[Congressional Record Volume 143, Number 50 (Thursday, April 24, 1997)]
[Senate]
[Pages S3683-S3686]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. NICKLES:
  S. 650. A bill to amend the Internal Revenue Code of 1986 to reduce 
estate taxes by providing a 20 percent rate of tax on estates exceeding 
$1,000,000, and a 30 percent rate of tax on estates exceeding 
$10,000,000, and for other purposes; to the Committee on Finance.


                  the estate tax reduction act of 1997

  Mr. NICKLES. Mr. President, an April 15, 1997 letter to the Wall 
Street Journal, which I will insert for the Record, describes one 
family's recent experience with the estate tax.
  The letter states, ``We finally did it. We didn't want to, but we had 
no choice. Exactly nine months after my father-in-law died, my wife and 
I signed a check for $1,285,000 payable to the Internal Revenue 
Service.''
  The man who wrote this letter goes on to talk about what his family 
could have used that money for, such as buying a beach house, prepaying 
their kids' college education, or even retiring.
  Instead, he calculates that the federal government will spend in 26.8 
seconds what took his father-in-law 75 years to accumulate.
  After I read this letter, I decided to do some calculations of my 
own. In 1997, the federal government will collect $19.2 billion in 
estate taxes from 37,200 Americans. The federal government will spend 
that $19.2 billion in 4.3 days. Assuming each of those decedents was 70 
years old when they died, that represents more than 2.6 million years' 
worth of work and savings which will be wiped-out forever and spent by 
the government in less than five days.
  Mr. President, some people mistakenly believe estate taxes only 
affect the rich. In the Washington Post this week, Deputy Treasury 
Secretary Larry Summers says in response to a question about the estate 
tax, ``You have to raise revenue somewhere, and ability to pay seems 
like a good way to do it.''
  The truth is that there are thousands of small businesses and farms 
throughout the country owned and operated by middle-income Americans 
that are affected by the estate tax. In Oklahoma alone, statistics from 
the U.S. Census of Agriculture indicate that over 7,500 farms and 
ranches have a value that could trigger estate tax. Even those who do 
not end up paying the tax will spend thousands of dollars planning to 
avoid it or insuring against it.

  What is the ultimate impact of all this uneconomic activity? 
According to the Small Business Administration, only 30 percent of 
family businesses are passed down to a second generation, and only 13 
percent make it to a third generation.
  It does not take a lot of success in business or investing these days 
to become a ``taxable estate'' in the eyes of Uncle Sam. With the 
explosive growth in mutual fund investments over the last several 
years, and the corresponding increase in stock prices, workers will 
retire and discover their pension plan to be much larger than they had 
anticipated. Aggressive business owners who reinvest all their profits 
back into their business will find themselves asset-rich and cash-poor.
  Under current law, a taxable estate of $1 million faces a marginal 
tax rate of 39 percent. A taxable estate of $3 million qualifies you 
for a confiscatory 55 percent marginal tax rate. A tax credit limits 
the tax on the first $600,000 of the estate.
  If a person starts a small business--be it a farm, a restaurant, or a 
car dealership--and they work hard, expand, and become successful, why 
should Uncle Sam be entitled to 39 percent or 55 percent of it? What 
did the government do to build that business?
  This business owner has already paid annual income tax (twice if 
organized as a corporation), self-employment tax, FICA tax, FUTA tax, 
and capital gains tax. Why should the Government come in and say, after 
all these taxes are paid, ``We want over half of everything that's 
left''?
  Mr. President, the current estate tax is unfair and it is 
counterproductive. In the long term, it needs to be repealed. In the 
short term, it needs to be dramatically changed.
  I am introducing legislation today which represents dramatic change 
in the short term and provides a stepping-stone to eventual repeal. My 
bill goes right to the basic problem, which is estate tax rates. With 
seventeen marginal tax rate brackets ranging from 18 percent to 55 
percent, estate tax rates are too complex and too high.
  Under my legislation, taxable estates and gifts under $1 million will 
pay no tax, taxable estates and gifts from $1 million to $10 million 
will be taxed at a marginal rate of 20 percent, and taxable estates and 
gifts over $10 million will be taxed at a marginal rate of 30 percent.
  Mr. President, this legislation benefits all taxpayers by simplifying 
the structure of the estate tax and reducing the number of tax brackets 
from seventeen to three. Further, by increasing the basic exemption 
from $600,000 to $1 million, it will reduce the number of estates 
subject to taxation by more than 40 percent and greatly reduce the need 
for and cost of estate tax planning.
  The benefits of this legislation are also progressive. A taxable 
estate worth $1 million will have its tax liability completely 
eliminated. A taxable estate worth $5 million will receive a 64 percent 
reduction in tax liability, and a taxable estate worth $50 million will 
receive a 50 percent reduction in tax liability.
  Finally, the benefits of this legislation are fair. It does not 
single-out certain types of estate assets for preferential treatment, 
and thus avoids the problems of picking winners and losers.
  The enactment of estate tax reform this year will not be very easy, 
Mr. President, despite broad, bipartisan support in the Senate and the 
House.

