[Congressional Record (Bound Edition), Volume 146 (2000), Part 10]
[Senate]
[Pages 14178-14183]
[From the U.S. Government Publishing Office, www.gpo.gov]



                  DEATH TAX ELIMINATION ACT--Continued

  Mr. REID. Mr. President, I yield the Senator from New York whatever 
time he may consume of the 2 hours.
  The PRESIDING OFFICER. The Senator from New York.


                           Amendment No. 3821

  Mr. MOYNIHAN. Mr. President, I rise for the purpose of offering an 
amendment in the nature of a substitute. I send the amendment to the 
desk and ask for its immediate consideration.
  The PRESIDING OFFICER. The clerk will report.
  The legislative clerk read as follows:

       The Senator from New York [Mr. Moynihan] proposes an 
     amendment numbered 3821.

  Mr. MOYNIHAN. Mr. President, I ask unanimous consent that reading of 
the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

 (Purpose: To amend the Internal Revenue Code of 1986 to increase the 
   unified credit exemption and the qualified family-owned business 
              interest deduction, and for other purposes)

       Strike all after the first word and insert:

              1. SHORT TITLE.

       (a) Short Title.--This Act may be cited as the ``Estate Tax 
     Relief Act of 2000''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.

     SEC. 2. INCREASE IN AMOUNT OF UNIFIED CREDIT AGAINST ESTATE 
                   AND GIFT TAXES.

       (a) In General.--The table contained in section 2010(c) 
     (relating to applicable credit amount) is amended to read as 
     follows:

``In the case of estates of decedents dying, aThe applicable amount is:
      2001, 2002, 2003, 2004, and 2005......................$1,000,000 
      2006 and 2007.........................................$1,125,000 
      2008..................................................$1,500,000 
      2009 or thereafter..................................$2,000,000.''

       (b) Effective Date.--The amendment made by this section 
     shall apply to the estates of decedents dying, and gifts 
     made, after December 31, 2000.

     SEC. 3. INCREASE IN QUALIFIED FAMILY-OWNED BUSINESS INTEREST 
                   DEDUCTION AMOUNT.

       (a) In General.--Paragraph (2) of section 2057(a) (relating 
     to family-owned business interests) is amended to read as 
     follows:
       ``(2) Maximum deduction.--
       ``(A) In general.--The deduction allowed by this section 
     shall not exceed the sum of--
       ``(i) the applicable deduction amount, plus
       ``(ii) in the case of a decedent described in subparagraph 
     (C), the applicable unused spousal deduction amount.
       ``(B) Applicable deduction amount.--For purposes of this 
     subparagraph (A)(i), the applicable deduction amount is 
     determined in accordance with the following table:

``In the case of estates of decedentThe applicable deduction amount is:
      2001, 2002, 2003, 2004, and 2005.......................$1,375,000
      2006 and 2007..........................................$1,625,000
      2008...................................................$2,375,000
      2009 or thereafter....................................$3,375,000.

       ``(C) Applicable unused spousal deduction amount.--With 
     respect to a decedent whose immediately predeceased spouse 
     died after December 31, 2000, and the estate of such 
     immediately predeceased spouse met the requirements of 
     subsection (b)(1), the applicable unused spousal deduction 
     amount for such decedent is equal to the excess of--
       ``(i) the applicable deduction amount allowable under this 
     section to the estate of such immediately predeceased spouse, 
     over
       ``(ii) the sum of--

       ``(I) the applicable deduction amount allowed under this 
     section to the estate of such immediately predeceased spouse, 
     plus
       ``(II) the amount of any increase in such estate's unified 
     credit under paragraph (3)(B) which was allowed to such 
     estate.''

       (b) Conforming Amendments.--Section 2057(a)(3)(B) is 
     amended--
       (1) by striking ``$675,000'' both places it appears and 
     inserting ``the applicable deduction amount'', and
       (2) by striking ``$675,000'' in the heading and inserting 
     ``applicable deduction amount''.
       (c) Effective Date.--The amendment made by this section 
     shall apply to the estates of decedents dying, and gifts 
     made, after December 31, 2000.

     SEC. 4. SENSE OF SENATE REGARDING SAVINGS.

       It is the sense of the Senate that the reduced cost to the 
     Federal Treasury resulting from the amendments made by this 
     Act as compared to the cost to the Federal Treasury of H.R. 8 
     as received by the Senate from the House of Representatives 
     on June 12, 2000, should be used exclusively to reduce the 
     Federal debt held by the public.
       Amend the title so as to read: ``An Act to amend the 
     Internal Revenue Code of 1986 to increase the unified credit 
     exemption and the qualified family-owned business interest 
     deduction, and for other purposes.''

