[Congressional Record (Bound Edition), Volume 160 (2014), Part 13]
[Extensions of Remarks]
[Pages 18846-18847]
[From the U.S. Government Publishing Office, www.gpo.gov]




INTRODUCTION OF AMERICAN SOLUTION FOR SIMPLIFYING THE ESTATE TAX ACT OF 
                          2014 (``ASSET ACT'')

                                 ______
                                 

                            HON. ANDY HARRIS

                              of maryland

                    in the house of representatives

                      Thursday, December 11, 2014

  Mr. HARRIS. Mr. Speaker, one area of unfinished business for the 
113th Congress is comprehensive tax reform, which would have given us 
the chance to reduce the burden of the Internal Revenue Code on 
families and businesses and would have stimulated economic growth.
  Recognizing that tax reform is an issue that the 114th Congress 
should prioritize, I am introducing today a bill that offers a creative 
solution to the problems associated with the current federal estate 
tax. I want to note at the outset that I was an early cosponsor of 
Congressman Brady's legislation to repeal the estate tax. However, as 
part of the tax reform process, Members of the Ways and Means Committee 
have demonstrated a willingness to consider a variety of policy 
suggestions and thus, in the interest of stimulating discussion, I am 
introducing the American Solution for Simplifying the Estate Tax Act of 
2014, the ``ASSET Act.'' As I will explain further, the ASSET Act is 
intended to be a revenue-neutral solution that would provide a new 
voluntary simplified method for Americans with large estates to pay a 
fair share of taxes but without any of the distortive, inefficient 
effects created by the current method of collecting the estate tax.
  The origins of the current federal estate tax arise out of the need 
to fund World War I and enactment of the Revenue Act of 1916. In that 
respect, this law has outlived its original purpose. It might come as a 
surprise to some that over the past 50 years, the much-debated federal 
estate tax has generated only around one percent of total federal tax 
collections and in 2013 brought in $14 billion, or around 4/10th of a 
percent of total tax revenue. When one considers the distortive effects 
of the current estate tax and the disproportionately low amount of 
revenue actually raised, it is incumbent upon us to identify more 
appropriate policy solutions.
  The case for reform is dramatically illustrated by reviewing the data 
cited by the Joint

[[Page 18847]]

