[Congressional Record Volume 147, Number 22 (Thursday, February 15, 2001)]
[Senate]
[Pages S1442-S1446]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
ESTATE TAX
Mr. KYL. Mr. President, I was surprised to read the headlines in the
paper this morning--and I actually saw a little bit of this on the news
last night--that billionaires in the United States actually support the
estate tax and oppose President Bush's plan to repeal the estate tax.
One would think for a moment that is a man-bites-dog story; that is
counterintuitive. Upon reflection, it actually makes a lot of sense and
makes no sense. I will discuss that today. I will get back to the
billionaires in just a moment.
First, to set the stage, we all know President Bush has proposed an
important and innovative set of tax relief proposals that will help
working American families, will help the economy at this time when it
is beginning to falter, and will provide more fairness in our Tax Code.
It has three essential features. There may be some other pieces added
to this by the Congress.
Primarily, it calls for reduction in marginal income tax rates. That
way, everybody who pays taxes receives a tax benefit, tax rate relief.
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Second, it repeals the estate tax, one of the most unfair taxes we
have ever produced in this country.
Third, it largely does away with what we call the marriage penalty,
which actually provides a higher rate of taxes for two people who are
married and working than if they were living together without having
been married.
Both the repeal of the estate tax and the elimination of the marriage
penalty were passed by the Senate and the House last year. We sent
those bills to President Clinton and he vetoed them. In the campaign,
Governor Bush said: If you send those bill to me, I will sign them. So
they represent an important part of his tax relief proposal. Mr.
President, I aim to say we will send them to President Bush so he can
sign them.
Because there is such momentum behind the repeal of the estate tax,
people who fear now that its repeal will actually become a reality have
begun to take to the air waves and get their petitions out and to get
on television proclaiming that naturally this is a very important and
needed tax. The ones who would get the most publicity, of course, are
the billionaires who say: Look, we will be paying a lot of this tax. If
we can be for it, surely, everybody else can be for it; why would you
want its repeal?
It turns out there are two primary reasons. I will summarize first
and then go into a little more detail.
The first is that these are the very people who can well afford, A,
to pay the taxes; but, B, to pay for the multimillions of dollars to
find the loopholes to avoid paying most of the tax, to do the estate
planning. That is the euphemism for the term which means hire
accountants and lawyers to try to figure out a way to avoid paying most
of the tax--and there are ways you can do this if you are willing to
pay enough money to these lawyers. And there are ways, also, if you pay
enough money to insurance companies.
By the way, I got a letter from an estate planner in New York. He
said: You can't do away with the estate tax. This would hurt my
livelihood. I make a living finding ways for people to avoid paying the
estate tax.
I didn't do this, but I felt like writing back to him and saying, if
we could figure out a way to eliminate death, I would probably get a
letter from a mortician saying, you can't put me out of business like
this.
These people make a lot of money helping people like George Soros,
Bill Gates, Sr., and other people of great wealth. By the way, I admire
all of these people for what they have been able to accumulate over
their life. But they make a lot of money on these people doing estate
planning. Frankly, I think it would be very interesting if all of the
billionaires who have signed the petition calling for a continuation of
the estate tax would tell us publicly how much money they have spent on
estate planning and how much money they have been able to save as a
result of what they have been able to accomplish with their lawyers and
accountants. I expect they have been able to save more than most people
will ever pay in taxes.
The first point we should realize is with these billionaires, this is
chump change. They can pay the lawyers and accountants to figure out a
way to save the most money and they are still happy to pay what they
have to pay because it doesn't mean that much to them, unlike what it
means to most Americans. My first challenge to all of these petition
signers: Please come forward and state how much you are going to
actually pay in estate taxes versus how much is in your estate.
Specifically, is any one of these people willing to pay the entire
obligation of the estate tax without any opportunity for estate
planning to save money; without taking advantage of any loophole? If
they think this is such a great tax, are they willing to pay all that
is due without any kind of estate planning to avoid any part of the tax
on their part?
That would be very interesting to find out for these people who think
this is such a wonderful tax. And I present that challenge to them
today. My guess is that during their lifetime, one reason they
accumulated so much wealth was because they knew very well how to
manipulate the stock market, how to manipulate the currency market, how
to make sound investments, all the while eliminating or reducing to the
lowest possible amount taxes they would have to pay.
