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Copyright 1999 Federal News Service, Inc.  
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MAY 13, 1999, THURSDAY

SECTION: IN THE NEWS

LENGTH: 867 words

HEADLINE: PREPARED STATEMENT OF
THE HONORABLE JENNIFER DUNN
OF WASHINGTON
BEFORE THE HOUSE SMALL BUSINESS COMMITTEE
SUBCOMMITTEE ON TAX, FINANCE, AND
EXPORTS AND SUBCOMMITTEE ON RURAL ENTERPRISES, BUSINESS
OPPORTUNITIES AND SPECIAL BUSINESS PROBLEMS
SUBJECT - HEARING ON THE ESTATE TAX

BODY:

Chairman Manzullo and Chairman LoBiondo:
Thank you so much for holding this hearing to discuss an exciting and popular initiative: repeal of the death tax. I would especially like to thank my colleague on the House Ways and Means Committee, Mr. Tanner, for joining me here today and for being such a strong partner in the fight to end this onerous tax. Over 170 of our House colleagues have joined us in cosponsoring H.R. 8, the Death Tax Elimination Act, which will phase out the death tax by five percentage points each year over the next ten years until the rate reaches zero.
It's been said that only with our government are you given a certificate at birth, a license at marriage, and a bill at death. One of the most compelling aspects of the American dream is to make life better for our children and loved ones. Yet, the current tax treatment of a person's life savings is so onerous that when one dies, the children are often forced to turn over half of their inheritance to the federal government. Even worse, not only does this take place at an agonizing time in the life of a family, but they also have to watch their loved one's legacy be snatched up by an entity not known for its great wisdom for spending money. This is wrong. We should not dishonor the hard work of those who have passed on.
According to a recent study by the Life Insurance Marketing Research Association, less than half of all family businesses survive the death of a founder and only about five percent survive to the third generation. This is terrible public policy, especially in light of the minimal amount of money the death tax brings in for the federal government: just slightly more than 1 percent of all revenues, or $23 billion. In addition, a recent Joint Economic Committee study reported that for every dollar the tax brings in, another dollar is spent by the private sector to simply comply with it. So, the total impact on the private sector is $46 billion.By confiscating between 37 and 55 percent of a decedent's estate, the government punishes life-long habits of savings, discourages entrepreneurship and capital formation, and penalizes families. This is particularly true because these dollars are often the same ones that have been taxed four and five times - through income tax, capital gains, tax on dividends, etc. Under today's tax system, it is easier and cheaper to sell the business or farm at the 20 percent capital gains rate than try to pass it on to the family after death.
Of course, Congress has attempted to help ease the burden of the death tax by increasing the personal exemption to adjust for the inflation of assets. Unfortunately, this will continue to be too little help as home values, the increasing popularity of defined contribution retirement plans, and the trend toward more small business entrepreneurship drives middle class estates above the exemption. Congress has also tried to help small businesses by creating an additional death tax exemption for family-owned businesses. Here too, however, is where a good idea becomes impractical in the real world. The family-owned business exemption enacted as part of the Taxpayer Relief Act of 1997 creates 14 new definitions with which a business must comply before it is eligible for relief. Although a good idea at the time, this exemption has proven to be nothing more than a boondoggle for attorneys and estate planners.
Recently, I asked an estate tax attorney who advises 200 family-owned businesses how many of those businesses are eligible for this exemption. His answer? 10. No amount of artful drafting will provide relief to only those Congress deems worthy. We must not continue to pat ourselves on the back for legislative triumphs that fail to benefit hard-working Americans. Family relationships and the private sector are far too complex for us to thoroughly duplicate in federal tax law. It is time to be bold.
The Death Tax Elimination Act is the right answer at the right time. The productivity of enterprising Americans and a frugal Congress intent on reducing wasteful spending has helped to produce the first budget surplus in a generation. What will be Congress's response to this surplus? Will it spend the money on dozens of worthy programs that could no doubt be created to help various people? Or, will it cobble together a complicated and voluminous tax initiative that aims to help everybody and, therefore, helps almost no one? I strongly believe that we must provide the American people with a vision.
This vision must center around two main principles: the surplus belongs to the American people and it ought to be returned to them; and we must honor the institutions on which strong communities are built. I can think of no better initiative that so well defines these two principles than repeal of the death tax. The ingredients to a successful family or business - thrift, diligence, and the suspension of gratification - must be once again rewarded, not taxed.
I hope that you will all join Mr. Tanner and I in this worthy fight. Thank you again for providing a forum to discuss this important issue. I look forward to answering any questions you may have.
END


LOAD-DATE: May 14, 1999




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