[Congressional Record (Bound Edition), Volume 147 (2001), Part 2]
[Senate]
[Pages 2087-2090]
[From the U.S. Government Publishing Office, www.gpo.gov]



                               ESTATE TAX

  Mr. KYL. Mr. President, I was surprised to read the headlines in the 
paper this morning--and I actually saw a little bit of this on the news 
last night--that billionaires in the United States actually support the 
estate tax and oppose President Bush's plan to repeal the estate tax.
  One would think for a moment that is a man-bites-dog story; that is 
counterintuitive. Upon reflection, it actually makes a lot of sense and 
makes no sense. I will discuss that today. I will get back to the 
billionaires in just a moment.
  First, to set the stage, we all know President Bush has proposed an 
important and innovative set of tax relief proposals that will help 
working American families, will help the economy at this time when it 
is beginning to falter, and will provide more fairness in our Tax Code. 
It has three essential features. There may be some other pieces added 
to this by the Congress.
  Primarily, it calls for reduction in marginal income tax rates. That 
way, everybody who pays taxes receives a tax benefit, tax rate relief.
  Second, it repeals the estate tax, one of the most unfair taxes we 
have ever produced in this country.
  Third, it largely does away with what we call the marriage penalty, 
which actually provides a higher rate of taxes for two people who are 
married and working than if they were living together without having 
been married.
  Both the repeal of the estate tax and the elimination of the marriage 
penalty were passed by the Senate and the House last year. We sent 
those bills to President Clinton and he vetoed them. In the campaign, 
Governor Bush said: If you send those bill to me, I will sign them. So 
they represent an important part of his tax relief proposal. Mr. 
President, I aim to say we will send them to President Bush so he can 
sign them.
  Because there is such momentum behind the repeal of the estate tax, 
people who fear now that its repeal will actually become a reality have 
begun to take to the air waves and get their petitions out and to get 
on television proclaiming that naturally this is a very important and 
needed tax. The ones who would get the most publicity, of course, are 
the billionaires who say: Look, we will be paying a lot of this tax. If 
we can be for it, surely, everybody else can be for it; why would you 
want its repeal?
  It turns out there are two primary reasons. I will summarize first 
and then go into a little more detail.
  The first is that these are the very people who can well afford, A, 
to pay the taxes; but, B, to pay for the multimillions of dollars to 
find the loopholes to avoid paying most of the tax, to do the estate 
planning. That is the euphemism for the term which means hire 
accountants and lawyers to try to figure out a way to avoid paying most 
of the tax--and there are ways you can do this if you are willing to 
pay enough money to these lawyers. And there are ways, also, if you pay 
enough money to insurance companies.

[[Page 2088]]

