[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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