleague from
southern California says, death to the death tax, and rethinking and
reducing the capital gains taxes.
Indeed, we might point out, Mr. Speaker, for some of the American
people who join us here, as my colleagues from Maryland, California,
and Georgia have been talking tonight, just a brief lapse into previous
terminology. When we talk about the death tax, it is truth in labeling,
because under the current scheme, in the current lexicon, people talk
about estate taxes as if this were some sort of palatial gains. It does
not tell us the truth. It is a tax literally upon people who die, there
is a penalty for dying, and my colleague from California pointed it
out.
I just wonder, Mr. Speaker, if we should also come up with a new term
for the capital gains tax. As my colleague from Maryland pointed out,
since people want to see a reduction in those rates, should we then
rename that the success tax, because you are taxing and penalizing
success.
Mr. COX of California. You might have to call a significant part of
it the inflation tax because, just like with death taxes, there is no
rule that says you have to be successful in order to have to pay it.
The capital gains tax, or what I prefer to call the penalty tax on
savings and investment, might also be called the inflation tax because,
as we all know, we have inflation in this country and over time it adds
up a great bit.
If you buy a piece of land, you buy an asset, you start a small
business, just to use an obvious example of a corner grocery store,
although we do not have too many of those, partly for this reason, in
America, but let us say you have got a corner grocery store. And so you
buy the store. The Tax Code says that is a capital asset. If you paid
$10,000 for it 20 years ago, with inflation, what is that worth today?
I do not have my calculator, but anyone can figure out it is not 10
grand anymore. If you sell the grocery store for less money than you
paid for it in the first place, the nominal selling price, because of
inflation, is going to be more than you paid for it and you are going
to be taxed on the difference. So even though in real life you lost
money, you are not a rich person, they are going to start requiring you
to pay tax on that sales price.
The truth is that because we have not indexed for inflation a
property tax, you do not have to make money, you can be losing money
and still owe a significant tax. It can be a tax that wipes out any
hope that you have of even surviving, particularly if that was your
life savings, particularly if that is your only asset in life. To take
someone's entire life earnings, their entire life's work and tax it all
in one accounting period as if it is just income from a job,
particularly when they paid income tax on it all through their life, is
not only double taxation but it is punitive and it is an inflation tax,
QED.
Mr. KINGSTON. If the gentleman will yield, there is also certainly
class envy in this to some degree that we do have certain politicians
playing on class envy because they can get reelected easier if they
stir up income groups against other income groups. Nowadays it just
seems to be horrible to be successful.
For example, in Atlanta we have CNN. Ted Turner brought it in. If we
have a capital gains tax reduction, will Ted Turner make out? Yes, he
will, and I do not think it is a virtue for me to bash him for that. Is
CNN good for Atlanta? Yes. Has Ted Turner brought lots and lots of jobs
to Georgia? He certainly has. Has he taken lots of risk? Yes, he has.
For that he has been rewarded through the accumulation of personal
wealth, and I do not think because of that that I need to sit back
[[Page H874]]
and say, well, let us tax him more because he has been successful.
I was talking to a group of people one time, I said, ``When you die,
should your house be cut in half and part of it go to the Government?
If you have two cars, for example, should one go to your children and
the other one go to Uncle Sam?'' They said certainly not. I said, ``You
realize,'' and maybe the gentleman could correct me if I am wrong, but
I believe the threshold is $3 million, ``if you have an estate of $3
million, the tax rate becomes 53 percent, I believe, or thereabouts.''
Mr. COX of California. Fifty-five percent, actually.
Mr. KINGSTON. OK, 55 percent. So if you have an estate of $3 million,
when you die Uncle Sam is going to get half of it. Not your children,
not your grandchildren, not your friends, not a charity, but Uncle Sam.
You talk to people about that, they do not realize that, because most
of us will not accumulate $3 million, unfortunately. But still, just
because they have been successful, they have to have a 55 percent tax
rate when they die.
Mr. COX of California. If the gentleman will yield, it is very
important to stress this point. It is the one that my colleague from
Arizona just made a moment ago. This is not a tax on estates as in
mansions or what have you.
Imagine, for example, a real-life example of a tree farm. Let us
imagine that the land that underlies the tree farm is worth $3 million.