  By the way, I got a letter from an estate planner in New York. He 
said: You can't do away with the estate tax. This would hurt my 
livelihood. I make a living finding ways for people to avoid paying the 
estate tax.
  I didn't do this, but I felt like writing back to him and saying, if 
we could figure out a way to eliminate death, I would probably get a 
letter from a mortician saying, you can't put me out of business like 
this.
  These people make a lot of money helping people like George Soros, 
Bill Gates, Sr., and other people of great wealth. By the way, I admire 
all of these people for what they have been able to accumulate over 
their life. But they make a lot of money on these people doing estate 
planning. Frankly, I think it would be very interesting if all of the 
billionaires who have signed the petition calling for a continuation of 
the estate tax would tell us publicly how much money they have spent on 
estate planning and how much money they have been able to save as a 
result of what they have been able to accomplish with their lawyers and 
accountants. I expect they have been able to save more than most people 
will ever pay in taxes.
  The first point we should realize is with these billionaires, this is 
chump change. They can pay the lawyers and accountants to figure out a 
way to save the most money and they are still happy to pay what they 
have to pay because it doesn't mean that much to them, unlike what it 
means to most Americans. My first challenge to all of these petition 
signers: Please come forward and state how much you are going to 
actually pay in estate taxes versus how much is in your estate. 
Specifically, is any one of these people willing to pay the entire 
obligation of the estate tax without any opportunity for estate 
planning to save money; without taking advantage of any loophole? If 
they think this is such a great tax, are they willing to pay all that 
is due without any kind of estate planning to avoid any part of the tax 
on their part?
  That would be very interesting to find out for these people who think 
this is such a wonderful tax. And I present that challenge to them 
today. My guess is that during their lifetime, one reason they 
accumulated so much wealth was because they knew very well how to 
manipulate the stock market, how to manipulate the currency market, how 
to make sound investments, all the while eliminating or reducing to the 
lowest possible amount taxes they would have to pay.
  There is nothing wrong with that. That is how a lot of people make 
their living. And certainly these very wealthy people have undoubtedly 
taken advantage of whatever provisions we have in the Tax Code for 
avoiding the payment of taxes.
  The second reason why, even though this seems counterintuitive, and 
this makes a lot of sense, is many of these same people have as one of 
their primary goals in life running charitable foundations; in effect, 
spending other people's money for their charitable giving.
  It is very easy to be very charitable when you are using someone 
else's money. What some of these people have said is, we need the force 
of Federal law to make people give their money when they die or make 
the widows and the orphans cough up the money when the breadwinner 
dies. We need to take 55 percent of their estate so we can put it into 
our charitable foundations and hand it out and get invited to all kinds 
of fancy dinners and do good. We are all for the good these charitable 
groups do.
  Let no one make any mistake about that. It is easy to be charitable 
with someone else's money. The question is, Are you willing to be 
charitable with your own money? Even if you think other people should 
also give, would it be better for you to ask them to give from the 
goodness of their heart to charity or to use the confiscatory power of 
government to make them give by saying, we are going to take 55 percent 
of everything you own when you die?
  There is one way to avoid it: If you can give it all away, then you 
are not passing it on to your heirs.
  That is the first great problem with those who defend the estate tax. 
They say it would prevent the concentration of wealth if we can 
maintain this tax. That is absolutely, 180 degrees off from the 
American dream. Generation after generation in this country has said: 
We want to leave our family better than the previous generation. We 
want to work hard. We want to save. We want to provide for our kids' 
education so when we die they have a better chance in life than we did.
  What is wrong with that? That is the American dream. These people say 
no. What is wrong is for one generation to be able to pass wealth on to 
another generation. Everybody should have to start from exactly the 
same point in life.
  There are those who would manipulate Government, and our very lives, 
to force equality in fact rather than equality in opportunity. That is, 
in effect, what these people are saying: We are going to force 
everybody to be exactly equal because whatever it is you accomplished 
in life we are going to take away from you at the end of your life so 
your family, then, has to start all over again.
  What incentive is there for most people to save for future 
generations, to try to help their kids or their grandkids to have a 
good start in life? I want to be able to put some things away for not 
just my kids but my grandkids. They mean so much to me. I want to make 
sure they have a good start in life, that they will be able to get a 
good education. What is wrong with that incentive to save?
  These billionaires, they don't have any problem with that. They could 
buy half the countries in the world. They do not have to worry about 
what most of us have to worry about in life, and that is putting enough 
aside to be able to take care of ourselves in our old age and maybe 
provide something for our kids and grandkids thereafter. That is the 
American dream. These people would destroy that dream. That is wrong. I 
understand it is hard for them to appreciate that problem for many 
Americans. But it is a very real problem. I am going to get back to 
that problem in just a moment.
  Let me talk about the next myth these people are trying to 
perpetrate, that actually it will hurt poorer people because if we do 
away with the estate tax, we are going to have to raise other taxes to 
make up for the revenue. Have these people been living on another 
planet? Are they not aware that this Government is going to be running 
a $5.6 trillion surplus?
  The whole notion President Bush has here, as he said when he was 
Governor and running for the Presidency: We are going to have a massive 
surplus. We will have more than enough to have whatever we need to 
spend money on--save Social Security and Medicare and have enough left 
to have tax relief for the people. You don't have to raise taxes. That 
is what the surplus enables us to do. This is a specious argument. 
People ought to know better than to make this argument.
  For the upcoming fiscal year, fiscal year 2002, the on-budget surplus 
is estimated to be at $142 billion, according to the CBO. We can 
afford, with an overtax payment of that amount, to return some of that 
money to the American people. And we do not have to then raise taxes 
somehow to do that.
  The last budget of President Clinton projected estate tax revenues at 
$34-plus billion. That is for this fiscal year, 2002. That would 
represent about 1.5 percent of our revenues. So we have to keep this 
tax in place, a tax that produces only 1.5 percent of our revenues and 
causes great disruption and consternation in America's families?
  Let me get back to what I said before about the problem of this 
business of creating wealth and the American dream. The fact is, of 
course, most Americans will not pay the death tax. But they still see 
something terribly wrong with a system that allows Washington to seize 
more than half of whatever is left when someone dies, that prevents 
hard-working Americans from passing the bulk of their nest egg on to 
their future generations.
  Mr. President, I love a lot of things in this country. I give to 
charity. I love my country. But I think I love my kids and grandkids 
and my wife more than