Economic Committee (JEC) in its May 2006 study and updated in a July, 
2012 study issued by the Republican staff of the JEC. The 2006 study 
indicated that individuals' costs of complying with the estate tax 
(avoiding wealth transfer taxes) roughly equals the revenue yield of 
the estate tax for the Treasury. Both studies demonstrated that the 
costs of the estate tax includes tens of millions of dollars of 
compliance costs, a substantial reduction in the capital stock of our 
economy, reduced savings/increased consumption, and the dissolution of 
family-run businesses. The 2006 study cited the Congressional Budget 
Office in saying that many estates that owed estate taxes had a tax 
liability in excess of their liquid assets, which is a key reason why 
many family-run businesses are liquidated prematurely or sold at 
firesale prices after the death of the primary owner.
  One example of this problem is Maryland resident Jack Fitzgerald. 
Jack is a successful owner of a number of automobile dealerships. He 
has explained to me and to many others in Congress that he is kept up 
at night by concerns that he will pass away and that his heirs will 
have to liquidate his thriving small businesses in order to pay the 
federal estate tax. He routinely mentions the 1200 employees whose 
livelihoods depend to a great extent on him and his managers. To 
prevent against the risk of a forced liquidation, Jack says that he 
pays nearly $700,000 annually in life insurance premia so that his 
estate would have enough funds to cover the IRS tax liability. Those 
are funds that he could be reinvesting in his business, his employees, 
or otherwise using productively if the current estate tax were not 
looming in the distance. We all know of farmers, ranchers, and other 
family-run businesses that have to consider selling at an inopportune 
time in order to ensure that the tax man will get his share. One famous 
example was captured in the film, ``Secretariat,'' when the horse's 
owner almost has to sell him and the entire horse farm to pay the 
estate taxes after the patriarch's death, but she creatively developed 
an innovative syndication scheme to raise the $6 million and to keep 
the trailblazing horse and the farm within the family
  My office has received letters in support of the ASSET Act from a 
diverse group of Marylanders, including a CPA, the owner of a minority/
woman-owned public relations and advertising firm, the president of a 
general contracting firm, and the Maryland Auto Dealers Association. 
One gentleman, who is a farmer who also owns an agricultural business, 
wrote that ``the present federal estate tax law is very detrimental for 
businesses (whether it be a farm or other operating business) to pass 
onto the next generation. During my lifetime I have seen many 
hardworking farmers and business owners' lifetime work be sold upon 
their death in order to pay for the inheritance tax. This is a bad 
situation for creating and keeping jobs and it also creates a real 
hardship on families.''
  Responding to their concerns and others I have heard on numerous 
occasions when meeting with constituents, the ASSET Act offers a new, 
simplified approach that will solve permanently the problems with the 
current estate tax. It permits individual taxpayers to opt-in to a new 
system in which death would no longer be a taxable event. By taking the 
uncertainty of death out of the question of how and when assets should 
be liquidated, the ASSET Act will contribute to economic growth and 
preserve the stability of companies. Small business owners, farmers, 
ranchers, and others will not have to live their lives fearing the tax 
liability imposed under the existing estate tax and will not have to 
dismantle profitable companies, sell farms and ranches, over-purchase 
life insurance, and waste their money on lawyers and accountants with 
sheltering strategies.
  Under the ASSET Act, individuals could make a ``down payment'' on 
their estate taxes during their earning years and then the government 
would rely upon traditional capital gains taxes to generate revenue 
from estate assets when sold. In the current draft of the ASSET Act, a 
taxpayer may ``opt in'' to this approach by agreeing to pay an 
additional one percent of his/her AGI each year. (If, based on Joint 
Committee on Taxation revenue estimates, the one percent rate needs to 
be adjusted to ensure revenue neutrality over time, that would be 
possible prior to enactment.) Once in the system, these payments must 
continue through the earning life of the taxpayer, but no tax will be 
levied against the estate of such a taxpayer at his death. His or her 
assets remain intact until they are sold, at which time they will be 
subject to capital gains tax at the then current rate Taxpayers must 
pay the I percent fee for a minimum of seven years before they can take 
full advantage of the ASSET Act system.
  There are several primary reasons to support the ASSET Act. As noted 
earlier, owners of small and medium sized businesses could better plan 
for the orderly succession of their companies and preserve critically 
needed jobs. This can avoid forcing the heirs to liquidate the company 
at just the wrong time, destroying the business and eliminating jobs. 
And, the government can avoid losing significant capital gains tax 
revenue that it would have realized had the asset been sold at the 
right economic opportunity in the future. The ASSET Act solves those 
concerns and ensures stability for vital engines of our economy.
  The ASSET Act will help reduce tax avoidance scheming. Current law 
exempts estates that are worth less than $5 million for an individual 
or $10 million for a couple. However, it does not solve the liquidation 
problem for large estates, which will pay 40% on amounts above those 
levels. Individuals with very large estates or who expect to accrue 
such large estates now spend a great deal of time and significant money 
on strategies to shelter their assets from the estate tax. When these 
strategies are successful, the government receives nothing. That is 
why, historically, estate tax revenues have comprised only 1% of total 
federal tax revenues and 2.47% of the AGI of taxpayers earning more 
than $1 million per year. The ASSET Act eliminates the incentive to 
hide assets from the IRS and to engage in unproductive strategies and 
avoidance schemes, so individuals will ``stay within the system'' and 
contribute their fair share of taxes to the Treasury.
  The ASSET Act is intended to be revenue neutral and would offset the 
revenue loss of eliminating the current estate tax collection 
methodology for some taxpayers by imposing a very small annual 
prepayment surcharge and by capturing the benefits of increased capital 
gains tax revenues that would occur over time as estate assets are 
sold.
  I encourage my colleagues to study the ASSET Act and to work with me 
to ensure that as the next Congress considers comprehensive tax reform 
proposals, we leave no stone unturned in the effort to rectify the 
problems associated with the current estate tax.

                          ____________________