[Congressional Record Volume 148, Number 77 (Wednesday, June 12, 2002)]
[Senate]
[Pages S5397-S5398]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                   PERMANENT REPEAL OF THE DEATH TAX

  Mr. KYL. Mr. President, I rise this morning to talk about the issue 
that will be before us as soon as we resume business, and that is the 
permanent repeal of the death tax. This Senate has already repealed the 
death tax. The President has already signed it into law. But most 
Americans are now realizing there was a catch.
  Under the special procedures that the Senate operates, that bill came 
before the Senate with a 10-year sunset. So all we could do was pass a 
law that was in effect for 10 years and in the 11th year, we are right 
back to where we were in the year 2001, meaning that while we repealed 
the death tax, it is back in the year 2010. That is not something we 
intended when we voted to repeal it.
  I don't think anybody could argue that they intended only that it be 
repealed for 1 year. That is extraordinarily bad tax policy and a cruel 
hoax on the American people, who thought we were repealing it 
permanently. Obviously, we need to repeal it permanently, and that is 
what the Gramm-Kyl amendment will do.

  I want to speak this morning about why this is so important, to bring 
it down to simple, personal terms.
  In the Mansfield Room, just a few feet from the Senate Chamber in 
which we are right now, Mr. President, there is a small businessman, 
the owner of a lumber company. Actually, his dad owns the lumber 
company. He is helping to run it now. His name is Brad Eiffert, from 
Columbia, MO. And it is the Boone County Lumber Company.
  His problem is this. When his father dies, the U.S. Government says: 
We want half of the value of everything you own with this lumber 
company. Let's explore what that means. They have been paying income 
tax on their corporate income. They have been paying individual income 
tax on the salary they take out of the company. They pay the payroll 
tax. They pay the Social Security tax. They generate a lot of taxes for 
Boone County and for the State of Missouri. And they have created 30 
jobs.
  This has been a successful, now second-generation company. The 
children of the father who owns the company now pay $58,000 a year in 
insurance premiums so that when their father dies, they will be able to 
inherit the business and have the money to run the business. Think of 
an insurance premium of $58,000 a year.
  What does the Government do right now? The policy before we repealed 
the death tax was, the day he dies, his estate--that is to say, the 
people who would inherit the money the father owns and would inherit 
the business--has to pay half of that to Uncle Sam--half, 50 percent.
  There is an exemption of a few hundred thousand dollars. I don't know 
how much this lumber company is worth, but let's say it is worth $5 
million, just to pick a figure. I could be way off. About $4.5 million 
is now subject to the estate tax when the father dies.
  So how do people pay the estate tax? This is the perversity of this 
tax. This lumber company has an inventory of lumber. They buy lumber 
from different companies that chop down trees and make it for them. So 
they have a bunch of warehouses full of lumber. And they have trucks 
that deliver the lumber. They have forklifts that enable them to move 
that lumber around. They have a little office. They have some other 
things; I am sure they sell hammers and nails and things such as that.
  When this business is valued at, let's say, $5 million, they don't 
have a drawer that says: If you need $2.5 million to pay Uncle Sam, 
here is $2.5 million. No business has that. What they have is a value 
in the inventory, the lumber, the trucks, the forklifts, the 
warehouses, and so on. That is what is worth $5 million.
  So, in effect, Uncle Sam wants to come in and say: We want half of 
that value. If you have 10 forklifts, we want 5 of them. If you have 10 
lumber trucks, we want 5 of them. We want half of the inventory. In 
effect, just put it on a railroad car and send it to Washington. We 
want half of your warehouses.
  There isn't money to pay Uncle Sam. We are talking about the value of 
the business. Remember, they have paid their income taxes. We are now 
talking about the value of the estate. It is called an estate tax.
  What is the estate? The estate is the Boone County Lumber Company, 
with its forklifts and trucks and lumber. If that is worth $5 million, 
Uncle Sam says: I want half of it. How do you keep the business going 
by sending Uncle Sam half of the forklifts and half the trucks and half 
the lumber? That is obviously not what happens. You have to sell it to 
generate cash to write a check to Uncle Sam. You cannot just sell half 
your business. You end up selling the whole business.
  Somebody said maybe they could get a loan to pay the taxes. Wrong. 
Anybody who knows anything about small business knows two things: One, 
you have financed the purchase of your equipment. You have financed the 
purchase of the land. Who buys a house for cash? You go get a home 
mortgage loan.
  Well, businesses are the same. They don't pay cash for the land and 
the buildings; they get a loan from the bank so they can buy the 
property. They get a loan from the bank to buy their trucks, just as 
you buy a car on time, and you pay a Ford or GMC creditor or whoever it 
might be. The same with lumber, you get a bank loan to buy the lumber. 
Then you sell it and pay back the bank.
  So these small businesses are highly leveraged in the sense they have 
already gotten all the credit they could get out of the bank. They 
can't go to the bank and borrow $2.5 million to pay the estate tax.
  There is another reason, too, and that is there is an exemption. 
Today you get a $1 million exemption--and some people are proposing the 
exemption be more than that--but you can't qualify for the exemption.
  The National Federation of Independent Businesses, which knows a lot 
about this because it represents a lot of these businesses, has 
testified, as have other experts, before the House Ways and Means 
Committee, which considered this, that the provision under which you 
can theoretically get an exemption is way too complicated and does not 
work.
  The ABA, as a matter of fact--the American Bar Association--has 
advised its lawyers of being very careful of trying to help anybody to 
qualify for this exemption because they likely will be committing 
malpractice. So it does not work either.
  So the bottom line is, hundreds of thousands of small businesses 
around this country face what Brad Eiffert faces. When his dad dies and 
Uncle Sam says pay us half of the value of everything in this business, 
he does not have the cash. He is not going to be able to borrow the 
cash. He has one choice: Sell the Boone County Lumber Company.
  I will give you another company. The idea of the death tax was to 
prevent the accumulation of wealth. I had a good friend in Arizona. His 
name was Jerry Witsosky. He died. He created a printing company, 
Imperial Lithograph. He started with one employee, himself. He 
gradually built it up. He had about 150 employees, somewhere in that 
neighborhood when he died. It was a very successful business in 
Phoenix.
  He contributed more money to charities in Phoenix than anybody I have 
ever known--a wonderful man. He died. His family could not pay half the 
value of that printing company to Uncle Sam, and they eventually had to 
sell the business.
  Who did they sell it to? They sold it to a great big corporation. So 
much for preventing the accumulation of wealth. Here you had a family 
business, a going concern, a wonderful contributor to the community, 
and it had to be sold to a big corporation just to generate the cash to 
pay the estate tax.
  Is this right? No. It is bad tax policy. It is unfair. It destroys 
all of the incentive. We talk about the American