[[Page S3684]]

The Clinton administration continues to block estate tax reform with 
partisan, class-warfare rhetoric. In the Washington Post article I 
mentioned earlier about estate tax reform, Deputy Secretary Summers 
even said, ``When it comes to the estate tax, there is no case other 
than selfishness.''
  I find that statement offensive, and I wonder if President Clinton 
agrees with his lieutenant. Is passing your life's work on to your 
children is ``selfish''?
  I encourage all my colleagues to read the letter I submitted with my 
statement today and ask themselves, ``Is our estate tax policy 
promoting freedom, family, and opportunity, or does it just promote the 
redistribution of wealth?''
  Mr. President, I ask unanimous consent that additional material be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                 S. 650

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Estate Tax Reduction Act of 
     1997''.

     SEC. 2. 20 PERCENT RATE OF TAX ON ESTATES EXCEEDING 
                   $1,000,000; 30 PERCENT RATE OF TAX ON ESTATES 
                   EXCEEDING $10,000,000.

       (a) In General.--Section 2001(c) of the Internal Revenue 
     Code of 1986 (relating to imposition and rate of tax) is 
     amended to read as follows:
       ``(c) Rate Schedule.--

``If the amount with respect to which the tentative tax to be computed 
The tentative tax is:..................................................
20 percent.0,000,000...................................................
$2,000,000 plus 30 percent of the excess over $10,000,000.''...........

       (b) Increase in Unified Credit.--
       (1) In general.--Section 2010(a) of the Internal Revenue 
     Code of 1986 (relating to unified credit against estate tax) 
     is amended by striking ``$192,800'' and inserting 
     ``$200,000''.
       (2) Gift tax credit.--Section 2505(a)(1) of such Code 
     (relating to unified credit against gift tax) is amended by 
     striking ``$192,800'' and inserting ``$200,000''.
       (3) Conforming amendments.--
       (A) Section 2102(c)(3)(A) of such Code is amended by 
     striking ``$192,800'' and inserting ``$200,000''.
       (B) Section 6018(a)(1) of such Code is amended by striking 
     ``$600,000'' and inserting ``$1,000,000''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to the estates of decedents dying, and gifts 
     made, after the date of the enactment of this Act.
                                                                    ____


               [From the Wall St. Journal, Apr. 15, 1997]

                        Eliminate the Middleman

                         (By Sanford F. Young)

       We finally did it. We didn't want to, but we had no choice.
       Exactly nine months after my father-in-law died, my wife 
     and I signed a check for $1,285,000, payable to the Internal 
     Revenue Service.
       Now, you may ask what we are complaining about. After all, 
     we were born into enlightened, liberal upper-middle-income 
     families in the 1950s. Our fathers extolled our obligation to 
     pay taxes so that the government can provide for the less 
     fortunate. Indeed, it may have been those principles that 
     dissuaded my father-in-law from engaging in any estate 
     planning. So we had to sign away--in addition to state 
     inheritance taxes, deferred income taxes, excise taxes and 
     countless legal and accounting fees incurred just so we could 
     compute how much tax we must pay--the great bulk of my 
     father-in-law's estate.
       Having had the privilege of holding on to this much money 
     for these past months--as executors of the estate we are 
     legally obligated to accumulate and preserve the assets for 
     paying taxes--we dreamed of what we could have done with the 
     funds: buy a beach house, prepay our kids' college education, 
     even quit our jobs and retire. Instead, the reality of how 
     fast that money will be spent by the government is hammered 
     home by the giant billboard tallying government debt at the 
     intersection of Sixth Avenue and 43rd Street in New York. I 
     calculate that the federal government will spend in 26.8 
     seconds what took my father-in-law 75 years to accumulate--
     after the taxes he paid during his lifetime. Not a satisfying 
     thought.
       We thus propose the following: Rather than paying my 
     father-in-law's hard-earned money to the government, which 
     acts as no more than a greedy and inefficient middleman 
     between the haves and have-nots, it should simply identify 
     three of the neediest families and let us hand over a half-
     million dollars or so to each. This way we can know that my 
     father-in-law's money will make a difference. And at least 
     someone would give my father-in-law a posthumous thank-you.
                                                                    ____