  Mr. MOYNIHAN. Mr. President, a little background. In 1906, President 
Theodore Roosevelt sent a proposal to Congress to impose an estate tax. 
He justified the measure as follows. He said:

       A heavy progressive tax upon a very large fortune is in no 
     way a tax upon thrift or industry as a like tax would be on a 
     small fortune. No advantage comes either to the country as a 
     whole or to the individuals inheriting the money by 
     permitting the transmission in their entirety of the enormous 
     fortunes which would be affected by such a tax; and as an 
     incident to its function of revenue raising, such a tax would 
     help preserve a measurable equality of opportunity for the 
     people of the generations growing to manhood.

  That is why we have an estate tax today. Congress had imposed such 
taxes in the 1800s, generally to fund wars, and indeed we had an income 
tax during the Civil War. When the need for such revenues eased, why 
these taxes, including the estate tax, were put aside. Theodore 
Roosevelt championed the enactment, on a number of times, of the 
measure that is in the code today. Over the years, the number of 
taxable estates, estate returns as a percentage of total deaths, has 
fluctuated, but not very much, from under 1 percent in 1935--which is 
the very depths of the depression of that decade--to a high of almost 8 
percent in 1977, when we changed the tax to bring it back down. And the 
number of taxable estates today ranges between 1 percent and 2 percent, 
a level not that different from that of the depths of the depression.
  If we make no changes to the tax rules in 2006, the percentage of 
taxable estates is projected to be lower than today because we raised 
the limit. The Joint Tax Committee projects that 1.82 percent of 
estates will be subject to tax. We are still within that very low 
historic level, that was run up after World War II, and which we 
brought

[[Page 14179]]

back down in 1977. It is not a principal source of Federal revenue. I 
think it generated $24 billion in 1998, which was 1.4 percent of 
Federal revenues. Absent change, it might rise to $42 billion in 2008--
not even a doubling in 10 years.
  The bill before the Senate, H.R. 8, the Death Tax Elimination Act, 
would repeal the tax in the year 2010. It moves about during the next 
10 years, but then it stops altogether, at which point we deal with a 
revenue loss of $50 billion a year. Mr. President, $50 billion, even in 
this momentary glow of surpluses, is a large amount of money. That is 
half a trillion dollars in a decade. It is much more than we should 
ever give away before we see whether the surplus we are projecting will 
actually occur, and indeed for the social reasons that Theodore 
Roosevelt spoke about at the beginning of the century.
  The Federal Government is not the only government that would be 
impacted by the legislation that has been sent us from the House. The 
estate tax provides revenue for our State governments as well. Under 
our Federal estate tax laws, States may enact an estate tax without 
increasing taxes on decedents' estates or their heirs. This is because 
the Internal Revenue Code provides a dollar-for-dollar reduction in 
Federal estate tax liability for each dollar collected by the State, up 
to certain limits. Almost every State has enacted such legislation, and 
States collect about one-quarter of all estate taxes. The Treasury 
Department reports that in 1997, the States collected $4.3 billion in 
estate taxes while the Federal Government collected $16.6 billion.
  Repeal of the estate tax would eliminate this source of revenue for 
State governments. They have not been consulted in the matter, but I 
cannot imagine they would be enthusiastic.
  Finally, we on the Senate Democratic side are concerned about the 
adverse effect the repeal could have on charitable contributions. We 
cannot be sure of it, but the Joint Tax Committee estimates that 
estates are expected to contribute $330 billion to charities over the 
next 10 years, a third of a trillion dollars.
  The question of how much of these contributions would continue or 
what portion would disappear if we abolish this tax altogether cannot 
be stated with any confidence, but it is the large estates that 
contributed the bulk of the $330 billion; $190 billion comes from 
estates with values over $10 million. We know this as we look around us 
at the great foundations, some of which date from earlier in the 
century but others of which reflect the accumulation of wealth in new 
economic activities in our age, and the estate tax surely has an 
influence. It should not be the principal concern for us, but it is a 
fact of our society.
  Accordingly, we propose a modification of the existing program whilst 
retaining the essential legislative measure. We can describe it in two 
numbers: $2 million and $4 million. Under our amendment, no estate with 
assets under $2 million would be subject to estate tax. No estate with 
a family-owned business or farm valued at less than $4 million would be 
subject to estate tax.
  There are very few farms that could be described with even a measure 
of exaggeration as a family farm worth more than $4 million. New York 
State is a farming State. It always has been. Ray Christensen, the 
Special Assistant with the Department of Agriculture and Markets, 
estimates that our farms sell in the range of about $257,000. I cannot 
imagine those in Pennsylvania, just over our border, would be very 
different. They are nowhere near $4 million. I cannot imagine there is 
such a place, save a nominal farm kept for recreational purposes on the 
eastern end of Long Island or in the Hudson Valley.
  Our proposal would increase the general exemption, which is 
applicable to all estates, to $1 million immediately--it is $675,000 
today--and to $2 million by the year 2009. This would eliminate two-
thirds of the approximately 50,000 estates currently subject to tax. In 
addition, our proposal would increase the exemption for family farms 
and family-owned businesses from $1.3 million to $2 million immediately 
and to $4 million by 2009. Our increase would eliminate the estate tax 
on virtually all family farms and 75 percent of the family-owned 
businesses.
  The measure is costly but not extravagantly so. It costs $65 billion 
over 10 years, compared to $105 billion under the House proposal, which 
we have before us. This bill, as I said earlier this week--and I repeat 
to my esteemed friend, our chairman--should have been referred to the 
Finance Committee. It was not. The Senate will learn to its cost one 
day that the Finance Committee has jurisdiction over these matters 
because we have some competence in them, and not for nothing, for 
example, did we bring about the 1977 measures--I was then a member of 
the committee--to lower the estate tax which had commenced to reach 
almost 8 percent of estates, which is much higher than the historic 
average. We are back down to where we have been through the century.
  I suggest, once again, that we ought to stay with a tax that has 
served us well. Nearly 100 years ago, Theodore Roosevelt urged adoption 
of a tax that would ``be aimed merely at the inheritance or 
transmission in their entirety of those fortunes swollen beyond all 
healthy limits.''
  To conclude, I will ask permission to have printed in the Record the 
lead story in the New York Times business section, Business Day: 
``Despite benefits, Democrats' Estate Tax Plan Gets Little Notice.'' It 
goes on, in a manner one is not accustomed to read in business 
sections, that:

       Small-business owners and farmers whose Washington 
     lobbyists are ardent backers of a Republican-backed plan to 
     repeal the estate tax seem largely unaware that--

  The Democratic proposal--

     would exempt nearly all of them from the tax starting next 
     year.

  As against the measure we have from the House.
  I will read one paragraph and then conclude:

       Two prominent experts on estate taxes said yesterday that 
     the Democrats were offering a much better deal to small-
     business owners and farmers, because the relief under their 
     bill would be immediate and the estate tax would be 
     eliminated for nearly all of them.

  That is a matter we might keep in mind. I ask unanimous consent that 
this article be printed in the Record.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

                [From the New York Times, July 13, 2000]

    Despite Benefits, Democrats' Estate Tax Plan Gets Little Notice

                         (By David Cay Johnson)

       Small-business owners and farmers whose Washington 
     lobbyists are ardent backers of a Republican-backed plan to 
     repeal the estate tax seem largely unaware what President 
     Clinton--who has vowed to veto the Republican proposal--has 
     said he would sign legislation that would exempt nearly all 
     of them from the tax starting next year.
       Business owners and farmers would be allowed to leave $2 
     million--$4 million for a couple--to their heirs without 
     paying estate taxes under the plan favored by the President 
     and the Democratic leadership in Congress. The Republican 
     proposal, which passed the House last month with some 
     Democrats' support and is being debated in the Senate this 
     week, would be phased in slowly, with the tax eliminated in 
     2009.
       Supporters of the Republican plan say the tax is so 
     complicated that eliminating it is the only effective reform; 
     they argue that the nation's growing wealth means more 
     estates will steadily fall under the tax if it remains law on 
     the Democratic proposal's terms.
       Still, had the Democratic plan been law in 1997, the last 
     year for which estate tax return data is available from the 
     Internal Revenue Service, the estates of fewer than 1,300 
     owners of closely held businesses and 300 farmers would have 
     owed the tax.
       According to the data, 95 percent of the roughly 6,000 
     farmers who paid estate tax that year would have been 
     exempted under terms of the Democrats' plan, as would 88 
     percent of the roughly 10,000 small-business owners who paid 
     the tax.
       Had the estate tax been repealed in 1997, as the 
     Republicans now propose, more than half of the tax savings 
     would have gone to the slightly more than 400 individuals who 
     died that year leaving individual estates worth more than $20 
     million each.
       Two prominent experts on estate taxes said yesterday that 
     the Democrats were offering a much better deal to small-
     business owners and farmers, because the relief under their 
     bill would be immediate and the estate tax would be 
     eliminated for nearly all of them.

