[Congressional Record Volume 146, Number 28 (Tuesday, March 14, 2000)]
[House]
[Pages H933-H935]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
REPUBLICAN ESTATE TAX POLICY
The SPEAKER pro tempore (Mrs. Biggert). Under the Speaker's announced
policy of January 19, 1999, the gentleman from Massachusetts (Mr.
Frank) is recognized during morning hour debates for 5 minutes.
Mr. FRANK of Massachusetts. Madam Speaker, rarely have the
differences between the two political parties been more graphically
demonstrated than when we debated the package of a minimum wage
increase and tax reductions.
The resistance on the part of the Republican leadership to a fairly
small minimum wage increase in the midst of the greatest prosperity we
have ever known speaks a great deal to a social insensitivity, but
equally distressing to me is their decision that we should begin to
reduce one of the most progressive taxes in America. And, of course,
their goal is ultimately to repeal it. I speak of the estate tax.
We have some unfair taxes in America, and many people feel that
working people, people of average income, people who are making
$30,000, $40,000, $50,000 a year pay an unfair share of the tax burden.
And I believe that is true in part because of the payroll taxes.
We have one tax, the estate tax, which literally applies only to
millionaires. And it does not even apply to millionaires. It applies to
people who have shown a rare talent. They have shown an ability to be
related to millionaires.
Madam Speaker, I think being related to a millionaire is certainly a
great asset in life, and I would recommend it to people. If you have a
chance to be related to someone very wealthy, take it. But I do not
believe that being related to an extremely wealthy person who has just
died is a mark of inherent value. It is neutral. It does not make you a
bad person, but it does not make you a hero either.
And the notion that you have an absolute right to be greatly rewarded
by your good fortune in having a very rich relative seems to me a
mistake. Now,
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what is particularly interesting is the estate tax brings in a little
over $20 billion a year, and it will soon be the case that your estate
has to be a million dollars or more before you pay it. And the great
bulk of it is paid by people who die and leave tens of millions of
dollars.
Now, here is what we do if we abolish the estate tax, as the
Republican party wants to do it, we say to old people who, because most
of the people who pay the estate tax or over 90 percent were 65 or
older when they die, we say to these older people who died rich that we
will be very protective of them, or at least of their smart relatives
who figured out how to be related to them.
On the other hand, if you are old and alive and not very rich, but
you are on Medicare and cannot afford prescription drugs, the
Republican position is, well, that is tough, you will just have to
learn to deal with it. In other words, the Republican party tells us on
the one hand we cannot afford this wealthy Nation to provide full
prescription drug coverage to middle-income and lower-income elderly
people, not the very poor, they are covered by Medicaid, but people who
are making $25,000, $30,000, $35,000 a year in retirement, they ought
to get no aid because we need the money that would have gone to pay for
prescription drugs to alleviate the problem of Bill Gates' heirs and
the heirs of other people who have made millions of dollars.
In other words, we are being asked to show more respect for older
people who are dead and rich than for older people who are still alive
and not wealthy.
Madam Speaker, now, there is one other aspect of this effort to
reduce and, ultimately, repeal the estate tax that ought to be called
into question, and that is the negative effect it will have on private
charity.
My Republican colleagues talk about how much they want to help
private charity. According to a recent study, I will put the New York
Times article displaying this study from a couple of Boston College
researchers, into the Record, for estates that are over $20 million, a
very considerable number, 39 percent of the money at death goes to
chart, while only 34 percent goes to taxes. And, indeed, these two
professors conclude in their study, two eminent scholars from an
institution mostly in my district, at Boston College. They conclude
that, I am now quoting from the article, if the estate tax is repealed
or significantly reduced, however, as Congress voted to do earlier this
year in a bill that President Clinton vetoed, that was last year,
bequests to charities might be smaller than the Boston College model
predicted.
The Republican approach is to go to the aid of the wealthiest 1 or 2
percent of the people in the country and not just to them, but to the
people who are smart enough to be related to them or to have otherwise
ingratiated themselves to them, to deny prescription drug coverage to
the great bulk of middle-income Americans and lower-income Americans,
and while we are at it, reduce the amount that goes to private charity.
That is the difference between the parties.
Madam Speaker, I include the following two articles for the Record
which illustrate these points.