                                                                                   NICKLES ESTATE TAX PROPOSAL                                                                                  
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                       Current law                                                                        Proposal                                             Impact           
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                     Marginal                                                                Marginal                                                                                  As a % of
                     tax rate     Tax before      Unified       Tax after      Effective     tax rate     Tax before      Unified       Tax after      Effective    Reduction in tax    current 
                       (%)      unified credit     credit    unified credit    tax rate        (%)      unified credit     credit    unified credit    tax rate        liability          law   
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Taxable estate:                                                                                                                                                                                 
10,000...........          18           1,800      192,800               0            0            20           2,000      200,000               0            0    .................  ..........
20,000...........          20           3,800      192,800               0            0            20           4,000      200,000               0            0    .................  ..........
40,000...........          22           8,200      192,800               0            0            20           8,000      200,000               0            0    .................  ..........
60,000...........          24          13,000      192,800               0            0            20          12,000      200,000               0            0    .................  ..........
80,000...........          26          18,200      192,800               0            0            20          16,000      200,000               0            0    .................  ..........
100,000..........          28          23,800      192,800               0            0            20          20,000      200,000               0            0    .................  ..........
150,000..........          30          38,800      192,800               0            0            20          30,000      200,000               0            0    .................  ..........
250,000..........          32          70,800      192,800               0            0            20          50,000      200,000               0            0    .................  ..........
500,000..........          34         155,800      193,800               0            0            20         100,000      200,000               0            0    .................  ..........
750,000..........          37         248,300      192,800          55,500            7            20         150,000      200,000               0            0            (55,500)        -100 
1,000,000........          39         345,800      192,800         153,000           15            20         200,000      200,000               0            0           (153,000)        -100 
1,250,000........          41         448,300      192,800         255,500           20            20         250,000      200,000          50,000            4           (205,500)         -80 
1,500,000........          43         555,800      192,800         363,000           24            20         300,000      200,000         100,000            7           (263,000)         -72 
2,000,000........          45         780,800      192,800         588,000           29            20         400,000      200,000         200,000           10           (388,000)         -66 
2,500,000........          49       1,025,800      192,800         833,000           33            20         500,000      200,000         300,000           12           (533,000)         -64 
3,000,000........          53       1,290,800      192,800       1,098,000           37            20         600,000      200,000         400,000           13           (698,000)         -64 
5,000,000........          55       2,390,800      192,800       2,198,000           44            20       1,000,000      200,000         800,000           16         (1,398,000)         -64 
10,000,000.......          55       5,140,800      192,800       4,948,000           49            20       2,000,000      200,000       1,800,000           18         (3,148,000)         -64 
20,000,000.......          55      11,000,000            0      11,000,000           55            30       5,000,000      200,000       4,800,000           24         (6,200,000)         -56 
50,000,000.......          55      27,500,000            0      27,500,000           55            30      14,000,000      200,000      13,800,000           28        (13,700,000)         -50 
100,000,000......          55      55,000,000            0      55,000,000           55            30      29,000,000      200,000      28,800,000           29        (26,200,000)        -48  
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Replace the current unified transfer tax rate structure with two rates, 20% under $10 million and 30% over $10 million. Increase the unified credit equivalent to $1 million.                   
Staff estimates assume reductions are fully phased-in.                                                                                                                                          

            Estate Tax Reform Comparision--$1 Million Estate

       S. 2 increases the basic exemption to $1 million, excludes 
     100% of the first $1.5 million in family business assets, and 
     excludes 50% of any remaining family business assets.
       S. 479 increases the unified credit equivalent to $1 
     million, excludes 100% of the first $1.5 million in family 
     business assets, and excludes 50% of the next $8.5 million in 
     family business assets.
       The Nickles Plan imposes no tax on estates up to $1 
     million, taxes estates up to $10 million at 20%, and taxes 
     estates over $10 million at 30%.