[[Page 2089]]

anything else in the world, and with this tax the Government says we 
cannot benefit them. We are going to force you to give that money to 
somebody else or to the U.S. Government. You cannot pass it on.
  Most Americans see that as unfair, even if they are not going to have 
to pay for the tax and even if they don't have to pay a lot of money to 
try to avoid paying the tax through estate planning. A McLaughlin 
Associates poll conducted from January 26-27, just a week or so ago, 
found 89 percent of the people surveyed believed:

       . . . it was not fair for Government to tax a person's 
     earnings while it is being earned and then tax it again after 
     a person dies.

  Let's understand: All the money you earned is taxed. We have an 
income tax in this country. So it is taxed. Then you invest it and do 
whatever, and you die and it is taxed again. So it is not as if this 
money has not already been taxed at least once.
  Mr. President, 79 percent of the people in this survey approve the 
idea of abolishing the estate tax--79 percent. Most of them will never 
see any direct benefit from that, but they understand it is unfair. 
Most Americans are not envious. Most Americans do not want to squash 
everybody else down as a way of making themselves feel good. They 
aspire to earn more and to be able to save and maybe even have to worry 
about the estate tax.
  Other polls have reached the same conclusion. I found one very 
interesting, a Gallup poll of last year, which found that 60 percent of 
the people supported repeal at that time, even though about three-
fourths of them did not think they would ever have to pay the death tax 
themselves. They still favored its repeal because they are good, fair 
people. And fairness is what the effort to repeal the death tax is all 
about.
  Edward J. McCaffrey--I think he would characterize himself as a 
liberal--a professor of law at the University of Southern California, 
said this:

       Polls and practices show that we like sin taxes, such as on 
     alcohol and cigarettes. The estate tax is an anti-sin, or 
     virtue tax. It is a tax on work and savings without 
     consumption, on thrift, on long-term savings.

  He is exactly right. It is a tax on virtue. It punishes savings. It 
punishes saving something and trying to pass it on to your kids. It 
basically says: Spend it all because you can't take it with you. That 
is a lifestyle that some have, perhaps, lived in this ``me'' 
generation, but it is not the right lifestyle for most Americans.
  By the way, it is pretty hard to calibrate anyway. Spend it all 
because you can't take it with you; that is the idea here. What if you 
live a little longer than your bank account lasts? Then you turn to the 
Government to take care of you for the rest of the years of your life.
  Being able to save also means being able to take care of yourself and 
your family, another virtue. This is a tax on virtue. The professor is 
correct.
  Economists Henry Aaron and Alicia Munnell reached similar conclusions 
in a 1992 study in which they said death taxes:

       . . . have failed to achieve their intended purposes. They 
     raise little revenue. They impose large excess burdens. They 
     are unfair.

