GOP ESTATE TAX REPEAL: LEGISLATION BY PRESS RELEASE

The House will vote today on an estate tax repeal that is nothing more than a prop. From the beginning, it has been clear that this bill will never become law. The Senate has shown little interest in taking it up, and the President has already promised a veto. Like so many of their "legislative accomplishments" this bill is a press release designed to please wealthy donors, and nothing more.

It might be fortunate that this bill will never see the light of day, because the bill would do absolutely nothing for working families. In their effort to placate their rich friends, Republicans have drafted a tax cut that would give 100% of its benefits to the wealthiest 2% of Americans. Middle class families would not receive a single dollar of tax relief from this bill.

To make matters worse, the bill is so expensive that it would severely restrict our ability to fund other budget priorities. At a cost of $50 billion PER YEAR when fully phased in, this tax cut alone will blow a monstrous hole in the federal budget for years. Were this bill to pass, our efforts to pay down the debt, protect Social Security and add a prescription drug benefit to Medicare would be dramatically compromised.

The House of Representatives is no place for bumper sticker politics. The GOP cannot hope to be taken seriously when they announce a "lockbox" to reserve the surplus to pay down the debt one day and vote for a $50 billion tax cut the next. Democrats stand ready to work with Republicans for fiscal discipline, but only if that commitment is made through serious legislation, not a press release.

* The stories that many small business and farm owners tell are quite compelling and Democrats want to make sure these people can pass on their farms and small businesses intact.

* But we do not need to completely repeal the estate tax in order to make sure the estate tax is no longer too heavy a burden on the small business and farm owners. The Democratic Alternative solves their problems without throwing the baby out with the bath water.

* By targeting tax relief, the Democratic Alternative provides more immediate relief to small business and farm owners. Specifically, the Democratic Alternative raises the special exclusion to $4 million for a couple owning a farm or small business. In other words, a married couple can pass on the family farm or small business intact with no estate tax whatsoever if it is worth up to $4 million.

* Because the Republican bill is phased in over ten years, a couple passing on their farm or small business in the near future would avoid more tax under the Democratic plan than under the bill containing the so-called full repeal.

* More people than ever before are becoming millionaires by working hard and investing wisely. By increasing the general exclusion (now at $675,000) to $1.1 million next year, the Democratic Alternative allows for any person to pass on "millionaire" status to their children without a penny of estate tax burden.

* Unlike the Republican "full repeal," nobody has to worry about living long enough for the bill to be fully phased in. The Democratic $1.1 million exclusion is effective immediately in 2001.

* The Democratic Alternative also lowers estate tax rates by 20% across the board (i.e. the 55% rate would be 44%, the 37% would be 29.6%).

* Democrats support fiscally responsible estate tax relief unlike Republican leaders who insist on a full estate tax repeal before any plan is in place to save Social Security and Medicare, provide a prescription drug benefit for seniors and pay down the debt.

* Once fully phased in, the GOP leadership bill to repeal the estate tax (H.R. 8) would forgo nearly $50 billion a year in revenue with no guarantee that this revenue loss will not harm Social Security and Medicare in future years.

* While the official estimates show H.R. 8 costing $28.2 billion over 5 years and $104.5 billion over 10 years, the true cost is cleverly hidden by phasing in the repeal so that the real drain on revenue does not show up until after the 10-year budget window.

* In fact, over the next 10 years, the estate tax is projected to raise $386 billion in revenue. The phase-in gimmick allows Republican leaders to claim credit for repealing the estate tax while their bill costs only about a fourth as much as a full repeal actually would cost without the trick.

* The cost of the bill will explode just at the time when the Congress would be facing budget pressures because of aging of the baby boom generation. If we feel we need to "phase in" H.R. 8 because we cannot afford the full repeal now, how are we ever going to afford it 10 years from now?