There is nothing wrong with that. That is how a lot of people make
their living. And certainly these very wealthy people have undoubtedly
taken advantage of whatever provisions we have in the Tax Code for
avoiding the payment of taxes.
The second reason why, even though this seems counterintuitive, and
this makes a lot of sense, is many of these same people have as one of
their primary goals in life running charitable foundations; in effect,
spending other people's money for their charitable giving.
It is very easy to be very charitable when you are using someone
else's money. What some of these people have said is, we need the force
of Federal law to make people give their money when they die or make
the widows and the orphans cough up the money when the breadwinner
dies. We need to take 55 percent of their estate so we can put it into
our charitable foundations and hand it out and get invited to all kinds
of fancy dinners and do good. We are all for the good these charitable
groups do.
Let no one make any mistake about that. It is easy to be charitable
with someone else's money. The question is, Are you willing to be
charitable with your own money? Even if you think other people should
also give, would it be better for you to ask them to give from the
goodness of their heart to charity or to use the confiscatory power of
government to make them give by saying, we are going to take 55 percent
of everything you own when you die?
There is one way to avoid it: If you can give it all away, then you
are not passing it on to your heirs.
That is the first great problem with those who defend the estate tax.
They say it would prevent the concentration of wealth if we can
maintain this tax. That is absolutely, 180 degrees off from the
American dream. Generation after generation in this country has said:
We want to leave our family better than the previous generation. We
want to work hard. We want to save. We want to provide for our kids'
education so when we die they have a better chance in life than we did.
What is wrong with that? That is the American dream. These people say
no. What is wrong is for one generation to be able to pass wealth on to
another generation. Everybody should have to start from exactly the
same point in life.
There are those who would manipulate Government, and our very lives,
to force equality in fact rather than equality in opportunity. That is,
in effect, what these people are saying: We are going to force
everybody to be exactly equal because whatever it is you accomplished
in life we are going to take away from you at the end of your life so
your family, then, has to start all over again.
What incentive is there for most people to save for future
generations, to try to help their kids or their grandkids to have a
good start in life? I want to be able to put some things away for not
just my kids but my grandkids. They mean so much to me. I want to make
sure they have a good start in life, that they will be able to get a
good education. What is wrong with that incentive to save?
These billionaires, they don't have any problem with that. They could
buy half the countries in the world. They do not have to worry about
what most of us have to worry about in life, and that is putting enough
aside to be able to take care of ourselves in our old age and maybe
provide something for our kids and grandkids thereafter. That is the
American dream. These people would destroy that dream. That is wrong. I
understand it is hard for them to appreciate that problem for many
Americans. But it is a very real problem. I am going to get back to
that problem in just a moment.
Let me talk about the next myth these people are trying to
perpetrate, that actually it will hurt poorer people because if we do
away with the estate tax, we are going to have to raise other taxes to
make up for the revenue. Have these people been living on another
planet? Are they not aware that this Government is going to be running
a $5.6 trillion surplus?
The whole notion President Bush has here, as he said when he was
Governor
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and running for the Presidency: We are going to have a massive surplus.
We will have more than enough to have whatever we need to spend money
on--save Social Security and Medicare and have enough left to have tax
relief for the people. You don't have to raise taxes. That is what the
surplus enables us to do. This is a specious argument. People ought to
know better than to make this argument.
For the upcoming fiscal year, fiscal year 2002, the on-budget surplus
is estimated to be at $142 billion, according to the CBO. We can
afford, with an overtax payment of that amount, to return some of that
money to the American people. And we do not have to then raise taxes
somehow to do that.
The last budget of President Clinton projected estate tax revenues at
$34-plus billion. That is for this fiscal year, 2002. That would
represent about 1.5 percent of our revenues. So we have to keep this
tax in place, a tax that produces only 1.5 percent of our revenues and
causes great disruption and consternation in America's families?
Let me get back to what I said before about the problem of this
business of creating wealth and the American dream. The fact is, of
course, most Americans will not pay the death tax. But they still see
something terribly wrong with a system that allows Washington to seize
more than half of whatever is left when someone dies, that prevents
hard-working Americans from passing the bulk of their nest egg on to
their future generations.
