[Congressional Record (Bound Edition), Volume 145 (1999), Part 15]
[Extensions of Remarks]
[Pages 21166-21167]
[From the U.S. Government Publishing Office, www.gpo.gov]



                              ESTATE TAXES

                                 ______
                                 

                           HON. JIM McDERMOTT

                             of washington

                    in the house of representatives

                      Thursday, September 9, 1999

  Mr. McDERMOTT. Mr. Speaker, the issue regarding the Federal estate 
tax, and the role it should play in our Federal tax structure, is one 
of the most important that Congress will face when it considers tax 
legislation this fall. Those who have attached the estate tax as unfair 
to small business and as being very expensive to administer, have, to a 
very great extent, distorted the record.
  The important characteristic to recall about the estate tax is that 
it impacts less than 3 percent of U.S. taxpayers and to repeal this 
tax, as many have urged, would be tantamount to granting a tax cut to 
those in that economic strata. I would hope that my colleagues would 
see such a result as not justifiable considering our more important 
national priorities.
  Professor Meade Emory of the University of Washington in Seattle has 
been active and articulate in meeting the criticisms of the estate tax 
and in pointing out that it is an equitable source of revenue which has 
a proper place in our Nation's necessary tax structure. Mr. Speaker, I 
submit his op-ed piece, which appeared in the Seattle Times on July 28, 
1999, to be inserted and made a part of the Record.

                [From the Seattle Times, July 28, 1999]

                Correcting the Record on the Estate Tax

                            (By Meade Emory)

       Pause to reflect as to what the reaction would be if the 
     wealthiest 3 percent of the taxpayers clamored that they were 
     desperately in need of a tax cut. Quite naturally, one would 
     not expect this privileged group to get very far, but their 
     narrow cause has been furthered by a slick strategy of 
     mobilizing a vast cross-section of the American public which 
     is not even subject to the tax the tax-cutters seek to 
     eliminate.
       How can this be done, you ask? By instilling fear, by 
     sleight-of-hand and by concealing the real facts, those 
     seeking the cut have been able to enlist a huge portion of 
     the taxpaying public in their selfish objective. This, dear 
     friends, is the scenario that has brought us to where we are 
     in the vigorous debate over the future of the federal estate 
     tax.
       By relabeling the estate tax the ``death tax'' (thereby 
     maximizing all that term conjures up) and sweeping under the 
     rug the crucial fact that the tax is only imposed on a small 
     number of the wealthiest Americans (slightly over 1 percent 
     of those who die each year), and then only to the extent the 
     deceased person's assets exceed $1 million ($2 million for a 
     married couple), a far larger-than-deserved army of 
     supporters has been duped into lining up for the elimination 
     of a tax that doesn't even affect them. In doing this, those 
     opposing the estate tax have trotted out numerous fallacies 
     to stir many to emotional highs. This misinformation must be 
     scrutinized.
       The estate tax can go since it raises such a small 
     amount of revenue. This may be true if approaching 2 
     percent of total federal tax revenue is small. The fact 
     is, though, just this month, due to the huge jump in 
     wealth in this country, Treasury estimators had to 
     increase the estate tax annual revenue estimate for next 
     year from $27 billion to $31.4 billion. This puts the 
     spot-light on the ever-widening and societally damaging 
     economic gap between rich and poor, and the tax's larger 
     share of revenue is going to make it politically and 
     fiscally harder to obtain outright repeal.
       Wealth has already been taxed. Since most of the wealth 
     subject to the estate tax represents appreciation in value of 
     assets like stock, securities, real estate and collectibles, 
     which has not been, nor will it ever be, subject to income 
     tax, this claim simply is not so. Because property owned by a 
     decedent receives a new tax basis for income-tax purposes, 
     the estate tax represents the last and only chance to tax 
     that otherwise untaxed gain. Why should gain, generated by 
     the huge stock market and real-estate boom and enjoyed by the 
     wealthiest among us, escape any kind of taxation whatsoever?
       Rates are unreasonably high. True, the top statutory 
     estate-tax rate is 55 percent (reached on property in the 
     estate in excess of $3 million), but through sharp planning 
     (primarily by using illusory minority and fractional interest 
     discounts) the effective rate paid by the most well-to-do can 
     be cut to less than half that. However, as income-tax rates 
     are relatively flat (compared to what they were), more than 
     one-third of the tax system's progressivity is attributable 
     to the estate tax. Since those subject to the estate tax are 
     those who benefit the most from the stable society that 
     helped them prosper, there should be a place for a tax that 
     measures the amount of taxation by the taxpayer's ability to 
     pay and the estate tax, impacting only the very wealthiest, 
     is designed to do that.
       Cost of administration. The foes of the estate tax 
     fallaciously trumpet that the cost to administer the estate 
     tax exceeds the revenue it raises. A broad reading of the 
     term ``administration costs,'' would seem to include (1) IRS 
     administration costs, (2) taxpayer planning costs, and (3) 
     taxpayer compliance costs. At most, only 2 percent of the 
     total IRS budget of about $8 billion, or about $150 million, 
     is spent by it on all aspects of the estate tax. Regarding 
     planning for the tax, using what taxpayers actually pay to 
     plan estates (e.g., from $2,500 for estates less than $2 
     million to $50,000 for estates over $40 million) the total of 
     taxpayer planning costs, even assuming they may go through 
     the process twice due to changes in the law, is less than $1 
     billion. As to compliance, much of estate administration 
     (e.g., listing of assets, accomplishing their transfer to 
     heirs, etc.) would still be done even in an estate-

