[Congressional Record Volume 145, Number 96 (Thursday, July 1, 1999)]
[Senate]
[Pages S8137-S8139]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ALLARD:
  S. 1342. A bill to repeal the Federal estate and gift taxes and the 
tax on generation-skipping transfers; to the Committee on Finance.


              legislation to repeal the federal death tax

 Mr. ALLARD. Mr. President, today I am introducing legislation 
to repeal the federal death tax, otherwise known as the estate and gift 
tax. I ask unanimous consent that the text of the bill be printed in 
the Record. I also ask unanimous consent that Colorado Senate Joint 
Memorial 99-004, approved by the Colorado Legislature be printed in the 
Record. This memorial resolution urges the immediate repeal of the 
Federal estate and gift tax. Finally, I ask that an article I recently 
wrote on this topic be printed in the Record.
  The material follows:

                                S. 1342

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

     SECTION 1. REPEAL OF FEDERAL TRANSFER TAXES.

       (a) In General.--Subtitle B of the Internal Revenue Code of 
     1986 is repealed.
       (b) Effective Date.--The repeal made by subsection (a) 
     shall apply to the estates of decedents dying, and gifts and 
     generation-skipping transfers made, after the date of 
     enactment of this Act.
       (c) Technical and Conforming Changes.--The Secretary of the 
     Treasury or the Secretary's delegate shall, as soon as 
     practicable but in any event not later than 90 days after the 
     date of enactment of this Act, submit to the Committee on 
     Ways and Means of the House of Representatives and the 
     Committee on Finance of the Senate a draft of any technical 
     and conforming changes in the Internal Revenue Code of 1986 
     which are necessary to reflect throughout such Code the 
     changes in the substantive provisions of law made by this 
     Act.
                                  ____


                       Time to End the Estate tax

                       (By Senator Wayne Allard)

       As we approach the new millennium a consensus has emerged 
     in favor of significant tax reform. While some prefer the 
     flat tax, others advocate the sales tax. A third camp argues 
     that Congress should avoid a complete overhaul and instead 
     work to improve the existing system. Whatever path is chosen, 
     it should include elimination of the federal estate and gift 
     tax. Repeal of the estate tax is the first step toward a 
     fairer and flatter tax system.
       Congress has levied estate taxes at various times 
     throughout U.S. history, particularly during war. The current 
     estate tax dates back to 1916, a time when many in Congress 
     were looking for ways to redistribute some of the wealth held 
     by a small number of super-rich families. This first 
     permanent estate tax had a top rate of only 10 percent, and 
     the threshold was high enough to ensure that the tax effected 
     only a tiny fraction of the population.
       Like the rest of our tax code, it did not take long for 
     this limited tax to evolve into a more substantial burden. In 
     only the second year of the tax, the top rate was increased 
     to 25 percent. By 1935 the top rate was 70 percent and in 
     1941 it reached an all time high of 77 percent.
       While income tax rates have declined in recent decades, 
     estate taxes have remained high. Today, the top estate tax 
     rate is 55 percent (a top marginal rate of 60 percent is paid 
     by some estates), and the tax is imposed on amounts above the 
     1999 exemption level of $650,000 (value above $650,000 is 
     taxed at an initial rate of 37%).
       Generally, the value of all assets held at death is 
     included in the estate for purposes of assessing the tax--
     this includes residences, business assets, stocks, bonds, 
     savings, personal property, etc. Estate tax returns are due 
     within nine months of the decedent's death (a six-month 
     extension is available) and with the exception of certain 
     closely held businesses, the tax is due when the return is 
     filed. The tax is paid by the estate rather than by the 
     beneficiary (in contrast to an inheritance tax).
       The 1997 tax bill increased the unified estate and gift tax 
     exemption from $600,000 to $1 million. However, this is done 
     very gradually and does not reach the $1 million level until 
     2006. The bill also increased the exemption amount for a 
     qualified family owned business to $1.3 million. While both 
     actions are a good first step, they barely compensate for the 
     effects of inflation. The $600,000 exemption level was last 
     set in 1987, just to keep pace with inflation the exemption 
     should have risen to $850,000 by 1997. Incremental 
     improvements help, but we need more substantial reform.
       The United States retains among the highest estate taxes in 
     the world. Among industrial nations, only Japan has a higher 
     top rate than the U.S. But Japan's 70 percent applies to 
     an inheritance of $16 million or more. The U.S. top rate 
     of 55% kicks in on estates of $3 million or more. France, 
     the United Kingdom, and Ireland all have top rates of 40%, 
     and the average top rate of OECD countries is only 29%. 
     Australia, Canada, and Mexico presently have no estate 
     taxes.
       The strongest argument that supporters of the estate tax 
     make is that most American families will never have to pay an 
     estate tax. While this is true, it does not justify retention 
     of a tax that causes great harm to family businesses and 
     farms, often constitutes double taxation, limits economic 
     growth, consumes significant resources in unproductive tax 
     compliance activities, and raises only a tiny portion of 
     federal tax revenues. In other words, the estate tax is not 
     worth all the trouble.
       The estate tax can destroy a family business. This is the 
     most disturbing aspect of the tax. No American family should 
     lose its business or farm because of the estate tax. Current 
     estimates are that more than 70 percent of family businesses 
     do not survive the