----------------------------------------------------------------------------------------------------------------
                                         Current law            S. 2              S. 479          Nickles Plan  
----------------------------------------------------------------------------------------------------------------
         ALL FAMILY BUSINESS                                                                                    
                                                                                                                
Family business assets..............          1,000,000          1,000,000          1,000,000          1,000,000
Other assets........................                  0                  0                  0                  0
                                     ---------------------------------------------------------------------------
      Total estate..................          1,000,000          1,000,000          1,000,000          1,000,000
Family business exclusion...........              (\1\)        (1,000,000)        (1,000,000)              (\1\)
Taxable estate......................          1,000,000                  0                  0          1,000,000
Tax before unified credit...........            345,800                  0                  0            200,000
Unified credit......................            192,800            345,800            345,800            200,000
Tax after UC........................            153,000                  0                  0                  0
Effective tax rate (percent)........                 15                  0                  0                  0
                                     ===========================================================================

[[Page S3685]]

                                                                                                                
         NO FAMILY BUSINESS                                                                                     
                                                                                                                
Family business assets..............                  0                  0                  0                  0
Other assets........................          1,000,000          1,000,000          1,000,000          1,000,000
                                     ---------------------------------------------------------------------------
      Total estate..................          1,000,000          1,000,000          1,000,000          1,000,000
Family business exclusion...........              (\1\)                  0                  0              (\1\)
Taxable estate......................          1,000,000          1,000,000          1,000,000          1,000,000
Tax before unified credit...........            345,800            345,800            345,800            200,000
Unified credit......................            192,800            345,800            345,800            200,000
Tax after UC........................            153,000                  0                  0                  0
Effective tax rate (percent)........                 15                  0                  0                  0
                                     ===========================================================================
                SPLIT                                                                                           
                                                                                                                
Family business assets..............            500,000            500,000            500,000            500,000
Other assets........................            500,000            500,000            500,000            500,000
                                     ---------------------------------------------------------------------------
      Total estate..................          1,000,000          1,000,000          1,000,000          1,000 000
Family business exclusion...........              (\1\)          (500,000)          (500,000)              (\1\)
Taxable estate......................          1,000,000            500,000            500,000          1,000,000
Tax before unified credit...........            345,800            155,800            155,800            200,000
Unified credit......................            192,800            345,800            345,800            200,000
Tax after UC........................            153,000                  0                  0                  0
Effective tax rate (percent)........                 15                  0                  0                  0
----------------------------------------------------------------------------------------------------------------
\1\ Not applicable.                                                                                             
                                                                                                                
Note.--For simplicity, the current law phase-out of the unified credit and marginal rate benefits for estates   
  between $10,000,000 and $21,040,000 is not computed in these examples.                                        

            Estate Tax Reform Comparison--$5 Million Estate

       S. 2 increases the basic exemption to $1 million, excludes 
     100% of the first $1.5 million in family business assets, and 
     excludes 50% of any remaining family business assets.
       S. 479 increases the unified credit equivalent to $1 
     million, excludes 100% of the first $1.5 million in family 
     business assets, and excludes 50% of the next $8.5 million in 
     family business assets.
       The Nickles Plan imposes no tax on estates up to $1 
     million, taxes estates up to $10 million at 20%, and taxes 
     estates over $10 million at 30%.

----------------------------------------------------------------------------------------------------------------
                                         Current law            S. 2              S. 479          Nickles Plan  
----------------------------------------------------------------------------------------------------------------
         ALL FAMILY BUSINESS                                                                                    
                                                                                                                
Family business assets..............          5,000,000          5,000,000          5,000,000          5,000,000
Other assets........................                  0                  0                  0                  0
                                     ---------------------------------------------------------------------------
      Total estate..................          5,000,000          5,000,000          5,000,000          5,000,000
Family business exclusion...........              (\1\)        (3,250,000)        (3,250,000)              (\1\)
Taxable estate......................          5,000,000          1,750,000          1,750,000          5,000,000
Tax before unified credit...........          2,398,000            668,300            668,300          1,000,000
Unified credit......................            192,800            345,800            345,800            200,000
Tax after UC........................          2,205,200            322,500            322,500            800,000
Effective tax rate (percent)........                 44                  6                  6                 16
                                     ===========================================================================
         NO FAMILY BUSINESS                                                                                     
                                                                                                                
Family business assets..............                  0                  0                  0                  0
Other assets........................          5,000,000          5,000,000          5,000,000          5,000,000
                                     ---------------------------------------------------------------------------
      Total estate..................          5,000,000          5,000,000          5,000,000          5,000,000
Family business exclusion...........              (\1\)                  0                  0              (\1\)
Taxable estate......................          5,000,000          5,000,000          5,000,000          5,000,000
Tax before unified credit...........          2,398,000          2,398,000          2,398,000          1,000,000
Unified credit......................            192,800            345,800            345,800            200,000
Tax after UC........................          2,205,200          2,052,200          2,052,200            800,000
Effective tax rate (percent)........                 44                 41                 41                 16
                                     ===========================================================================
                SPLIT                                                                                           
                                                                                                                