[[Page 21167]]

     tax-free world. Even if a generous number is used per 
     estate in this regard, the total cost of all 
     administration (public and private) does not exceed 7 
     percent of the $30 billion revenue brought in by the 
     estate tax.
       Assets have to be sold to pay the tax. A great deal of the 
     rhetoric on this issue revolves around the lack of liquidity 
     to pay the estate tax and the related threat that businesses 
     may have to be sold to pay the tax. Certainly, in large 
     estates, sales will be necessary to pay the estate tax (note, 
     at no income tax cost!). Most often, however, the assets sold 
     are non-business financial assets (e.g., widely held stock or 
     liquid real estate). In reality, the major need for liquidity 
     arises not because the estate holds business property but, 
     rather, because of the need to compensate, with a fair share, 
     those heirs not wishing to stay in the business.
       Further, the business in the estate is frequently sold 
     simply because the heirs, having developed their own careers, 
     have no desire to slave in their parents' vineyard. Most 
     estate planners say they never see a forced sale of a 
     business to pay the estate tax. However, since this point is 
     really the only legitimate point opponents to the tax have 
     raised, current scrutiny of the tax should include possible 
     changes in the law designed to eliminate ``fire-sale'' 
     business dispositions compelled to pay the IRS.
       Obviously, few have a deep yearning to pay taxes. Equally 
     obvious, all parts of our tax system can be improved. We 
     cannot deny, however, Justice Holmes' statement that ``Taxes 
     are the price we pay for civilized society.'' The burden of 
     those taxes should, though, be allocated rationally among our 
     citizens, with those having the largest ability to pay 
     assuming the greater responsibility. The estate-tax 
     exemptions (presently on schedule to soon reach $1 million, 
     $2 million for a married couple) are designed to exempt small 
     and even mid-sized estates from the tax altogether, thus 
     focusing the estate tax's impact on those with the most 
     wealth available to pass to their heirs at death. Increasing 
     those exemption levels to exempt even more middle-range 
     estates may, indeed, be appropriate as more wealth is 
     accumulated by the ``near'' rich. However, not only would 
     gutting the entire estate tax knock a huge hole in federal 
     revenues (hereby preventing the enactment of other tax cuts, 
     such as fixing the marriage-tax penalty, designed for the far 
     less affluent) it would be an unconscionable and unjustified 
     boon to the very, very rich, something neither they nor this 
     country needs.

     

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