[Congressional Record (Bound Edition), Volume 146 (2000), Part 2]
[House]
[Pages 2714-2716]
[From the U.S. Government Publishing Office, www.gpo.gov]



                      REPUBLICAN ESTATE TAX POLICY

  The SPEAKER pro tempore (Mrs. Biggert). Under the Speaker's announced 
policy of January 19, 1999, the gentleman from Massachusetts (Mr. 
Frank) is recognized during morning hour debates for 5 minutes.
  Mr. FRANK of Massachusetts. Madam Speaker, rarely have the 
differences between the two political parties been more graphically 
demonstrated than when we debated the package of a minimum wage 
increase and tax reductions.
  The resistance on the part of the Republican leadership to a fairly 
small minimum wage increase in the midst of the greatest prosperity we 
have ever known speaks a great deal to a social insensitivity, but 
equally distressing to me is their decision that we should begin to 
reduce one of the most progressive taxes in America. And, of course, 
their goal is ultimately to repeal it. I speak of the estate tax.
  We have some unfair taxes in America, and many people feel that 
working people, people of average income, people who are making 
$30,000, $40,000, $50,000 a year pay an unfair share of the tax burden. 
And I believe that is true in part because of the payroll taxes.
  We have one tax, the estate tax, which literally applies only to 
millionaires. And it does not even apply to millionaires. It applies to 
people who have shown a rare talent. They have shown an ability to be 
related to millionaires.
  Madam Speaker, I think being related to a millionaire is certainly a 
great asset in life, and I would recommend it to people. If you have a 
chance to be related to someone very wealthy, take it. But I do not 
believe that being related to an extremely wealthy person who has just 
died is a mark of inherent value. It is neutral. It does not make you a 
bad person, but it does not make you a hero either.
  And the notion that you have an absolute right to be greatly rewarded 
by your good fortune in having a very rich relative seems to me a 
mistake. Now, what is particularly interesting is the estate tax brings 
in a little over $20 billion a year, and it will soon be the case that 
your estate has to be a million dollars or more before you pay it. And 
the great bulk of it is paid by people who die and leave tens of 
millions of dollars.
  Now, here is what we do if we abolish the estate tax, as the 
Republican party wants to do it, we say to old people who, because most 
of the people who pay the estate tax or over 90 percent were 65 or 
older when they die, we say to these older people who died rich that we 
will be very protective of them, or at least of their smart relatives 
who figured out how to be related to them.
  On the other hand, if you are old and alive and not very rich, but 
you are on Medicare and cannot afford prescription drugs, the 
Republican position is, well, that is tough, you will just have to 
learn to deal with it. In other words, the Republican party tells us on 
the one hand we cannot afford this wealthy Nation to provide full 
prescription drug coverage to middle-income and lower-income elderly 
people, not the very poor, they are covered by Medicaid, but people who 
are making $25,000, $30,000, $35,000 a year in retirement, they ought 
to get no aid because we need the money that would have gone to pay for 
prescription drugs to alleviate the problem of Bill Gates' heirs and 
the heirs of other people who have made millions of dollars.
  In other words, we are being asked to show more respect for older 
people who are dead and rich than for older people who are still alive 
and not wealthy.
  Madam Speaker, now, there is one other aspect of this effort to 
reduce and, ultimately, repeal the estate tax that ought to be called 
into question, and that is the negative effect it will have on private 
charity.
  My Republican colleagues talk about how much they want to help 
private charity. According to a recent study, I will put the New York 
Times article displaying this study from a couple of Boston College 
researchers, into the Record, for estates that are over $20 million, a 
very considerable number, 39 percent of the money at death goes to 
chart, while only 34 percent goes to taxes. And, indeed, these two 
professors conclude in their study, two eminent scholars from an 
institution mostly in my district, at Boston College. They conclude 
that, I am now quoting from the article, if the estate tax is repealed 
or significantly reduced, however, as Congress voted to do earlier this 
year in a bill that President Clinton vetoed, that was last year, 
bequests to charities might be smaller than the Boston College model 
predicted.
  The Republican approach is to go to the aid of the wealthiest 1 or 2 
percent of the people in the country and not

[[Page 2715]]

just to them, but to the people who are smart enough to be related to 
them or to have otherwise ingratiated themselves to them, to deny 
prescription drug coverage to the great bulk of middle-income Americans 
and lower-income Americans, and while we are at it, reduce the amount 
that goes to private charity. That is the difference between the 
parties.
  Madam Speaker, I include the following two articles for the Record 
which illustrate these points.

