[Congressional Record Volume 147, Number 7 (Monday, January 22, 2001)]
[Senate]
[Pages S365-S369]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ALLARD:
  S. 100. A bill to amend the Internal Revenue Code of 1986 to repeal 
the state and gift taxes; to the Committee on Finance.

[[Page S368]]

                       time to end the death tax

  Mr. ALLARD. Mr. President, today I am introducing legislation to 
immediately eliminate the estate tax. I fundamentally oppose the estate 
tax. I call it the ``death tax.'' This unfair tax has been a concern of 
mine for some time now.
  Congress has clearly demonstrated its support for easing this burden. 
The Taxpayer Relief Act of 1997 gradually increases the exemption. Last 
year, Congress decided that further action was needed and passed a bill 
that would have eliminated the federal estate tax. Unfortunately, 
President Clinton chose to veto that bill. I look forward to the 
opportunity to work with the new Administration to repeal this unfair 
tax by passing my bill.
  The United States has one of the highest estate taxes in the world. 
While income tax rates have declined in recent decades, estate taxes 
have remained high. Today, the death tax is imposed on estates with 
assets of more than $675,000. The rates begin at 37% and very rapidly 
rise to 55%. Some estates even pay a marginal rate of 60%.
  This issue really hits home for me. Family farms and small businesses 
are two of the groups most affected by the estate tax. I grew up on my 
family's farm in Colorado, and I owned a small business before I came 
to Washington. So, I truly understand the concerns of those who live in 
fear of the impact that this tax will have on their legacy to their 
children.
  The estate tax has resulted in the loss of family farms and family 
businesses across the nation. Many people work their entire lives to 
build a business that they can pass on to their children. When these 
hard-working businessmen and farmers pass away, their families are 
often forced to sell off the business to pay the estate tax. I see this 
as an affront to those who try to pass on the fruits of their lives' 
work to their children.
  The people affected by this tax are not necessarily wealthy. Many 
small business people are cash poor, but asset rich. For example, the 
owner of a small restaurant might have $800,000 of assets, but not much 
cash on hand. Her children will still have to pay an excessive tax on 
the assets. The beer wholesaler, who has invested all of his revenue in 
trucks and storage, might have more than $675,000 in assets. That does 
not make him a cash-wealthy man. Yet, he is still subject to this so-
called ``tax on the wealthy.''
  The death tax also impacts employment and the economy. When a family-
owned farm or a small business closes, the workers lose their jobs. 
Conversely, leaving resources in the economy can create jobs. A recent 
George Mason study found that if the estate tax were phased out over 
five years, the economy would create 198,895 more jobs, and grow by an 
additional $509 billion over a ten-year period.
  Additionally, the estate tax is a disincentive for Americans to save 
their earnings. The government has created a number of tax breaks and 
other incentives for those who save their money: 401(k)s and IRAs--to 
name a few. Yet, the estate tax sends a contradictory message. 
Basically, it says, ``If you don't spend all your savings by the time 
you die, the government will penalize you.'' This tax is no small 
penalty, either. We are talking about some very high tax rates.
  The death tax also represents an unjust double taxation. The savings 
were taxed initially when they were earned. Then, when the saver passes 
away, the government comes along and takes a second cut. There is no 
good reason for the current system--other than the government's desire 
to make a profit at the already trying time of the death of a dear one.
  The current death tax law has a greater effect on the lower end of 
the scale than the higher. Wealthy people can afford lawyers and 
planners to help them plan their estate. Those at the lower end of the 
estate tax scale are often unable to afford sophisticated estate 
planning. So the current law also makes the tax somewhat regressive, 
which is not fair.
  Planning and compliance with the estate tax can consume substantial 
resources. In 1995, the Gallup organization surveyed family firms. 
Twenty-three percent of owners of companies valued over $10 million 
said that they pay more than $50,000 per year in insurance premiums on 
policies to help them pay the eventual bill. To plan for the estate 
tax, the firms also spent an average of $33,000 on lawyers, accountants 
and financial planners, over a period of several years. This is money 
that could have been better spent to expand the business and create new 
jobs--rather than dealing with the death tax.
  The estate tax only raises one percent of federal revenue, yet it 
costs farms, businesses and jobs. No American family should lose their 
farm or business because of the federal government. I support full 
repeal of the federal estate tax.
  Mr. President, I ask unanimous consent that the text of my bill, as 
well as an article that I recently wrote, be entered into the Record.
  There being no objection, the additional material was ordered to be 
printed in the Record, as follows:

                                 S. 100

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

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Death Tax Termination Act of 
     2001.''

     SEC. 2. REPEAL OF ESTATE AND GIFT TAXES.

       Subtitle B of the Internal Revenue Code of 1986 (relating 
     to estate, gift, and generation-skipping taxes) is repealed 
     effective with respect to estates of decedents dying, and 
     gifts made, after December 31, 2000.
                                  ____


                  [From the Roll Call, Apr. 27, 1998]

         Estate Tax Reform Must Be First Step to Fixing System

                         (By Sen. Wayne Allard)

       As we approach the new millennium, a consensus has emerged 
     in favor of significant tax reform. 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 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 US 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 affected 
     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 
     1998 exemption level of $625,000 (value above $625,000 is 
     taxed at an initial rate of 37 percent).
       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).
       Last year's 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 we do. But Japan's 70 percent rate applies to 
     an inheritance of $16 million or more. The US top rate of 55 
     percent kicks in on estates of $3 million or more. France, 
     the United Kingdom and Ireland all have top rates of 40 
     percent, and the average top rate of Organization for 
     Economic Cooperation and Development countries is only 29 
     percent. 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

[[Page S369]]

     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 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.
       The accounting firm Price Waterhouse recently calculated 
     the taxable components of 1995 estates. While 21 percent of 
     assets were corporate stocks 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 consists 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 more than $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 more than $33,000 
     on lawyers, accountants and financial planners over a period 
     of six and a half 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 in which 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 retaxed by 
     government. The estate tax violates this tenet. At the time 
     of a person's death, much of his or her 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 who 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.
       Wagner estimated that if the tax is phased out over five 
     years beginning in 1999, the economy would create 189,900 
     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 both models, 
     a repeal of the tax is forecast to increase jobs and gross 
     domestic product, 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 one 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.
                                 ______