* By enacting this full repeal, we would enable the very richest in our society to pass vast fortunes to their heirs without a penny of tax, while we in Congress would be passing to all American children a greater share of the burden of saving Social Security and Medicare and paying off the huge national debt.

* Only 2% of decedents have enough wealth to be subject to the estate tax at all under current law. The full repeal does nothing for the vast majority of Americans, and the lion's share of the benefits of repeal go to the super, super rich.

* The real beneficiaries of the repeal legislation are not farms and small businesses but are very wealthy families with large assets. Only 3% of the 2% of Americans subject to the estate tax are small business people or farmers. In other words, only 6 in 10,000 American estates are farms or small businesses subject to estate tax.

* A full repeal of the Federal estate and gift taxes would confer an extraordinary windfall on a very limited number of individuals. For example, Bill Gates has assets in excess of $80 billion. Repeal could result in a tax reduction for his family alone of tens of billions of dollars. The Forbes 400 richest Americans would receive $200-300 billion more, enough to pay for a Medicare prescription drug benefit for 10 years.

* Over the past two decades, income and wealth disparities have increased. Repealing the estate tax would increase those wealth disparities. Furthermore, repeal of estate taxes could result in a significant reduction in charitable giving.

* President Clinton has pledged to veto H.R. 8 because it gives such a large windfall to the very richest in our society before a framework is in place to save Social Security and Medicare and pay down the debt. The Democratic Alternative would provide fiscally responsible estate tax relief that the President would sign.

* Many Republican leaders appear not to care that their repeal bill will not become law. So far, they have welcomed Democrats willing to sign onto their bill, but have refused to talk with the President or Democratic Leaders in Congress about negotiating a compromise that could be passed and signed into law by the President.

* The real choice is not between the Democratic Alternative and the full repeal. The real choice is between a negotiated bipartisan compromise and no estate tax relief at all.

The Republican leaders are choosing to send the President a bill that they know he will veto because they would rather make political points than give small businesses and farmers the relief everyone agrees they deserve. The Democratic Alternative shows that there is a middle-ground way to remove the estate tax burden from farmers and small businesses without being fiscally irresponsible.

The Democratic Substitute would contain the following reductions in estate and gift taxes, fully effective for 2001.

1) The substitute would provide a 20 percent across-the-board reduction to the estate and gift tax rates. For example, the maximum rate would be reduced from 55 percent to 44 percent.

2) Under current law, there is a $1.3 million exclusion from the estate tax for interests in farms and closely held businesses. The substitute would effectively create a $4 million exclusion per family for farms and closely held businesses. It would accomplish this by increasing the limit on the small business exclusion from $1.3 to $2 million and by providing that the portion of the exclusion not used in the estate of the spouse first to die will be allowed to the estate of the other spouse.

3) The substitute would immediately increase the exemption equivalent of the unified credit against estate and gift taxes to $1,100,000. The substitute would include the following revenue offsets:

1) Before the Taxpayer Relief Act of 1997, there was a provision that phased out the benefits of the unified credit. A drafting error in the 1997 Act inadvertently repealed that phaseout. That drafting error provided unintended estate tax reductions to estates with assets in excess of $17 million. The substitute would restore that phaseout.

2) Under current law, taxpayers routinely claim valuation discounts when making gifts or bequests of fractional interests in entities such as stock in a corporation or a partnership interest. A common estate tax avoidance device is to transfer marketable assets to a family limited partnership and claim valuation discounts for gifts or bequests of interests in those partnerships. The substitute would include the provision recommended in the President's budget that would eliminate valuation discounts except to the extent that they apply to active business assets. The substitute would also eliminate the ability to claim discounts on account of lack of voting control where members of the decedent's family have voting control.

3) The substitute would repeal the credit for state inheritance and estate taxes but it would permit a deduction for those taxes.

4) The substitute would include the estate and gift tax changes that were included in the legislation (H.R. 3099) that was designed to end tax-motivated expatriation.

The net cost of the substitute would be roughly $20 billion over 10 years.