                [From the New York Times, July 25, 1999]

                  Study Contradicts Foes of Estate Tax

                        (By David Cay Johnston)

       Congressional opponents of the estate tax say it 
     discourages savings, costs the economy more than it raises 
     for the Government and makes it very difficult for a family-
     owned farm or business to be passed to the next generation.
       But all of those arguments are contradicted by Government 
     tax and economic data, according to a book-length study that 
     will be published tomorrow in the policy magazine Tax Notes.
       The article comes after the House passed on Thursday night 
     the Republicans' bill to cut taxes by $792 billion, including 
     the repeal of the estate tax. Similar legislation was being 
     considered in the Senate but the outcome of the repeal is in 
     doubt because President Clinton has promised to veto it.
       Yet the article in Tax Notes seems likely to have a 
     profound effect on the debate over estate taxes, experts say. 
     Data from estate tax returns and other records do not support 
     the claims of estate tax opponents, according to the article, 
     by Charles Davenport and Jay A. Soled, professors at Rutgers 
     University who teach estate tax law and business management.
       The estate tax is projected in the Federal budget to raise 
     about $28 billion this year. That is less than one-third of 1 
     percent of the gross domestic product, which is too slight to 
     retard economic growth, the authors say.
       While the tax rate on the largest estates can be 55 
     percent, Internal Revenue Service data cited in the study 
     show that in 1996 the average tax on estates of $600,000 to 
     $1 million was 6 percent.
       It costs the I.R.S. 2 cents on the dollar to administer the 
     tax, the authors calculate. They say the combined private and 
     Government costs total about 7 cents on the estate tax 
     dollar.
       Professors Davenport and Soled said Congressional testimony 
     by critics of the estate tax contending that the tax costs 
     more than it raises was based on flawed data, including a 
     study that estimated that every dollar raised in Federal 
     income taxes cost the economy 65 cents more. That figure was 
     dismissed as absurd by the authors.
       They also disputed another contention of the critics, that 
     rich people spend heavily in their later years in order to 
     reduce estate taxes. Instead, the authors say, many rich 
     people save more money to offset the tax
       They say that the reasons family businesses are not passed 
     to the next generation have little to do with estate taxes. A 
     primary reason, the authors say, is the burden on heirs who 
     want to keep the business and must raise cash to pay off 
     those heirs who do not.
       While the estate tax nominally begins when net worth at 
     death exceeds $650,000 (1.3 million for a married couple), 
     Congress lets a couple pass on $4.5 million untaxed if they 
     own a business and $7.4 million if they own a farm. Only 
     about 1 in 1,000 American families is worth $7.4 million.
       The estate tax will be paid this year by the wealthiest 2 
     percent of Americans who die.
       The Congressional Joint Committee on Taxation estimated 
     last week that repeal of the estate tax would reduce Federal 
     revenues by $75 billion over the next 10 years, even though 
     the Federal budget projects the estate tax will raise more 
     than that amount in the next three years alone.
       The chairman of the House Ways and Means Committee, 
     Representative Bill Archer of Texas, who had not seen the 
     article, said that he was skeptical of its claims and any 
     data drawn from I.R.S. records.
       ``Every dollar taken by the death tax is a dollar taken out 
     of savings when what this country needs is more private 
     savings,'' said Mr. Archer, the author of the House 
     Republicans' tax bill. He said the costs of the estate tax 
     included discouraging wealthy foreigners from moving to the 
     United States with their capital and skills.
       As to whether existing exemptions are enough for farms to 
     stay in families, he said, ``The input from the Ag Belt is 
     totally contrary to that.''
       The authors say that among the virtues they see in the 
     estate tax are that it taxes some money that has slipped past 
     the income tax system, it is paid only by those most able to 
     pay, it encourages financial planning and charitable giving 
     and it tends to ease the trend toward concentration of 
     wealth. The richest 1 percent of Americans now one half of 
     all stocks, bonds and other assets, a record level, according 
     to Professor Edward N. Wolff of New York University.
       Experts say the Tax Notes article may be as influential as 
     the 1994 Yale Law Review article by Edward J. McCaffery of 
     the University of Southern California Law School, who 
     exhorted liberals to join conservatives in opposing the 
     estate tax as inefficient and unfair. Since then, the Tax 
     Notes article says, ``talk about the death-tax has been a 
     monologue by the tax's opponents.'' The article is available 
     at www.tax.org on the internet.
                                  ____


              [From the New York Times, October 20, 1999]

            A Larger Legacy May Await Generations X, Y and Z

                        (By David Cay Johnston)