But let us imagine that this tree farm, as it currently exists, has
been very carefully husbanded by, as is true in this case of the
Mississippi tree farmer, the grandson of slaves, who has gotten not
only his family but a whole lot of the people in the area employed
there.
And then let us imagine that this man is getting on in his years, and
he is beside himself because he cannot think of any fancy estate
planning technique that will keep that tree farm alive. When he dies,
he is looking death in the eyes now because he is on in years, he knows
that his family, his sons and what he considers to be his extended
family, the people who work on that farm, are going to lose their
opportunity to run it, the thing that he built up throughout his life,
because they are going to have to liquidate it, sell it, put it on the
auction block in order to pay the tax man, and there will be no more
tree farm.
Do you know what is going to happen to that land? It is going to be
developed. It is going to be subdivided, it is going to be purchased by
somebody who is going to put houses on it, a shopping center, a strip
mall or whatever it takes commercially to take advantage of the fact
that after capital gains taxes, after death taxes and so on, this has
some economic viability. So somebody who buys this property is going to
want to make money on it, because that is life, and we now have, with
death taxes, an additional casualty.
{time} 2145
Not just Mr. Thigpen, the name of the man in this real life example,
and his family and the people who work there who pay 100 percent tax
when they lose their jobs, not just the loss to society of this tree
farm, which has won environmental awards, not just the fact that the
whole business is going to be wiped out, not just the unfairness of it
all, but environmental destruction on top of it, improper stewardship
of our natural resources, because the Government is so ham fisted and
foolish about the way it collects revenue.
Mr. EHRLICH. Mr. Speaker, the gentleman from Georgia brings up a
really interesting point which was really part of our earlier
discussions concerning how we got here, how we got to where we punish
people who go out and take risks and accumulate capital and create
jobs. And the gentleman talked about class jealousy, class warfare, and
is it not true that unfortunately in American politics today class
warfare, successfully argued, leads to votes? Is that not a proven
formula? Is that not unfortunate? Is that not an unfortunate comment
about the state of debate in our country today when it comes to what
should be relatively--and I understand the gentleman from Arizona
talked about earlier there are philosophical differences, legitimate
philosophical differences, on the other side, but the fact is and the
evidence, as the gentleman from California has articulated tonight, the
evidence is such that decreasing taxes, ceasing the punishment of
success results in economic growth, but not necessarily votes.
Mr. COX of California. If I might just interject, one of the reasons
you see some Californians out here on the floor is that California
repealed our death tax by the initiative of the people, and every time
you hear somebody say class warfare, you know only some small segment
of the population will go for repealing death taxes, do not believe it.
The most populous State in the Union repealed our death taxes by an
initiative of the people, and we can do it in the people's House.
Mr. KINGSTON. If the gentleman will yield, you know what this is
about, as Mr. Cox just said, this is not about protecting the assets of
wealthy families so that when the oldest person or whoever dies that it
can be passed on and then the rich can remain rich. This is about
economic prosperity, creating an American dream that is accessible for
everybody where the unemployed can get a job, get on the economic
ladder and go out and share in the American dream through upward
mobility. We are talking about a tax system not to protect the rich but
to create opportunities for everyone so that the American dream is
accessible.
Mr. EHRLICH. I thank the gentleman from Georgia.
The last word goes to my colleague from Arizona.
Mr. HAYWORTH. I thank my colleague from Maryland for organizing this
special order this evening, Mr. Speaker. I would simply point out
another real life example that reaffirms the fact that this even
affects working families.
Once on national television, on C-SPAN I, one morning one of my
constituents called in discussing his situation in Pinetop/Lakeside,
the fact that he was a working man, and as my colleague from California
pointed out, because of inflation involving some of his land holdings,
land that he had invested in, pinching pennies, if you will, trying to
take care of his family and also provide for them. When he chose to
sell that land, he was penalized; he remained in essence cash poor.
That is the unfairness of the success and inflation tax otherwise known
as the capital gains tax.
I thank my colleague from California for giving us a real life
example of what happens when a group of people say death to the death
tax. It can provide new economic life and vitality for scores of
Americans. It offers true compassion not through the radical
redistribution of wealth, executed by Washington bureaucrats, but
through the drive, energy, tenacity, and ingenuity of the American
people who are willing to save, spend, and invest in their own
families, give of their own hearts to charity and in essence help
provide for the next generation.
Mr. EHRLICH. Mr. Speaker, I thank all my colleagues.
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