[[Page 14180]]

       ``The fact is that the Democrats are making the better 
     offer--and I'm a Republican saying that,'' said Sanford J. 
     Schlesinger of the law firm of Kaye, Scholer, Fierman, Hays & 
     Handler in New York. With routine estate planning, he said, 
     the $4 million exemption could effectively be raised to as 
     much as $10 million in wealth that could be passed untaxed to 
     heirs. Only 1,221 of the 2.3 million people who died in 1997 
     left a taxable estate of $10 million or more, I.R.S. data 
     shows.
       Neil Harl, an Iowa State University economist who is a 
     leading estate tax adviser to Midwest farmers, said that only 
     a handful of working family farms had a net worth of $4 
     million. ``Above that, with a very few exceptions, you are 
     talking about the Ted Turners who own huge ranches and are 
     not working farmers,'' he said.
       Mr. Harl said he was surprised that farmers were not 
     calling lawmakers to demand that they take the president up 
     on his promise to sign the Democratic bill.
       One reason for that may be that in leading the call for 
     repeal of the tax, two organizations representing merchants 
     and farmers--the National Federation of Independent Business 
     and the American Farm Bureau Federation--have done little to 
     tell members about the Democratic plan. Interviews this week 
     with half a dozen people whom the two organizations offered 
     as spokesmen on the estate tax showed that only one of them 
     had any awareness of the Democratic proposal.
       Officials of the business federation and the farm bureau 
     said that in the event full repeal failed, they might push 
     for approval of the Democratic plan. But both groups say 
     outright repeal makes more sense.
       ``My concern is not over the Bill Gateses of the world,'' 
     said Jim Hirni, a Senate lobbyist for the business 
     federation. ``But we have to eliminate this tax, because it 
     is too complicated to comply with the rules. Instead of 
     further complicating the system, the best way is to eliminate 
     the tax, period.''
       A farm bureau spokesman, Christopher Noun, said that the 
     Democrats' plan appeared to grant benefits that would erode 
     over time. ``Farmers are not cash wealthy, they are asset 
     wealthy,'' he said. ``And those assets are only going to 
     continue to gain value over the years. So while some farmers 
     may not be taxed now under the other plan--10 or 15 years out 
     they will.''
       Whether the proposal to repeal the tax dies in the Senate 
     or is passed and then vetoed by the President, it will become 
     a powerful tool for both parties in the fall elections. The 
     Republicans will be able to paint themselves as tax cutters 
     who would carry out their plans if they could just win the 
     White House and more seats in Congress. The Democrats could 
     try to paint the Republicans as the party that abandoned Main 
     Street merchants and family farmers to serve the interests of 
     billionaires.
       A vote in the Senate could come as early as this evening.
       At the grass roots, however, those who would benefit from 
     any reduction in the scope of the estate tax take a much more 
     pragmatic view of the matter.
       ``The whole reason I took up this cause is I do not want to 
     see another small family business get into the situation we 
     are in,'' said Mark Sincavage, a land developer in the Pocono 
     Mountains of Pennsylvania whose family expects to sell some 
     raw land soon to pay a $600,000 estate tax bill to the 
     federal and state governments.
       The independent business federation cited Mr. Sincavage's 
     situation as an especially good example of problems the 
     estate tax causes its members who are asset rich but short on 
     cash. Facing similar circumstances is John H. Kearney, a Ford 
     and Lincoln dealer in Ravena, N.Y., who said he ``got slammed 
     pretty hard'' when his father died last year. Most of his 
     father's $1.6 million estate was in land and the car 
     dealership, said Mr. Kearney, who added that he dipped into 
     savings intended for his children's education to pay the 
     estate tax bill.
       Neither Mr. Sincavage nor Mr. Kearney said he was aware of 
     the Democrats' plan to roll back the tax.
       But Mr. Kearney said his interest was in reasonable tax 
     relief so that merchants and farmers could continue to 
     nurture their businesses, not in helping billionaires.
       ``No part of me has any sympathy for people with more than 
     $5 million,'' he said. ``Would I feel terrible if all they 
     did was raise the exemption to $4 million or $5 million? I 
     would say from my selfish standpoint that we have covered the 
     small family farm and small business and thus we achieved 
     what we wanted to achieve.
       ``But I would still be asking: Is it really a moral tax to 
     begin with? And that's a point you can argue a hundred 
     different ways.''
       Carl Loop, 72, who owns a whole-sale decorative-plant 
     nursery in Jacksonville, Fla., said he favored repeal, partly 
     because estate tax planning was fraught with uncertainty.
       ``The complexity of it keeps a lot of people from doing 
     estate planning because they don't understand it,'' Mr. Loop 
     said. ``And they don't like the fact that they have to give 
     up ownership of property while they are alive.''
       Professor Harl, the Iowa State University estate tax 
     expert, said that he had heard many horror stories about 
     people having to sell farms to pay estate taxes. But in 35 
     years of conducting estate tax seminars for farmers, he 
     added, ``I have pushed and pushed and hunted and probed and I 
     have not been able to find a single cause where estate taxes 
     caused the sale of a family farm; it's a myth.''