  The next myth is that the estate tax is necessary to prevent the 
accumulation of wealth. A lot of people have noted that after about 
three generations the wealth seems to dissipate. But apart from that--
and I don't know of any study that can quantify that--I can at least 
with an anecdote tell you what happens in most cases. These are not the 
George Soros kinds of cases but the average case.
  A family in Arizona--and I am going to mention the man's name because 
he is a real hero to me. He was one of the best, big-hearted givers in 
Phoenix, AZ, for many years. His name is Jerry Wisotsky. Jerry moved 
out from New York to start a printing company by himself. He gradually 
added employees. He couldn't say no. Every charity in town went to him. 
He contributed. He has boys and girls clubs named after him. I won't 
get into his charitable contributions. He was a mainstay for our 
community and supported it. He had a very successful business that 
could support it. He had over 200 employees when he died.
  His family tried mightily to plan around that death and to avoid 
having to sell the business. His daughter and son-in-law wanted to 
continue to run the business. After 2 or 3 years, they realized it was 
futile. The estate tax was simply too much. They had to sell the 
business to pay the estate tax.
  Two things happened. First of all, they sold, I think, to a big 
German conglomerate. So much for preventing the accumulation of wealth. 
This little family-owned business that turned into a very good income 
producer, but which was still a small business, was sold to a giant 
company from another country. As I say, so much for the estate tax 
preventing the accumulation of wealth. But it did have the intended 
effect of making his family less able to give, to follow in his 
footsteps.
  So we now no longer have Jerry Wisotsky or his daughter, Pearl Marr, 
being able to contribute to their community as he used to do.
  That gets to another myth, that we have to have the estate tax in 
order to force charitable giving. Apart from the lunacy of that 
concept--it reminds me of the Woody Allen movie ``Take The Money And 
Run'' where Woody Allen plays this inept crook and his parents are seen 
with masks on saying: We tried to beat religion into that kid. Of 
course, it doesn't work.
  It really doesn't work to force people to give to charity either. In 
fact, there are some interesting statistics. It is a specious argument 
that we have to have the estate tax in order to support charitable 
giving. But I think it is especially interesting because of these 
billionaires now supporting the tax.
  There are also some studies that demonstrate the elimination of the 
estate tax would actually encourage the wealthy to give more during 
their lifetimes but less just before they die or in their bequeath--in 
their wills.
  A study by David Joulfaian, a former Treasury Department economist 
for the National Bureau of Economic Research at the Brookings 
Institution, found that the estate tax has an important effect on the 
timing of charitable gifts. It encourages the very wealthy to bunch 
gifts at death rather than over their lifetime. He noted that the very 
wealthy give much less to charity during their lifetimes than the less 
wealthy, and considerably more through their estate and wills and 
bequeaths. This suggests that the elimination of the estate tax will 
encourage the wealthy to give more during their lifetime and less at 
death but not necessarily reduce the total amount of lifetime giving.
  Another study shows that the bulk of charitable giving is made by 
people who can't deduct such gifts from their income taxes at all. 
According to Giving USA, total charitable giving in 1992 amounted to 
$190-plus billion, and only $15-plus billion--about 8 percent--came 
from bequeaths. If the goal is to encourage charitable giving, then 
Congress should consider an above-the-line deduction for all charitable 
gifts--for those who itemize as well as those taxpayers who don't 
itemize--rather than to continue to impose a punitive, confiscatory 
estate tax at the time of death when families can least afford to deal 
with it.
  We also find charitable giving is strongly related to income and 
wealth. Simply put, the more income and wealth the people have, the 
more they tend to give charity.
  William Randolph, an economist for the Congressional Budget Office, 
concluded from his research that charitable giving responds much less 
to changes in tax rates than permanent changes in income.
  It is quite specious to argue that we have to have this tax for 
charitable giving in this country. Eight percent of the gifts come as 
bequeaths; the rest does not.
  I also think the story today by the Los Angeles Times about the 
petition signed by all of these billionaires is very interesting. They 
say it was signed by men whose foundations ``rely heavily on charitable 
donations.'' This is laid bare. Basically, this is a special interest 
group. People who have these foundations need to have money constantly 
pouring in so they can force taxes from people in order to play that

[[Page 2090]]