[[Page S8139]]

     second generation, and 87 percent do not survive the third 
     generation. While there are many reasons for these high 
     numbers, the estate tax is certainly one of them. The estate 
     tax fails to distinguish between cash and non-liquid assets, 
     and since family businesses are often asset-rich and cash 
     poor, they can be forced to sell assets in order to pay the 
     tax. This practice can destroy the business outright, or 
     leave it so strapped for capital that long-term survival is 
     jeopardized. Similarly, more and more large ranches and farms 
     are facing the prospect of break-up and sale to developers in 
     order to pay the estate tax. In addition to destroying a 
     family business, this harms the environment.
       Recently, the accounting firm Price Waterhouse calculated 
     the taxable components of 1995 estates. While 21 percent of 
     assets were corporate stock and bonds, and another 21 percent 
     were mutual fund assets, fully 32 percent of gross estates 
     consisted of ``business assets'' such as stock in closely 
     held businesses, interests in non-corporate businesses and 
     farms, and interests in limited partnerships. In larger 
     estates this portion rose to 55 percent. Clearly, a 
     substantial portion of taxable estates consist of family 
     businesses.
       The National Center for Policy Analysis reports that a 1995 
     survey by Travis Research Associates found that 51 percent of 
     family businesses would have significant difficulty surviving 
     the estate tax, and 30 percent of respondents said they would 
     have to sell part or all of their business. This is supported 
     by a 1995 Family Business Survey conducted by Matthew 
     Greenwald and Associates which found that 33 percent of 
     family businesses anticipate having to liquidate or sell part 
     of their business to pay the estate tax.
       While some businesses are destroyed by the estate tax, many 
     more expend substantial resources in tax planning and 
     compliance. Those that survive the estate tax often do so by 
     purchasing expensive insurance. A 1995 Gallup survey of 
     family firms found that 23 percent of the owners of companies 
     valued at over $10 million pay $50,000 or more per year in 
     insurance premiums on policies designed to help them pay the 
     eventual tax bill. The same survey found that family firms 
     estimated they had spent on average over $33,000 on 
     lawyers, accountants and financial planners over a period 
     of 6.5 years in order to prepare for the estate tax.
       In fact, one of the great ironies of the estate tax is that 
     an extensive amount of tax planning can very nearly eliminate 
     the tax. This results in a situation where the very wealthy 
     can end up paying less estate tax than those of more modest 
     means. As noted above, life insurance can play a big role in 
     estate planning, but there are also mechanisms such as 
     qualified personal residence trusts, charitable remainder 
     trusts, charitable lead trusts, generation-skipping trusts, 
     and the effective use of annual gifts. While these mechanisms 
     may reduce the tax, they waste resources that could be put to 
     much better use growing businesses and creating jobs.
       One of the tenets of a fair tax system is that income is 
     taxed only once. Income should be taxed when it is first 
     earned or realized, it should not be repeatedly re-taxed by 
     government. The estate tax violates this tenet. At the time 
     of a person's death, much of their savings, business assets, 
     or farm assets have already been subjected to federal, state, 
     and local tax. These same assets are then taxed again under 
     the estate tax. Price Waterhouse has calculated that those 
     families that will be liable for the estate tax face the 
     prospect of nearly 73 percent of every dollar being taxed 
     away.
       Repeal of the estate tax would benefit the economy. Without 
     the estate tax, greater business resources could be put 
     toward productive economic activities. Recently, the Center 
     for the Study of Taxation commissioned George Mason 
     University Professor Richard Wagner to estimate the economic 
     impact of a phase-out of the estate tax. He estimated that if 
     the tax is phased out over 5 years beginning in 1999, that 
     the economy would create 189,895 more jobs and would grow by 
     an additional $509 billion over a ten year period. Similarly, 
     a recent Heritage Foundation study simulated the results of 
     an estate tax repeal under two respected economic models, the 
     Washington University Macro Model, and the Wharton 
     Econometric Model. Under the models, a repeal of the tax is 
     forecast to increase jobs and GDP, as well as reduce the cost 
     of capital.
       One might expect that with all the economic dislocation 
     associated with the estate tax that it raises a significant 
     amount of revenue or accomplishes a redistributionist social 
     policy. In fact, the revenue take is quite modest--
     approximately 1 percent of federal revenue, or $14.7 billion 
     in 1995. And as for social policy, the ability of the federal 
     government to equalize wealth through the estate tax may be 
     quite limited. A 1995 study published by the Rand Corporation 
     found that for the very wealthiest Americans, only 7.5 
     percent of their wealth is attributable to inheritance--the 
     other 92.5 percent is from earnings.
       America is a nation of tremendous economic opportunity. 
     Success is determined principally through hard work and 
     individual initiative. Our tax policy should focus on 
     encouraging greater initiative rather than on attempts to 
     limit inherited wealth. The estate tax is a relic. It damages 
     family businesses, harms the economy, and constitutes double 
     taxation. It is time for the estate tax to go.
                                  ____