  Mr. MOYNIHAN. Mr. President, I see that my esteemed chairman has 
risen. Accordingly, I yield the floor.
  The PRESIDING OFFICER (Mr. Crapo). The Senator from Delaware.
  Mr. ROTH. Mr. President, the Senate Democrats have proposed an 
amendment as an alternative proposal to H.R. 8 known as the Death Tax 
Elimination Act of 2000.
  In their alternative, my colleagues across the aisle continue to rely 
upon the concept of a ``unified credit'' against the death tax. Their 
$1 million unified credit does not equal H.R. 8's $1 million exemption. 
The math behind the Democratic alternative forces the families of the 
deceased to continue to pay the very high tax rate of 41 percent for 
even one dollar over their $1 million unified credit.
  Now compare that to the reasonable 18 percent tax rate for the first 
dollar over our proposed $1 million exemption. H.R. 8's use of an 
exemption versus the Democratic alternative's use of a credit literally 
cuts the remaining tax rate in half or modest estates. In short, the 
Democratic alternative still has a ``cliff effect.'' If the total fair 
market value, based on the Internal Revenue's opinion as to the 
estate's highest and best use, happens to exceed the Democratic credit, 
then the family is immediately exposed to death tax rates 41 to 60 
percent.
  The Democratic alternative fails to take advantage of the lower 
estate tax rates currently provided in the tax code. Their increase in 
the unified credit to $1 million forces American families to still pay 
death taxes ranging from 41 to 60 percent.
  While H.R. 8's use of the exemption would allow American families the 
benefit of the lower tax rates beginning at 18 percent until such time 
as all of the death taxes are eliminated.
  I think through all of the debates, most if not all of my colleagues 
in the Senate would agree that the influences of a strong economy have 
created $1 million estates in American families who have never had to 
face these types of overwhelming tax burdens. Dozens of American cities 
continue to report that the average sales price for a single family 
home has climbed to more than $250,000. Their average homes are worth a 
quarter of a million dollars, by the time you add life insurance for 
husband and wife, 401(k)s and IRAs to the fair market value of their 
homes many American families could be facing the previously unknown 
burden of death tax.
  Even though the Democratic alternative goes on to eventually increase 
the unified credit to $2 million by the year 2009, American families' 
life insurance, 401(k)s, IRAs, and other lifetime savings are exposed 
to death taxes beginning at 49 to 60 percent for every dollar above the 
credit.
  In vast contrast, those same families would be shielded from all 
death taxes after 2009, under our proposed Death Tax Elimination Act, 
H.R. 8.
  Additionally, the Democratic alternative attempts to target its 
proposed relief to family farms and small businesses by raising the 
family farm and small business deduction from $1.3 million per decedent 
to $2 million per decedent in the year 2001. Beginning in 2006 through 
2009 the deduction would then be increased through a series of steps to 
$4 million per decedent.
  First of all, I am concerned that under the Democratic alternative, 
only those estates with over 50 percent of the estate in small 
businesses would qualify for relief. Upon the detailed review of the 50 
percent requirement it becomes obvious that their alternative has 
several complicated adjustments, which includes all gifts made to the 
spouse within 10 years of death. This fact alone makes this approach 
very limited.
  In addition to the 50 percent requirement, the Democratic alternative 
requires that for ten years beyond the date of death, small business 
families shall have an additional estate tax imposed if the family must 
dispose of any

[[Page 14181]]