game. Again, I am sure that in their hands very good things come to 
pass. But in someone else's hands, this same charitable giving could do 
just as much good. I find it offensive that these people--basically 
special interests in this country--would use the U.S. Government to 
extract taxpayer dollars from people and have the threat of that kind 
of 5-percent rate forcing people to give in their wills to these 
charitable foundations. If they can't persuade people to do it on the 
merits from the goodness of their heart, they ought not be in the 
business. That is the way I look at it.
  There is another myth that the wealthy don't need another tax break. 
Of course, a lot of wealthy don't need a tax break. Of course, these 
are people who invest, which is exactly what our economy needs at this 
time.
  But I would say something else; that is, we are not talking about 
just these billionaires. Sure, they don't need it. I stipulate that. 
But there are a lot of small businesspeople and farmers and others who 
do need to be able to maintain what they are doing. They don't want to 
have to sell the family farm. They don't want to have to sell the small 
business that I talked about a moment ago. They would like to be able 
to continue the operation generation after generation.
  The point here about these very wealthy people is that the way we 
passed the bill last year they are going to be taxed anyway. They are 
not going to be taxed 55 percent when they die, but they are going to 
be taxed on the capital gains if and when the asset is sold. Eventually 
all assets are disposed of. Their heirs are not going to have to pay 55 
percent of the estate in taxes. But when their heirs turn around and 
sell those assets under the bill that we passed last year--and I 
suspect the bill we will put forward this year--they are going to have 
to pay a capital gains tax on the sale. Importantly, they are going to 
have to pay that without a step-up in basis, except for an exemption 
which is equal to a little bit larger than the exemption we provide 
today--about a $5 million exemption.
  So nobody who is exempt today would have to pay under this 
legislation. Except for that exemption, we do away with the step-up in 
basis so just as Mr. Gates, Sr., would have to pay a capital gains tax 
on the original cost of his investment if he sells that asset when he 
eventually dies and leaves that estate to his heirs, when they sell it 
they are going to have to pay a tax on the gain going back to his 
original basis. That means their tax is much less expensive, if you are 
interested in that. It is going to cost the Treasury a lot less money 
than some people think it will, but it doesn't let these people off the 
hook. They will be taxed under this proposal, but at least they have 
the choice of when they are taxed.
  Instead of having to figure out how to pay this tax right after the 
breadwinner in the family dies and being faced with the possibility of 
perhaps having to dispose of the assets right then, they can wait until 
they want to make the economic decision to do so knowing full well they 
are going to pay a tax but they can understand the economics of paying 
the tax at that time.
  I think this is the beauty of the approach of what we passed last 
year, which President Clinton vetoed and which I hope President Bush 
will include in his estate tax repeal. Remember there is another 
benefit to this.
  I will close with this notion: It is very difficult to try to come up 
with an amount of exemption that is fair around the country. Some 
people said: Let's not repeal the tax; let's just create a much larger 
exemption.
  I was talking to one of my colleagues from California yesterday who 
said the problem with that is that property values in California are 
now so high, and getting so much larger, that what is a taxable estate 
in California wouldn't even begin to qualify as a taxable estate in 
another State--let's say in a Midwest or Southern State. But in 
California, just because of the value of the property, even if that is 
all you own, you could easily be kicked up into the bracket where you 
have to pay a capital gains tax.
  There is another problem that people are finding more and more. 
Again, this is happening in California. There is an environmental 
problem there. As people find they have to sell their property in order 
to pay the estate taxes, we are talking about environmentally sensitive 
land that could be held but is now having to be sold for development. 
And there are always plenty of developers hanging around ready to buy 
this good land and develop it.
  What we are finding is that more and more native habitats are being 
destroyed as a result. With that in mind, Michael Bean of the Nature 
Conservancy, observed that the death tax ``is highly regressive in the 
sense that it encourages the destruction of ecologically important 
land.'' It represents a real and present threat to endangered and 
threatened species and habitats. And because it tends to encourage 
development and sprawl, a lot of environmental organizations have 
joined in urging this repeal. Among those are the Izaak Walton League, 
the Wildlife Society, Quail Unlimited, the Wildlife Management 
Institute, and the International Association of Fish and Wildlife 
Agencies.
  We see there are a lot of myths about the estate tax. That is exactly 
what they are, myths.
  Second, we see that many Americans won't benefit directly from its 
repeal. There is very strong support for its repeal because Americans 
are fair people. They understand what will help our economy, and they 
understand what is fair to working families.
  I think there are two motivations for retaining the tax. One of them 
is envy--that nobody should have more than I have. But it turns out 
that very few Americans support that. The other is this special 
interest notion that having the death tax is the only way we can make 
people contribute to a charity. They are going to force them to be 
charitable. Apart from whether or not that is a moral point of view, it 
certainly isn't or ought not to be the function of Government. As I 
said, if we want to use the power of Government to encourage charitable 
giving, there are much better ways to provide a deduction for 
charitable giving for both those who itemize and those who don't.
  There are other things we can do as well. At the bottom of the day, 
it is not surprising that these billionaires would say: Let's keep the 
death tax. To them it doesn't matter. I renew my challenge. Are you 
willing to pay 100 percent of the death tax you owe or have you spent a 
lot of money to try to do estate planning to get around this? I think 
that would be a very interesting thing to find out. Most Americans 
cannot afford to do that. That is why this tax needs to be repealed.
  I join President Bush in urging my colleagues to ensure that when his 
tax package passes, that it has the repeal of the death tax as one of 
its key components.
  The PRESIDING OFFICER. Under the previous order, the time until 12 
noon shall be under the control of the Senator from Wyoming, Mr. 
Thomas, or his designee.
  The Senator from Texas.
  Mrs. HUTCHISON. Mr. President, I appreciate what the Senator from 
Arizona has just been discussing; and that is very important tax relief 
for hard-working American families. That is something that will be a 
high priority for our Congress. I appreciate his leadership in that 
effort.

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