                      Senate Joint Memorial 99-004

       Whereas, The Federal Unified Gift and Estate Tax, or 
     ``Death Tax'', generates a minimal amount of federal revenue, 
     especially considering the high cost of collection and 
     compliance and in fact has been shown to decrease federal 
     revenues from what they might otherwise have been; and
       Whereas, This federal Death Tax has been identified as 
     destructive to job opportunity and expansion, especially to 
     minority entrepreneurs and family farmers; and
       Whereas, This federal Death Tax causes severe hardship to 
     growing family businesses and family farming operations, 
     often to the point of partial or complete forced liquidation; 
     and
       Whereas, Critical state and local leadership assets are 
     unnecessarily destroyed and forever lost to the future 
     detriment of their communities through relocation or 
     liquidation; and
       Whereas, Local and state schools, churches, and numerous 
     charitable organizations would greatly benefit from the 
     increased employment and continued family business leadership 
     that would result from the repeal of the federal Death Tax; 
     now, therefore,
       Be It Resolved by the Senate of the Sixty-second General 
     Assembly of the State of Colorado, the House of 
     Representatives concurring herein: That the Congress of the 
     United States is hereby memoralized to immediately repeal the 
     Federal Unified Gift and Estate Tax.
       Be It Further Resolved, That copies of this Joint Memorial 
     be sent to the President of the United States, the Speaker of 
     the United States House of Representatives, the President of 
     the United States Senate, and each member of the Colorado 
     congressional delegation.
                                 ______