[Congressional Record Volume 147, Number 52 (Tuesday, April 24, 2001)]
[Extensions of Remarks]
[Page E607]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                   DEATH TAX ELIMINATION ACT OF 2001

                                 ______
                                 

                               speech of

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                        Wednesday, April 4, 2001

  Mr. LaFALCE. Mr. Speaker, I strongly oppose today's bill, which is a 
clumsy attempt to implement a bad idea. Complete repeal of the estate 
tax--a tax that by 2005 will affect only the wealthiest 1% of all 
decedents in the United States--is a bad idea. It marks a major step 
away from tax fairness, and greatly undermines our ability to address 
pressing federal needs. The clumsiness comes in the Republicans' 
attempt to hide the true costs of estate tax repeal, as well as their 
efforts to limit these costs through a complicated capital gains tax 
scheme.
  As a result, not only do those who believe in tax fairness and fiscal 
responsibility have good reason to strongly oppose this bill, but even 
those who believe in estate tax repeal have grounds to reject this 
plan. We can make the estate tax more fair by immediately raising the 
exclusion limits on estates. But to repeal the tax altogether would be 
tremendously unfair to the 99% of Americans who will shoulder the 
costs.


                 A Better Way To Reform the Estate Tax

  As a small business advocate, I have long supported proposals to 
raise the exclusion limits on estates subject to taxation. A very small 
number of family businesses and farms (just 4% of estate tax revenues 
come from small businesses, and just \1/4\ of 1% come from family 
farms) currently face onerous tax burdens as a result of the estate 
tax. While their numbers are small, these ``middle class'' family 
businesses and farms deserve relief from the estate tax.
  And in fact, we have already made considerable progress in this 
effort: under current law, only the wealthiest 1% of estates will face 
any tax whatsoever by 2005. Under the Democratic alternative to today's 
bill, just 0.5% of all decedents would be subject to the tax. This 0.5% 
of estates would be composed exclusively of the very, very wealthy.


                      Estate Tax Repeal Is Unfair

  When fully implemented, the Republican plan to repeal the estate tax 
would provide $662 billion of tax relief to the wealthiest 1% of 
Americans. By any measure, that's a lot of money. But to put it in some 
perspective, consider how this tax cut compares to some of the 
Administration's spending priorities. The President has made education 
funding his to budget priority, yet provides only $41 billion in new 
funding over the next decade for education programs--and even that 
amount is inflated (unspecified targeted cuts in some education 
programs will reduce this gross figure). At the same time, the 
President has called for a new prescription drug benefit for seniors, 
but has allocated just $110 billion over ten years for it, far below 
any reasonable estimate of the program's true cost. In both cases, the 
President has devoted far more lip service than dollars to pressing 
national needs. Importantly, both priorities could be fully funded with 
the revenues lost to estate tax repeal.
  It is rarely popular to promote the virtues of any tax. Nonetheless, 
that is just what some of the nation's wealthiest individuals 
effectively did recently in publicly opposing estate tax repeal. The 
likes of Bill Gates, Warren Buffet, and George Soros worry about the 
effects of repeal, arguing that the repeal will discourage and 
virtually eliminate substantial amounts of charitable giving, an will 
exacerbate the concentration of our nation's wealth in the hands of 
just a few families.
  Concern about the concentration of wealth is particularly appropriate 
in recent years. Over the past decade, after-tax income for the 
wealthiest 1% of Americans grew by a stunning 40%, while after-tax 
income gains for the bottom 90% averaged just 5%. In the face of this 
growing income disparity, we are about to further advantage the 
wealthiest 1% with a $660 billion estate tax bonus. Today's bill is by 
far the most unfair and regressive element of the aggregate Republican 
tax package. but it is important to note that 40% of American 
families--those earning less than $27,000--will receive virtually no 
benefit at all from any of the Republican tax cuts, whether rate 
reductions, so-called marriage penalty relief, or expansion of the 
child tax credit.
  These families are excluded from the Republican plan, not because the 
don't pay any taxes; in fact, all of them pay substantial federal taxes 
through the payroll tax, and for many, these taxes are onerous. These 
taxpaying families are excluded from the Republican's tax relief simply 
because the Republicans chose to aware the lion's share of tax relief 
to the very wealth. Yet, the 40% of families excluded from the 
Republican plan are the same taxpayers whose incomes have barely 
registered a gain in the midst of a decade-long economic expansion. 
Again, they--40% of all American families, those at the bottom--get 
nothing.


                A Clumsy Attempt To Limit Revenue Losses

  The Republicans faced a funding dilemma in crafting this 
legislation--they have already promised too much tax relief to wealthy 
Americans in other tax bills and have run out of room in their own 
budget to pay for estate tax repeal. As a result, they have resorted to 
a scheme that hides the true costs of repeal, while also attempting to 
recover some of the revenue losses through new capital gains taxes.
  The drafters of this bill have back loaded its costs so that the true 
cost of repeal falls outside the 10-year budgetary window. They 
accomplish this by phasing in repeal at a snail's pace through 2011, 
and then quickly implementing complete repeal in the following year. As 
a result, the cost of this bill through 2011 is $193 billion; yet, if 
it were implemented immediately, the cost would skyrocket to $662 
billion. Due to backloading, the same family businesses and farms that 
would benefit almost immediately from the Democratic plan to raise 
estate exclusion limits would continue to pay substantial estate taxes 
for the next ten years under the Republican plan.
  But even cost backloading was not enough to limit the 10-year revenue 
losses from the Republican bill. In order to find more cost savings, 
the bill's drafters decided to shift the capital gains treatment of 
taxable estates from a ``stepped up'' basis to a ``carryover'' basis. 
Under current law, heirs are subject to capital gains taxes on estate 
assets sold based on the value of these assets when they were 
transferred from the decedent (``stepped up'' basis). Under this bill, 
heirs would be subject to capital gains taxes based on the value of 
these assets when they were purchased by the decedent (``carryover'' 
basis). The fatal flaw of this change lies in its complexity. In 1976, 
Congress passed legislation shifting from a stepped up basis to a 
carryover basis on estate assets, but the plan was abandoned before it 
could take effect. Congress repealed the 1976 tax change in 1980 after 
realizing that the change was unworkable and would impose an 
unacceptably large administrative burden on estate planners, heirs, and 
the Treasury Department.
  There is a way out of this mess for the Republicans. They should 
adopt the Democratic alternative, which immediately raises the 
exclusion for estates to $2 million ($4 million per couple). By 2010, 
these exclusions would rise to $2.5 million ($5 million per couple). 
Such changes would appropriately target the estate tax to very wealthy 
estates and would do so almost immediately, not ten years from now. 
Raising exclusion limits would retain the core progressivity of our tax 
code while limiting revenue losses.

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