[Congressional Record Volume 147, Number 17 (Wednesday, February 7, 2001)]
[Senate]
[Page S1131]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. KYL (for himself, Mr. Breaux, Mr. Gramm, Mrs. Lincoln, and 
        Mr. Bayh):
  S. 275. A bill to amend the Internal Revenue Code of 1986 to repeal 
the Federal estate and gift taxes and the tax on generation-skipping 
transfers, to preserve a step up in basis of certain property acquired 
from a decedent, and for other purposes; to the Committee on Finance.
  Mr. KYL. Mr. President, today, Senators Breaux, Gramm, Lincoln, and 
Bayh and I are introducing the Estate Tax Elimination Act, a bill to 
replace the federal estate tax with a tax on capital gains earned from 
inherited assets due when those assets are sold.
  This is the approach that won the support of bipartisan majorities in 
both houses of Congress last year. Instead of levying an estate tax at 
death, Congress agreed that a tax should be imposed when income is 
actually realized from inherited property--that is, when it is sold. 
The bipartisan consensus that already exists in support of this plan 
means that Congress and President Bush--who, unlike his predecessor, 
supports repeal of the death tax--can come together and quickly dispose 
of the issue this year.
  Mr. President, the beauty of this approach is that it removes death 
as the trigger for any tax. Whether an asset is sold by the decedent 
during his or her lifetime, or by someone who later inherits the 
property, the gain is taxed the same. Death neither confers a benefit, 
nor results in a punitive, confiscatory tax. Senators on both sides of 
the aisle accepted this arrangement last year, and should support it 
again this year.
  Mr. President, we know that many Americans are troubled by the estate 
tax's complexity and high rates, and by the mere fact that it is 
triggered by a person's death rather than the realization of income. 
For a long time, I have advocated repeal, because I believe death 
should not be a taxable event.
  Others agree that the tax is problematic, but are concerned that the 
unrealized appreciation in certain assets might escape taxation forever 
if the death tax were repealed while the step-up in basis allowed by 
under current law remained in effect. That is a legitimate concern.
  We address this by recommending the elimination of both the death tax 
and the step-up in basis, and attributing a carryover basis to 
inherited property so that all gains are taxed at the time the property 
is sold and income is realized.
  The concept of a carryover basis is not new. It exists in current law 
with respect to gifts, property transferred in cases of divorce, and in 
connection with involuntary conversions of property relating to theft, 
destruction, seizure, requisition, or condemnation.
  In the latter case, when an owner receives compensation for 
involuntarily converted property, a taxable gain normally results to 
the extent that the value of the compensation exceeds the basis of the 
converted property. However, Section 1033 of the Internal Revenue Code 
allows the taxpayer to defer the recognition of the gain until the 
property is sold. The concept recommended in this amendment would treat 
the transfer of property at death--perhaps the most involuntary 
conversion of all--the same way, deferring recognition of any gain 
until the inherited property is sold.
  Small estates, which currently pay no estate tax by virtue of the 
unified credit, and no capital-gains tax by virtue of the step up, 
would be unaffected by the basis changes being proposed here. The 
estate tax would be eliminated for them, and a limited step-up in basis 
would be preserved. Each person could still step up the basis in his or 
her assets by up to $2.8 million. Beyond that, a carryover basis would 
apply.
  I want to stress to colleagues, particularly colleagues on the 
Democratic side of the aisle, that this measure would not allow 
unrealized appreciation in inherited assets--beyond the limited step-up 
amount--to go untaxed, as other death-tax repeal proposals would do. We 
are merely saying that if a tax is imposed, it should be imposed when 
income is realized.
  Mr. President, some people may ask whether the American people want 
this kind of tax relief. I will answer that question. Although most 
Americans will probably never pay a death tax, most still sense that 
there is something terribly wrong with a system that allows Washington 
to seize more than half of whatever is left after someone dies--a 
system that prevents hard-working Americans from passing the bulk of 
their nest eggs to their children or grandchildren.
  Fairness, Mr. President. That is what the effort to repeal the death 
tax is all about. A June 22-25, 2000 Gallup poll found that 60 percent 
of the people support repeal, even though about three-quarters of those 
supporters do not think they will ever have to pay a death tax 
themselves.
  A poll conducted by Zogby International on July 6, 2000, found that, 
given a choice between a candidate who believes that a large estate 
left to heirs should be taxed at a rate of 50 percent for anything over 
$2 million, and a candidate who believes that the estate tax is unfair 
to heirs and should be eliminated, 75 percent of the people prefer the 
person supporting death-tax repeal.
  Other polls similarly put support for repeal at between 70 and 80 
percent.
  Voters in two states approved referenda last November to repeal their 
state death tax: South Dakota by a vote of 79 to 21 percent, and 
Montana by a vote of 68 to 32 percent. Many other states have already 
done the same.
  Mr. President, the significant majorities in the House and Senate 
that voted for repeal last year means that we have finally found a 
formula for taxing inherited assets in a fair and commonsense way. 
Appreciated value will be taxed, but only when income is actually 
realized--that is, when the assets are sold. And then, the gains would 
be treated by the Tax Code no better, and no worse, than the gains from 
the sale of any other kind of asset.
  I invite our Senate colleagues to join in support of this bipartisan 
initiative again this year.
                                 ______