portion of the family owned business interest for such reasons as 
bankruptcy or foreclosure. The additional tax is a portion of what 
would have been owed without the small business exemption and the 
accrued interest from the date of death.
  Second, I am also concerned about the complexity of this approach. 
The Democratic alternative would require the use of business appraisals 
and also the preparing and filing of extensive paperwork for up to 10 
years beyond death.
  After a couple of years of this targeted modest relief having been in 
effect, I have heard about how it is working. Based on what family 
farmers and small business folks are telling me in Delaware, I have 
some misgivings about whether this approach is taking care of most or 
all of the cases.
  Since this complex provision was originally passed in the Taxpayer 
Relief Act of 1997, 902 estates have elected the current $1.3 million 
deduction available under the code. Our experience in the area of 
estate tax provisions leads us to believe that if the Internal Revenue 
Service challenges as many of the estate valuations as they do under 
similar provision then only about one-third of the estates that could 
elect under this provision would benefit under the Democratic 
alternative.
  There are other significant differences between H.R. 8 and the 
Democratic alternative. H.R. 8 has painstakingly attempted to address 
multiple concerns in the rules under the generation skipping transfer 
tax provisions, in a sincere effort to make those rules less burdensome 
and less complex. Those technical rules, if violated by accident or 
otherwise generate an additional tax for violating the restriction 
against generation skipping transfers, by levying 55 percent tax over 
and above the 41 to 60 percent death tax already due and owing on the 
total value of the estate. The Democratic alternative does not address 
the much needed technical changes to general skipping transfer taxes.
  Additionally, H.R. 8 has expanded the geographical limitations to 
qualified conservation easements. This is in recognition of the 
opportunity to further ease existing pressures to develop or sell 
environmentally significant land when families must raise funds to pay 
death taxes.
  The Democratic alternative has not even considered this important 
issue nor has it attempted to advance the preservation of such land.
  Now the Democratic leadership has repeatedly complained as to the 
expense associated with the Death Tax Elimination Act of 2000. But 
their own alternative is expecting a revenue loss of $64 billion over 
10 years, roughly 60 percent of the revenue loss of H.R. 8. This is a 
$64 billion revenue loss that does not even protect those American 
families with simple homes, savings, insurance, qualified plans, and 
investments that do not include a farm or a business.
  H.R. 8 repeals the whole estate and gift tax regime in 2010. But, 
because there are billions of dollars of assets previously untaxed, if 
the heirs sell any portion of the estate, capital gains taxes are then 
due and owing. Taxes are then paid at the right time, when the heirs 
convert the asset to cash. The tax is not collected on an arbitrary and 
traumatic event such as death. Nor is tax collected on an arbitrary 
valuation based on paper equity that has never been realized.
  Moderately sized estates would be safeguarded from this capital gains 
tax exposure. The step up in basis is retained for all estates in an 
amount of up to $1.3 million per estate. In addition, transfers to a 
surviving spouse would receive an additional step up in the amount of 
$3 million. So a family could cumulatively receive a step up in basis 
of $5.6 million at the death of both husband and wife. This effectively 
protects moderately sized estates from both death tax and capital gain 
tax exposure.
  The House passed the bill on a bipartisan basis with 65 Democrats 
voting in favor of repeal of the estate and gift taxes. Now is the 
Senate's opportunity to pass this bill on a bipartisan basis and send 
it to the President. It is my understanding this will be the only 
chance this year that we will have to pass this bill and repeal estate 
and gift taxes. If we fail, the bill dies. If we come together and vote 
in favor of the House bill--estate tax repeal that the Congress passed 
last year--it will go directly to the President for his signature.
  This should not be a partisan issue.
  Unfortunately, the White House has indicated its opposition to repeal 
of estate and gift taxes and has promised to veto this bill. With 
roughly $2 trillion of estimated non-Social Security surpluses over the 
next 10 years, I believe the approximately $105 billion cost of 
repealing estate and gift taxes to be well within reason--it is only 
about 5 percent of the projected non-Social Security surplus.
  Taxpayers are taxed on their earnings during their lives at least 
once. Our Nation has been built on the notion that anyone who works 
hard has the opportunity to succeed and create wealth. The estate and 
gift taxes are a disincentive to succeed and should be eliminated. It 
is the right thing to do.
  It has been said that there are only two certainties: death and 
taxes. The two are bad enough, but leave it to the Federal Government 
to find a way to make them worse by adding them together. This is 
probably the worst example of adding insult to injury ever devised. Yet 
Washington perpetuates over and over again on hard working families who 
have already paid taxes every day they have worked.
  The Democratic alternative fails to address the needs of the American 
people. Therefore I urge my colleagues to support the majority leader 
and vote for H.R. 8.
  Mr. President, I yield the floor.
  The PRESIDING OFFICER. The Senator from Nevada.
  Mr. REID. Mr. President, I yield to Senator Baucus whatever time he 
may consume.
  The PRESIDING OFFICER. The Senator from Montana.
  Mr. BAUCUS. Mr. President, I will start by complimenting the two 
leaders. Yesterday at this time, we were facing a likely cloture 
petition which would have severely limited debate on different 
amendments. We finally reached agreement on a certain number of 
amendments. It is good we have crossed that bridge and are now on the 
bill.
  Some of the amendments that are going to be offered today may be 
adopted--some may not--but at least they will all improve the bill. We 
will have an open debate on them, and that allows the American people 
to have a better opportunity to determine what makes sense and what 
does not. Again, I congratulate the leaders.
  The House bill still raises many serious questions that deserve 
careful consideration. I will name a few.
  One is the impact of the House bill across various income levels, 
something that has really not been discussed. How does it affect one 
income level versus another income level versus the highest income 
levels in America?
  Another is the new rules that maintain the carryover basis of certain 
inherited assets. What is all that about? It is kind of technical. The 
fact is, under the House bill--remember, the House bill doesn't repeal 
the estate tax until 10 years after enactment--there is not much relief 
in the first 10 years. But after 10 years, after the estate tax is 
repealed, many assets will no longer have a stepped up basis but 
instead have a carryover basis.
  What does someone who inherits an asset and wants to then dispose of 
that asset have to do? He or she cannot just figure out how much tax is 
owed by using the ordinary market value when it was inherited, which 
presumably is quite a bit higher than when it was bought. Rather, he or 
she has to use the carryover basis from when the asset was first 
acquired with whatever adjustments were made in the meantime. This is 
usually much lower. And it is awfully technical.
  The net effect is twofold: One is that people who receive an 
inheritance, under the House bill, are going to suddenly face a much 
higher capital gains tax if and when they want to dispose of