[[Page S5398]]

dream: save, invest, and hope that your kids can have a better 
opportunity than you had. That is the American dream. And the estate 
tax, or the death tax, just cuts that right to the quick and says: We 
want half of everything you earned during your lifetime. And, by the 
way, if you have to sell your business to pay us the money, that is 
tough. We want to spend it back in Washington.
  This is a perverse tax policy. The good thing about the version of 
the repeal that Senator Gramm and I have proposed is that it does not 
let anybody off the hook in terms of paying taxes to Uncle Sam. They 
already paid the taxes on the income. What we say is when Brad Eiffert 
inherits his father's business, the Boone County Lumber Company, he 
does not pay a tax when his dad dies--that is perverse--but if he ever 
sells the Boone County Lumber Company, then he pays a capital gains 
tax, and he pays it based on what his dad paid for the original 
company.
  So Uncle Sam is going to get the full take. We will get all the money 
we need here to spend in Washington, but it is when he decides to sell 
the business; that is the taxable event. Death should not be a taxable 
event.
  So I hope my colleagues will join Senator Gramm and me later today 
when we have an opportunity to finally repeal this perverse tax and 
replace it with a capital gains tax. We are not letting anybody off the 
hook. We are substituting one tax for the other, but we are 
substituting a tax that is fair because it says if you make a decision, 
knowing the tax consequences, to sell the asset, you pay Uncle Sam. If 
you don't, you don't. But that is your decision. It replaces a tax on 
the event of death which is more perverse and unfair.
  The U.S. Government should not have that as a policy for the people 
of the United States of America. I urge my colleagues to reject the 
alternatives. There is only one real repeal, and that is the Gramm-Kyl 
repeal of the death tax.
  I yield the floor.
  Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. GRASSLEY. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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