Family business assets..............          2,500,000          2,500,000          2,500,000          2,500,000
Other assets........................          2,500,000          2,500,000          2,500,000          2,500,000
                                     ---------------------------------------------------------------------------
      Total estate..................          5,000,000          5,000,000          5,000,000          5,000,000
Family business exclusion...........              (\1\)        (2,000,000)        (2,000,000)              (\1\)
Taxable estate......................          5,000,000          3,000,000          3,000,000          5,000,000
Tax before unified credit...........          2,398,000          1,298,000          1,298,000          1,000,000
Unified credit......................            192,800            345,800            345,800            200,000
Tax after UC........................          2,205,200            952,200            952,200            800,000
Effective tax rate (percent)........                 44                 19                 19                 16
----------------------------------------------------------------------------------------------------------------
\1\ Not applicable.                                                                                             
                                                                                                                
Note.--For simplicity, the current law phase-out of the unified credit and marginal rate benefits for estates   
  between $10,000,000 and $21,040,000 is not computed in these examples.                                        

            Estate Tax Reform Comparison--$50 Million Estate

       S. 2 increases the basic exemption to $1 million, excludes 
     100% of the first $1.5 million in family business assets, and 
     excludes 50% of any remaining family business assets.
       S. 479 increases the unified credit equivalent to $1 
     million, excludes 100% of the first $1.5 million in family 
     business assets, and excludes 50% of the next $8.5 million in 
     family business assets.
       The Nickles Plan imposes no tax on estates up to $1 
     million, taxes estates up to $10 million at 20%, and taxes 
     estates over $10 million at 30%.

----------------------------------------------------------------------------------------------------------------
                                         Current law            S. 2              S. 479          Nickles Plan  
----------------------------------------------------------------------------------------------------------------
         ALL FAMILY BUSINESS                                                                                    
                                                                                                                
Family business assets..............         50,000,000         50,000,000         50,000,000         50,000,000
Other assets........................                  0                  0                  0                  0
                                     ---------------------------------------------------------------------------
      Total estate..................         50,000,000         50,000,000         50,000,000         50,000,000
Family business exclusion...........              (\1\)       (25,750,000)        (5,750,000)              (\1\)
Taxable estate......................         50,000,000         24,250,000         44,250,000         50,000,000
Tax before unified credit...........         27,148,000         12,985,500         23,985,500         14,000,000
Unified credit......................            192,800            345,800            345,800            200,000
Tax after UC........................         26,955,200         12,639,700         23,639,700         13,800,000
Effective tax rate (percent)........                 54                 25                 47                 28
                                     ===========================================================================
         NO FAMILY BUSINESS                                                                                     
                                                                                                                
Family business assets..............                  0                  0                  0                  0
Other assets........................         50,000,000         50,000,000         50,000,000         50,000,000
                                     ---------------------------------------------------------------------------
      Total estate..................         50,000,000         50,000,000         50,000,000         50,000,000
Family business exclusion...........              (\1\)                  0                  0              (\1\)
Taxable estate......................         50,000,000         50,000,000         50,000,000         50,000,000
Tax before unified credit...........         27,148,000         27,148,000         27,148,000         14,000,000

[[Page S3686]]

                                                                                                                
Unified credit......................            192,800            345,800            345,800            200,000
Tax after UC........................         26,955,200         26,802,200         26,802,200         13,800,000
Effective tax rate (percent)........                 54                 54                 54                 28
                                     ===========================================================================
                SPLIT                                                                                           
                                                                                                                
Family business assets..............         25,000,000         25,000,000         25,000,000         25,000,000
Other assets........................         25,000,000         25,000,000         25,000,000         25,000,000
                                     ---------------------------------------------------------------------------
      Total estate..................         50,000,000         50,000,000         50,000,000         50,000,000
Family business exclusion...........              (\1\)       (13,250,000)        (5,750,000)              (\1\)
Taxable estate......................         50,000,000         36,750,000         44,250,000         50,000,000
Tax before unified credit...........         27,148,000         19,860,500         23,985,500         14,000,000
Unified credit......................            192,800            345,800            345,800            200,000
Tax after UC........................         26,955,200         19,514,700         23,639,700         13,800,000
Effective tax rate (percent)........                 54                 39                 47                 28
----------------------------------------------------------------------------------------------------------------
\1\ Not applicable.                                                                                             
                                                                                                                
Note.--For simplicity, the current law phase-out of the unified credit and marginal rate benefits for estates   
  between $10,000,000 and $21,040,000 is not computed in these examples.                                        

                                 ______