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it than they would under current law. Under current law, again, it is 
called a stepped-up basis. The net effect is a much lower capital gains 
tax when the asset might otherwise be sold.
  All you folks who think, boy, this House bill is going to repeal the 
estate tax, beware. It does not really repeal the estate tax. What it 
does is say that 10 years later, when you get that asset, if you want 
to do anything with it, if you want to sell it, want to realize the 
value of it, you will pay a whopping capital gains tax, much higher 
than you would otherwise pay under current law.
  The second problem with that is the complexity of the paperwork. 
Let's assume the House bill passes. After 10 years --you are a person 
who receives inheritance from an estate. If you have to go back and 
figure out what the basis of all the assets are, some assets may have 
been acquired by the decedent 5 years earlier, 10 years earlier, maybe 
20 years earlier, maybe 30 years earlier. The basis may have to be 
carried over for generations. If you have to stop and find the 
paperwork, find the data which determines what the cost was of that 
asset from who knows how many years ago, that is a huge change from 
current law. It will cause undue complexity.
  A lot of people in this body correctly complain about the complexity 
of the Tax Code. That is a valid complaint. If the House bill passes, 
the additional complexity that this body will impose on taxpayers is 
going to be beyond imagination. When this Congress did the same thing 
about 24 years ago, in 1976, guess what happened. Our own constituents 
raised a huge outcry. What did we do in the Congress? We agreed with 
our folks.
  We ended up repealing carryover basis before it even took effect. I 
don't think many people have focused on it, but that same provision is 
in the House bill right now, the bill we have before us.
  Then there is the effect of the House bill on charitable giving, when 
the estate tax is totally repealed on down the road after 10 years. I 
have talked to a lot of estate tax attorneys--reasonable people, good, 
solid estate tax attorneys. They say: Max, if you pass a total repeal, 
I guarantee you there will be a huge drop in charitable contributions 
in America--huge. It stands to reason.
  Think of some taxpayers who have been in the news a lot, some 
Americans who have huge estates. We see in the news that they are 
giving a lot to charity. I am sure a lot of those folks are giving to 
charity out of the goodness of their hearts, for good, solid altruistic 
reasons. I am also confident that a lot of people with wealth give to 
charity because under current law, it benefits them; those charitable 
contributions are deductible. They would far rather give to a charity 
than to Uncle Sam. They would rather give to their children first, but 
they would rather give to a charity than Uncle Sam.
  I think you are going to see a huge drop in charitable contributions 
if this House-passed bill the majority party is pushing is enacted into 
law. At the very least, we never had hearings on this. We really don't 
know what effect it will have on charitable contributions. We really 
don't know what real effect repeal of the stepped-up basis and moving 
over to the carryover basis can have either. We can surmise. I don't 
hear the majority talking about those issues much, which leads me to 
the conclusion that there is probably more of a problem with these 
issues than they want people to believe. What our best guess of the 
effect? We could determine it best if we had hearings, but there have 
been no hearings on Federal estate taxes in this Congress--none in the 
Senate.
  I won't belabor the point. I think it is just basic things we should 
be thinking about before we rush to passage of the House-passed bill. 
Let's move on to the substance. Remember, under current law, the estate 
tax applies to estates worth more than $675,000. That is the law. That 
amount is scheduled to rise to $1 million in the year 2006. In 
addition, we have special rules that increase the exemption for family-
held businesses to $1.3 million. That is current law.
  To put this in perspective, next year it is expected that about 2.5 
million Americans will die. Of those 2.5 million, roughly 50,000 will 
have estates that will pay an estate tax under current law. That is 2 
percent. I will repeat that because it is worth remembering. Of the 
number of people who will die this year, about 2 percent of those 
people will have estates subject to estate tax. So 98 percent of 
Americans who die will not have estates that are subject to the estate 
tax. That is current law.
  With this basic picture in mind, today's debate presents two separate 
alternatives, two ways to reform the estate tax. There is the House-
passed bill and there is the Democratic alternative.
  Let's look at the House bill. What does it do? It works in two steps. 
Over the first 9 years, it gradually reduces estate tax rates down to a 
top rate of about 40 percent. How does it do it? Really, it doesn't 
reduce taxes very quickly during that 9 years because the first year 
the only things that are actually repealed are the top rate, which is 
55 percent, and the surtax. During that time other modest cuts are 
made. Then the next year, the 53 percent rate is repealed, and then on 
down. Then in the final year, you get total repeal. The bill waits a 
full 10 years after enactment before it completely repeals the estate 
tax. That is when the real effect of the House bill is felt. It is not 
in the first 10 years but after total repeal, after 10 years.
  At the same time, the House bill imposes a new requirement. When full 
repeal goes into effect, people who inherit estates worth more than 
certain amounts must maintain what tax lawyers call the ``carryover 
basis'' of inherited assets. I discussed that a few minutes ago. That, 
in a nutshell, is the House bill.
  The Democratic alternative takes a different approach. It does two 
things--very simple but effective. First, we dramatically increase the 
amount that is exempt from estate tax. Currently, as I mentioned, it is 
$675,000. We increase the per person exemption to $1 million per spouse 
right away. A few years later, we begin to increase it again, until it 
reaches $2 million. For a couple, that is a $4 million exemption right 
across the board.
  Second, we increase the family-owned business exclusion to $4 million 
per spouse. For a couple, it is $8 million.
  Those are the two alternatives.
  When you compare them, it should be pretty clear the Democratic 
alternative has two important virtues. First, the Democratic 
alternative provides dramatic relief, while the Republican bill does 
not. And it provides dramatic relief where it is needed the most--small 
businesses, family-held farms and ranches.
  In the first year, we would exempt over 40 percent of the estates 
that are currently subject to an estate tax. Not the House bill, the 
majority proposed bill; it actually would affect very few people in the 
first year and it wouldn't exempt anyone from the tax. The Democratic 
alternative would exempt 40 percent. In fact, ours contains much more 
relief for estates in this range than the House bill would begin to 
provide.
  Over the longer term, when the provisions take full effect, the 
Democratic alternative exempts more than two-thirds of all estates. 
Remember, of all the people who die in America, only 2 percent are 
subject to estate tax in the first place. The Democratic alternative 
exempts two-thirds of all those; that is, two-thirds of the 2 percent. 
It would also exempt three-quarters of all small businesses that might 
otherwise be paying tax, and 95 percent of all farms and ranches that 
would have to pay the estate tax under current law.
  In contrast, the House-passed bill doesn't go nearly that far. It 
provides very little relief to these estates for the first 10 years. 
Granted, eventually it provides total relief, but that is 10 years from 
now, not in the interim. In 2010 the Republican bill repeals the tax 
completely, including estates worth not only $2 million or $3 million, 
or family businesses up to $8 million, but it also repeals the estate 
tax for huge estates--$100 million estates, $1 billion