       Boston College researchers say that the widely cited 
     estimate that $10.4 trillion of wealth will be transferred to 
     younger generations over a half-century is far short of the 
     likely amount. They estimate the wealth transfer will be $41 
     trillion to $136 trillion.
       ``It can now be safely said that the forthcoming wealth 
     transfer will be many times larger than anyone has previously 
     estimated,'' said Paul G. Schervish, director of the Boston 
     College Social Welfare Research Institute, who has spent the 
     last 15 years studying wealth and who created a computer 
     model to study wealth transfers.
       The new figures suggest that charities, in particular, 
     stand to benefit from a platinum era of giving. Mr. Schervish 
     and John J. Havens, his deputy at the institute, estimated 
     that between now and 2055 charities would receive bequests of 
     $16 trillion to $53 trillion, measured in 1998 dollars, 
     assuming that the estate tax remains unchanged.
       The widely cited estimate of $10.4 trillion--about $13 
     trillion today adjusted for inflation--in wealth transfer was 
     made in 1993 by two Cornell University professors, Robert B. 
     Avery and Michael S. Rendall, using data from the Census 
     Bureau and other sources. Their estimate was restricted to 
     households in which the chief wage earner was 50 or older and 
     who had living children; it covered 1990 to 2044.
       The Boston College analysis, using a computer simulation 
     model created to estimate wealth transfers, covers all 
     Americans who were at least age 18 in 1998. It estimates 
     wealth transfers from 1998 to 2052, when the youngest of 
     those in the study will turn 73.
       The Boston College study is based on modest assumptions 
     about growth in wealth compared with historical experience. 
     The study's low estimate that $41 billion will be transferred 
     between generations by 2055 assumes that the value of all 
     assets, adjusted for inflation, increases at 2 percent 
     annually, while the high estimate assumes 4 percent annual 
     real growth. Another profile assumes 3 percent annual real 
     growth in the value of assets and projects $73 trillion in 
     wealth transfers.
       Actual growth in wealth, adjusted for inflation, averaged 
     5.3 percent annually from 1950 to this year, according to 
     Prof. Edward N. Wolff, a New York University wealth expert.
       Total wealth in 1998 was $32 trillion, the Boston College 
     researchers estimated. Professor Wolff, who had not seen the 
     new study, said, ``That figure is in the right 
     neighborhood,'' noting that his own research indicated total 
     wealth of $29.1 trillion today.
       The amount of wealth transferred can be greater than 
     current wealth for two reasons. One is economic growth. The 
     other is that over 55 years some fortunes will pass through 
     two--even three--generations. Mr. Avery, now an economist 
     with the Federal Reserve, said that while he had some qualms 
     about the techniques used by the Boston College researchers, 
     as described to him in a telephone interview, their estimates 
     sounded reasonable over all.
       Mr. Avery warned, however, that while economists could make 
     fairly accurate predictions about death rates far into the 
     future, assumptions about how much wealth people would 
     accumulate were risky, especially looking out a half-century.
       ``The important message is that there is a lot of wealth in 
     this country,'' Mr. Avery said.
       John J. Havens, a co-author of the Boston College study, 
     said that while he was confident of the economic model he 
     wanted to focus on the low end of the estimate, $41 trillion, 
     because ``it helps protect against potential charges of 
     irrational exuberance arising from'' the computer model's 
     assuming steady economic growth without a depression or a 
     sustained recession in the first half of the 21st century.
       A quarter-century ago Professor Havens developed one of the 
     first computer programs to model economic behavior. The model 
     estimates that for estates of $20 million or more, 39 percent 
     of the money will go to charity, 23 percent to heirs, 34 
     percent to taxes and 3 percent for fees and burial expenses. 
     Data from the Internal Revenue Service show the same ratios 
     in 1995 for large estates.
       For estates of $1 million to just under $5 million, the 
     study assumes that charity will get 8 percent; heirs, 66 
     percent; taxes, 22 percent, and fees and burial expenses, 4 
     percent.
       For estates of less than $1 million, Professors Schervish 
     and Havens estimated, nearly 90 cents of each dollar would be 
     passed to heirs and little would go to charity or taxes.
       One recent analysis found that among estates valued at 
     $600,000 to $1 million in 1997, estate taxes averaged 6 
     percent, even though

[[Page 2716]]

     the estate tax rate began at 37 percent on amounts above the 
     $600,000 exemption then in effect.
       The Boston College study covers what are known as final 
     estates, meaning the death of a single person or the second 
     spouse in a married couple, since bequests to a spouse are 
     tax free. The estimates of how much will be bequeathed to 
     charity may be low, based on I.R.S. data in recent years, 
     which show that growing numbers of people are engaging in 
     estate planning so that more of their money will go to 
     charity after their deaths and less to the Government. The 
     I.R.S. data show that the share of money in estates going to 
     charity is slowly rising, a trend that if continued through 
     2055 would mean far more for charities than the $16 trillion 
     to $53 trillion cited in the study.
       If the estate tax is repealed or significantly reduced, 
     however, as Congress voted to do earlier this year in a bill 
     that President Clinton vetoed, bequests to charities might be 
     smaller than the Boston College model predicted.

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