[From the New York Times, July 25, 1999]
Study Contradicts Foes of Estate Tax
(By David Cay Johnston)
Congressional opponents of the estate tax say it
discourages savings, costs the economy more than it raises
for the Government and makes it very difficult for a family-
owned farm or business to be passed to the next generation.
But all of those arguments are contradicted by Government
tax and economic data, according to a book-length study that
will be published tomorrow in the policy magazine Tax Notes.
The article comes after the House passed on Thursday night
the Republicans' bill to cut taxes by $792 billion, including
the repeal of the estate tax. Similar legislation was being
considered in the Senate but the outcome of the repeal is in
doubt because President Clinton has promised to veto it.
Yet the article in Tax Notes seems likely to have a
profound effect on the debate over estate taxes, experts say.
Data from estate tax returns and other records do not support
the claims of estate tax opponents, according to the article,
by Charles Davenport and Jay A. Soled, professors at Rutgers
University who teach estate tax law and business management.
The estate tax is projected in the Federal budget to raise
about $28 billion this year. That is less than one-third of 1
percent of the gross domestic product, which is too slight to
retard economic growth, the authors say.
While the tax rate on the largest estates can be 55
percent, Internal Revenue Service data cited in the study
show that in 1996 the average tax on estates of $600,000 to
$1 million was 6 percent.
It costs the I.R.S. 2 cents on the dollar to administer the
tax, the authors calculate. They say the combined private and
Government costs total about 7 cents on the estate tax
dollar.
Professors Davenport and Soled said Congressional testimony
by critics of the estate tax contending that the tax costs
more than it raises was based on flawed data, including a
study that estimated that every dollar raised in Federal
income taxes cost the economy 65 cents more. That figure was
dismissed as absurd by the authors.
They also disputed another contention of the critics, that
rich people spend heavily in their later years in order to
reduce estate taxes. Instead, the authors say, many rich
people save more money to offset the tax
They say that the reasons family businesses are not passed
to the next generation have little to do with estate taxes. A
primary reason, the authors say, is the burden on heirs who
want to keep the business and must raise cash to pay off
those heirs who do not.
While the estate tax nominally begins when net worth at
death exceeds $650,000 (1.3 million for a married couple),
Congress lets a couple pass on $4.5 million untaxed if they
own a business and $7.4 million if they own a farm. Only
about 1 in 1,000 American families is worth $7.4 million.
The estate tax will be paid this year by the wealthiest 2
percent of Americans who die.
The Congressional Joint Committee on Taxation estimated
last week that repeal of the estate tax would reduce Federal
revenues by $75 billion over the next 10 years, even though
the Federal budget projects the estate tax will raise more
than that amount in the next three years alone.
The chairman of the House Ways and Means Committee,
Representative Bill Archer of Texas, who had not seen the
article, said that he was skeptical of its claims and any
data drawn from I.R.S. records.
``Every dollar taken by the death tax is a dollar taken out
of savings when what this country needs is more private
savings,'' said Mr. Archer, the author of the House
Republicans' tax bill. He said the costs of the estate tax
included discouraging wealthy foreigners from moving to the
United States with their capital and skills.
As to whether existing exemptions are enough for farms to
stay in families, he said, ``The input from the Ag Belt is
totally contrary to that.''
The authors say that among the virtues they see in the
estate tax are that it taxes some money that has slipped past
the income tax system, it is paid only by those most able to
pay, it encourages financial planning and charitable giving
and it tends to ease the trend toward concentration of
wealth. The richest 1 percent of Americans now one half of
all stocks, bonds and other assets, a record level, according
to Professor Edward N. Wolff of New York University.
Experts say the Tax Notes article may be as influential as
the 1994 Yale Law Review article by Edward J. McCaffery of
the University of Southern California Law School, who
exhorted liberals to join conservatives in opposing the
estate tax as inefficient and unfair. Since then, the Tax
Notes article says, ``talk about the death-tax has been a
monologue by the tax's opponents.'' The article is available
at www.tax.org on the internet.
____
[From the New York Times, October 20, 1999]
A Larger Legacy May Await Generations X, Y and Z
(By David Cay Johnston)
Boston College researchers say that the widely cited
estimate that $10.4 trillion of wealth will be transferred to
younger generations over a half-century is far short of the
likely amount. They estimate the wealth transfer will be $41
trillion to $136 trillion.