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estates, $5 billion estates. It totally repeals any tax whatsoever on 
estates of that size.
  Yesterday, I spoke in opposition to the House bill, and Senators 
Thomas and Inhofe expressed a little surprise. They said when they talk 
to ordinary folks in their home States, they hear a lot about the 
estate tax, and people want reform. They wondered whether I was hearing 
the same in my State of Montana. I sure am, all the time--in coffee 
shops, in grocery stores, lots of people talk to me. They think it hits 
too hard on farms, ranches, and small businesses. That is precisely the 
point. The House bill responds to these with an abstraction--repeal, 10 
years from now.
  The Democratic alternative says, no, we are not going to wait 10 
years; we are going to do it now. We respond with honest-to-goodness 
relief. I am sure there is somebody in Montana with an estate worth 
more than $8 million who will still have to pay some estate tax under 
the Democratic alternative. But there sure aren't many of them.
  Remember, the vast majority of the estates are either not affected by 
the tax now or, if they are, would be completely exempt under the 
Democratic alternative. One other virtue of the Democratic alternative 
is it costs much less than the House bill, $40 billion less over 10 
years. After that, the savings are even greater.
  As a result, the Democratic alternative allows us not only to reform 
the estate tax in a way that helps where it is needed the most, but it 
also allows us to address other priorities that, frankly, are more 
important than total repeal of the estate tax, particularly for huge 
estates.
  For example, what about the national debt? The Democratic alternative 
leaves an additional $40 billion available to pay down the national 
debt. Or we could use the savings to provide tax cuts to meet other 
important needs; help average families save for retirement or their 
kids' college education, or help people meet long-term medical care 
costs; protect Social Security and Medicare.
  Believe me, these are good things that we hear about at home all the 
time. I believe that more people are more concerned about these matters 
than they are about total repeal of the estate tax, particularly for 
large estates.

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