Mr. President, I love a lot of things in this country. I give to
charity. I love my country. But I think I love my kids and grandkids
and my wife more than anything else in the world, and with this tax the
Government says we cannot benefit them. We are going to force you to
give that money to somebody else or to the U.S. Government. You cannot
pass it on.
Most Americans see that as unfair, even if they are not going to have
to pay for the tax and even if they don't have to pay a lot of money to
try to avoid paying the tax through estate planning. A McLaughlin
Associates poll conducted from January 26-27, just a week or so ago,
found 89 percent of the people surveyed believed:
. . . it was not fair for Government to tax a person's
earnings while it is being earned and then tax it again after
a person dies.
Let's understand: All the money you earned is taxed. We have an
income tax in this country. So it is taxed. Then you invest it and do
whatever, and you die and it is taxed again. So it is not as if this
money has not already been taxed at least once.
Mr. President, 79 percent of the people in this survey approve the
idea of abolishing the estate tax--79 percent. Most of them will never
see any direct benefit from that, but they understand it is unfair.
Most Americans are not envious. Most Americans do not want to squash
everybody else down as a way of making themselves feel good. They
aspire to earn more and to be able to save and maybe even have to worry
about the estate tax.
Other polls have reached the same conclusion. I found one very
interesting, a Gallup poll of last year, which found that 60 percent of
the people supported repeal at that time, even though about three-
fourths of them did not think they would ever have to pay the death tax
themselves. They still favored its repeal because they are good, fair
people. And fairness is what the effort to repeal the death tax is all
about.
Edward J. McCaffrey--I think he would characterize himself as a
liberal--a professor of law at the University of Southern California,
said this:
Polls and practices show that we like sin taxes, such as on
alcohol and cigarettes. The estate tax is an anti-sin, or
virtue tax. It is a tax on work and savings without
consumption, on thrift, on long-term savings.
He is exactly right. It is a tax on virtue. It punishes savings. It
punishes saving something and trying to pass it on to your kids. It
basically says: Spend it all because you can't take it with you. That
is a lifestyle that some have, perhaps, lived in this ``me''
generation, but it is not the right lifestyle for most Americans.
By the way, it is pretty hard to calibrate anyway. Spend it all
because you can't take it with you; that is the idea here. What if you
live a little longer than your bank account lasts? Then you turn to the
Government to take care of you for the rest of the years of your life.
Being able to save also means being able to take care of yourself and
your family, another virtue. This is a tax on virtue. The professor is
correct.
Economists Henry Aaron and Alicia Munnell reached similar conclusions
in a 1992 study in which they said death taxes:
. . . have failed to achieve their intended purposes. They
raise little revenue. They impose large excess burdens. They
are unfair.
The next myth is that the estate tax is necessary to prevent the
accumulation of wealth. A lot of people have noted that after about
three generations the wealth seems to dissipate. But apart from that--
and I don't know of any study that can quantify that--I can at least
with an anecdote tell you what happens in most cases. These are not the
George Soros kinds of cases but the average case.
A family in Arizona--and I am going to mention the man's name because
he is a real hero to me. He was one of the best, big-hearted givers in
Phoenix, AZ, for many years. His name is Jerry Wisotsky. Jerry moved
out from New York to start a printing company by himself. He gradually
added employees. He couldn't say no. Every charity in town went to him.
He contributed. He has boys and girls clubs named after him. I won't
get into his charitable contributions. He was a mainstay for our
community and supported it. He had a very successful business that
could support it. He had over 200 employees when he died.
His family tried mightily to plan around that death and to avoid
having to sell the business. His daughter and son-in-law wanted to
continue to run the business. After 2 or 3 years, they realized it was
futile. The estate tax was simply too much. They had to sell the
business to pay the estate tax.
Two things happened. First of all, they sold, I think, to a big
German conglomerate. So much for preventing the accumulation of wealth.
This little family-owned business that turned into a very good income
producer, but which was still a small business, was sold to a giant
company from another country. As I say, so much for the estate tax
preventing the accumulation of wealth. But it did have the intended
effect of making his family less able to give, to follow in his
footsteps.