``It can now be safely said that the forthcoming wealth
transfer will be many times larger than anyone has previously
estimated,'' said Paul G. Schervish, director of the Boston
College Social Welfare Research Institute, who has spent the
last 15 years studying wealth and who created a computer
model to study wealth transfers.
The new figures suggest that charities, in particular,
stand to benefit from a platinum era of giving. Mr. Schervish
and John J. Havens, his deputy at the institute, estimated
that between now and 2055 charities would receive bequests of
$16 trillion to $53 trillion, measured in 1998 dollars,
assuming that the estate tax remains unchanged.
The widely cited estimate of $10.4 trillion--about $13
trillion today adjusted for inflation--in wealth transfer was
made in 1993 by two Cornell University professors, Robert B.
Avery and Michael S. Rendall, using data from the Census
Bureau and other sources. Their estimate was restricted to
households in which the chief wage earner was 50 or older and
who had living children; it covered 1990 to 2044.
The Boston College analysis, using a computer simulation
model created to estimate wealth transfers, covers all
Americans who were at least age 18 in 1998. It estimates
wealth transfers from 1998 to 2052, when the youngest of
those in the study will turn 73.
The Boston College study is based on modest assumptions
about growth in wealth
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compared with historical experience. The study's low estimate
that $41 billion will be transferred between generations by
2055 assumes that the value of all assets, adjusted for
inflation, increases at 2 percent annually, while the high
estimate assumes 4 percent annual real growth. Another
profile assumes 3 percent annual real growth in the value of
assets and projects $73 trillion in wealth transfers.
Actual growth in wealth, adjusted for inflation, averaged
5.3 percent annually from 1950 to this year, according to
Prof. Edward N. Wolff, a New York University wealth expert.
Total wealth in 1998 was $32 trillion, the Boston College
researchers estimated. Professor Wolff, who had not seen the
new study, said, ``That figure is in the right
neighborhood,'' noting that his own research indicated total
wealth of $29.1 trillion today.
The amount of wealth transferred can be greater than
current wealth for two reasons. One is economic growth. The
other is that over 55 years some fortunes will pass through
two--even three--generations. Mr. Avery, now an economist
with the Federal Reserve, said that while he had some qualms
about the techniques used by the Boston College researchers,
as described to him in a telephone interview, their estimates
sounded reasonable over all.
Mr. Avery warned, however, that while economists could make
fairly accurate predictions about death rates far into the
future, assumptions about how much wealth people would
accumulate were risky, especially looking out a half-century.
``The important message is that there is a lot of wealth in
this country,'' Mr. Avery said.
John J. Havens, a co-author of the Boston College study,
said that while he was confident of the economic model he
wanted to focus on the low end of the estimate, $41 trillion,
because ``it helps protect against potential charges of
irrational exuberance arising from'' the computer model's
assuming steady economic growth without a depression or a
sustained recession in the first half of the 21st century.
A quarter-century ago Professor Havens developed one of the
first computer programs to model economic behavior. The model
estimates that for estates of $20 million or more, 39 percent
of the money will go to charity, 23 percent to heirs, 34
percent to taxes and 3 percent for fees and burial expenses.
Data from the Internal Revenue Service show the same ratios
in 1995 for large estates.
For estates of $1 million to just under $5 million, the
study assumes that charity will get 8 percent; heirs, 66
percent; taxes, 22 percent, and fees and burial expenses, 4
percent.
For estates of less than $1 million, Professors Schervish
and Havens estimated, nearly 90 cents of each dollar would be
passed to heirs and little would go to charity or taxes.
One recent analysis found that among estates valued at
$600,000 to $1 million in 1997, estate taxes averaged 6
percent, even though the estate tax rate began at 37 percent
on amounts above the $600,000 exemption then in effect.
The Boston College study covers what are known as final
estates, meaning the death of a single person or the second
spouse in a married couple, since bequests to a spouse are
tax free. The estimates of how much will be bequeathed to
charity may be low, based on I.R.S. data in recent years,
which show that growing numbers of people are engaging in
estate planning so that more of their money will go to
charity after their deaths and less to the Government. The
I.R.S. data show that the share of money in estates going to
charity is slowly rising, a trend that if continued through
2055 would mean far more for charities than the $16 trillion
to $53 trillion cited in the study.
If the estate tax is repealed or significantly reduced,
however, as Congress voted to do earlier this year in a bill
that President Clinton vetoed, bequests to charities might be
smaller than the Boston College model predicted.
____________________