So we now no longer have Jerry Wisotsky or his daughter, Pearl Marr,
being able to contribute to their community as he used to do.
That gets to another myth, that we have to have the estate tax in
order to force charitable giving. Apart from the lunacy of that
concept--it reminds me of the Woody Allen movie ``Take The Money And
Run'' where Woody Allen plays this inept crook and his parents are seen
with masks on saying: We tried to beat religion into that kid. Of
course, it doesn't work.
It really doesn't work to force people to give to charity either. In
fact, there are some interesting statistics. It is a specious argument
that we have to have the estate tax in order to support charitable
giving. But I think it is especially interesting because of these
billionaires now supporting the tax.
There are also some studies that demonstrate the elimination of the
estate tax would actually encourage the wealthy to give more during
their lifetimes but less just before they die or in their bequeath--in
their wills.
A study by David Joulfaian, a former Treasury Department economist
for the National Bureau of Economic Research at the Brookings
Institution, found that the estate tax has an important effect on the
timing of charitable gifts. It encourages the very wealthy to bunch
gifts at death rather than over their lifetime. He noted that the very
wealthy give much less to charity during their lifetimes than the less
wealthy, and considerably more through their estate and wills and
bequeaths. This suggests that the elimination of the estate tax will
encourage the wealthy to give more during their lifetime and less at
death but not necessarily reduce the total amount of lifetime giving.
Another study shows that the bulk of charitable giving is made by
people who can't deduct such gifts from their income taxes at all.
According to Giving USA, total charitable giving in 1992 amounted to
$190-plus billion, and only $15-plus billion--about 8 percent--came
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from bequeaths. If the goal is to encourage charitable giving, then
Congress should consider an above-the-line deduction for all charitable
gifts--for those who itemize as well as those taxpayers who don't
itemize--rather than to continue to impose a punitive, confiscatory
estate tax at the time of death when families can least afford to deal
with it.
We also find charitable giving is strongly related to income and
wealth. Simply put, the more income and wealth the people have, the
more they tend to give charity.
William Randolph, an economist for the Congressional Budget Office,
concluded from his research that charitable giving responds much less
to changes in tax rates than permanent changes in income.
It is quite specious to argue that we have to have this tax for
charitable giving in this country. Eight percent of the gifts come as
bequeaths; the rest does not.
I also think the story today by the Los Angeles Times about the
petition signed by all of these billionaires is very interesting. They
say it was signed by men whose foundations ``rely heavily on charitable
donations.'' This is laid bare. Basically, this is a special interest
group. People who have these foundations need to have money constantly
pouring in so they can force taxes from people in order to play that
game. Again, I am sure that in their hands very good things come to
pass. But in someone else's hands, this same charitable giving could do
just as much good. I find it offensive that these people--basically
special interests in this country--would use the U.S. Government to
extract taxpayer dollars from people and have the threat of that kind
of 5-percent rate forcing people to give in their wills to these
charitable foundations. If they can't persuade people to do it on the
merits from the goodness of their heart, they ought not be in the
business. That is the way I look at it.
There is another myth that the wealthy don't need another tax break.
Of course, a lot of wealthy don't need a tax break. Of course, these
are people who invest, which is exactly what our economy needs at this
time.
But I would say something else; that is, we are not talking about
just these billionaires. Sure, they don't need it. I stipulate that.
But there are a lot of small businesspeople and farmers and others who
do need to be able to maintain what they are doing. They don't want to
have to sell the family farm. They don't want to have to sell the small
business that I talked about a moment ago. They would like to be able
to continue the operation generation after generation.
The point here about these very wealthy people is that the way we
passed the bill last year they are going to be taxed anyway. They are
not going to be taxed 55 percent when they die, but they are going to
be taxed on the capital gains if and when the asset is sold. Eventually
all assets are disposed of. Their heirs are not going to have to pay 55
percent of the estate in taxes. But when their heirs turn around and
sell those assets under the bill that we passed last year--and I
suspect the bill we will put forward this year--they are going to have
to pay a capital gains tax on the sale. Importantly, they are going to
have to pay that without a step-up in basis, except for an exemption
which is equal to a little bit larger than the exemption we provide
today--about a $5 million exemption.
So nobody who is exempt today would have to pay under this
legislation. Except for that exemption, we do away with the step-up in
basis so just as Mr. Gates, Sr., would have to pay a capital gains tax
on the original cost of his investment if he sells that asset when he
eventually dies and leaves that estate to his heirs, when they sell it
they are going to have to pay a tax on the gain going back to his
original basis. That means their tax is much less expensive, if you are
interested in that. It is going to cost the Treasury a lot less money
than some people think it will, but it doesn't let these people off the
hook. They will be taxed under this proposal, but at least they have
the choice of when they are taxed.
Instead of having to figure out how to pay this tax right after the
breadwinner in the family dies and being faced with the possibility of
perhaps having to dispose of the assets right then, they can wait until
they want to make the economic decision to do so knowing full well they
are going to pay a tax but they can understand the economics of paying
the tax at that time.
I think this is the beauty of the approach of what we passed last
year, which President Clinton vetoed and which I hope President Bush
will include in his estate tax repeal. Remember there is another
benefit to this.
I will close with this notion: It is very difficult to try to come up
with an amount of exemption that is fair around the country. Some
people said: Let's not repeal the tax; let's just create a much larger
exemption.
I was talking to one of my colleagues from California yesterday who
said the problem with that is that property values in California are
now so high, and getting so much larger, that what is a taxable estate
in California wouldn't even begin to qualify as a taxable estate in
another State--let's say in a Midwest or Southern State. But in
California, just because of the value of the property, even if that is
all you own, you could easily be kicked up into the bracket where you
have to pay a capital gains tax.
There is another problem that people are finding more and more.
Again, this is happening in California. There is an environmental
problem there. As people find they have to sell their property in order
to pay the estate taxes, we are talking about environmentally sensitive
land that could be held but is now having to be sold for development.
And there are always plenty of developers hanging around ready to buy
this good land and develop it.
What we are finding is that more and more native habitats are being
destroyed as a result. With that in mind, Michael Bean of the Nature
Conservancy, observed that the death tax ``is highly regressive in the
sense that it encourages the destruction of ecologically important
land.'' It represents a real and present threat to endangered and
threatened species and habitats. And because it tends to encourage
development and sprawl, a lot of environmental organizations have
joined in urging this repeal. Among those are the Izaak Walton League,
the Wildlife Society, Quail Unlimited, the Wildlife Management
Institute, and the International Association of Fish and Wildlife
Agencies.
We see there are a lot of myths about the estate tax. That is exactly
what they are, myths.
Second, we see that many Americans won't benefit directly from its
repeal. There is very strong support for its repeal because Americans
are fair people. They understand what will help our economy, and they
understand what is fair to working families.
I think there are two motivations for retaining the tax. One of them
is envy--that nobody should have more than I have. But it turns out
that very few Americans support that. The other is this special
interest notion that having the death tax is the only way we can make
people contribute to a charity. They are going to force them to be
charitable. Apart from whether or not that is a moral point of view, it
certainly isn't or ought not to be the function of Government. As I
said, if we want to use the power of Government to encourage charitable
giving, there are much better ways to provide a deduction for
charitable giving for both those who itemize and those who don't.
There are other things we can do as well. At the bottom of the day,
it is not surprising that these billionaires would say: Let's keep the
death tax. To them it doesn't matter. I renew my challenge. Are you
willing to pay 100 percent of the death tax you owe or have you spent a
lot of money to try to do estate planning to get around this? I think
that would be a very interesting thing to find out. Most Americans
cannot afford to do that. That is why this tax needs to be repealed.
I join President Bush in urging my colleagues to ensure that when his
tax package passes, that it has the repeal of the death tax as one of
its key components.
The PRESIDING OFFICER. Under the previous order, the time until 12
noon shall be under the control of the Senator from Wyoming, Mr.
Thomas, or his designee.
The Senator from Texas.
Mrs. HUTCHISON. Mr. President, I appreciate what the Senator from
Arizona has just been discussing; and that
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is very important tax relief for hard-working American families. That
is something that will be a high priority for our Congress. I
appreciate his leadership in that effort.
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