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DEATH TAX ELIMINATION ACT OF 2000--Continued -- (Senate - July 13, 2000)

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   Mr. ROTH. What is the pending business?

   The PRESIDING OFFICER. The Moynihan amendment.

   Mr. ROTH. How much time do I have?

   The PRESIDING OFFICER. The Senator from Delaware has 45 minutes and the Senator from New York has 30 minutes.

   Mr. REID. Does the Senator from Delaware wish to use some of his time now?

   Mr. ROTH. Yes, I do.

   I yield 15 minutes to the distinguished Senator from Arkansas.

   The PRESIDING OFFICER. The Senator from Arkansas is recognized for 15 minutes.

   Mr. HUTCHINSON. I rise in opposition to the Democratic alternative and in strong support of H.R. 8. I listened with interest to the debate taking place earlier this morning on this bill. I have the utmost respect and admiration for Senator MOYNIHAN. However, I wrote down one phrase he used. He said: We should stay with a tax that has served us well.

   I think that is the fundamental difference between the parties and those who differ on this issue. I don't believe the death tax has served our country well. I don't believe it has served the American dream well. I don't believe it serves the American people well.

   The death tax basically says to the American people: Be successful but don't be too successful. The death tax says: Work hard but don't work too hard and make too much. The death tax says: Save your money but don't save too much. The death tax puts a ceiling on what the American dream can be. I think that is fundamentally wrong, and therein is the basic difference between the two philosophies, the two parties, the two approaches on the death tax .

   There are those who say you can make too much and at that point the Government is going to step in and we are going to take what we think you have excessively made and earned and saved and invested, and we are going to redistribute that; we know better how to use that estate than your heirs, your family, your loved ones.

   We believe that is wrong. The whole approach behind the death tax is fundamentally wrong and un-American. The amendments that are being offered, including the Democratic alternative basically say, let's tweak it a little bit; let's finesse the death tax a little bit; let's expand the exemption a little bit, let's tinker with it.

   But that is not enough. This is a tax that is past its time --if it was ever justified, and it was not. It should be removed, eliminated, and that is why this alternative is insufficient.

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   It is no accident that the American Farm Bureau endorses H.R. 8. American farmers already have enough challenges growing crops, bringing them to market, making a living. Yet still our farmers see their land whittled away generation by generation, and not just by floods or storms or infestation but by the Federal Government and its tax policies. Death taxes can destroy family-owned farms and ranches when, after taxes, farmers do not have enough to keep their land, their buildings, or their equipment.

   I want you to listen to the words of H. Jay Platt of the Arizona Farm Bureau Federation as he testified before the House Small Business Committee. This is what he said:

   My grandfather started our ranch around the turn of the century with a couple of cows on a few acres of grazing land. For 100 years my family has worked hard to build our operation into a modern ranch that is the core of the financial base for three families. We paid taxes on everything we've earned and we don't understand why we have to pay again when we die. We can't comprehend why the government wants to penalize us for being successful by taking our ranch at death. We believe that our family, our community and the environment will all be better off if our ranch continues.

   That is a powerful statement. That is farmers. But small businesses are in a similar trap. According to the NFIB, more than 70 percent of family businesses do not survive to even the second generation, and more than 87 percent of these small family-owned businesses never make it to the third generation. One in three small business families today have to sell their businesses outright or liquidate business assets just to pay the death tax .

   The American dream can become an American nightmare because of the death tax . Democrats talk about the estate tax bill we are considering, the elimination bill, as being a tax break for the richest people in America. Let me tell you about some of the people who are really affected by the death tax .

   One of my own staffer's husband and his siblings just

   experienced the deaths of both parents. Their mother died only 2 weeks ago. In addition to the intense emotion and grieving this family is currently going through, they are now faced with selling family farmland and other assets in order to pay estate inheritance taxes in an attempt to save the family home and the family business.

   This is farmland that their parents and they have tilled and planted, farmland which paid for all four of the children's college education. Their small lumber and hardware store is located in a town of 1,400 people and has been in existence nearly 50 years. Not only will they have to pay estate taxes totaling almost half of the estate ; they will have to pay capital gains taxes on the assets they sell in order to pay for the death tax . Talk about adding insult to injury. That surely does.

   This is not about the wealthiest Americans. This is about a family who has put countless hours into rebuilding their family lumber business which burned to the ground a decade ago. This is about all 1,400 people who live in that small town, who are served by that family business, as well as the employees whose livelihoods depend upon that business. This is about handing down a legacy to their children who want to maintain the business which has served this rural community for five decades.

   The Federal estate tax , the death tax , punishes families for the deaths of their loved ones. The Federal estate tax takes its toll irrespective of the fact that any sale of inherited assets is subject to capital gains taxes. It is clear and, to me, it is simple: This is double taxation. It runs contrary to this country's work ethic and to family values.

   I have a stack of letters that have come in in the last month from people in the State of Arkansas who are not wealthy Americans but who see the deadly impact of the death tax . Let me share with you one letter from Haskell Dickinson:

   DEAR SENATOR HUTCHINSON: My father has grown gray worrying about his estate . He and his family members have paid exorbitant life insurance fees. He has been under intense pressure from large corporations who, he knows will consolidate his company and destroy local business relationships. He has been disillusioned that having to sell will mean a valuable Arkansas asset will be owned by an out-of-state firm. Arkansas stands to lose a lot from such a sale because of lost ``local'' business relations and community support and leadership.

   The estate tax is a cruel, grinding tax on people like my dad, and his family, and it's terrible for communities to lose good businesses and relationships to bigger, ``out of town,'' corporations.

   Or this letter from Jack Kinnaman of Kinco, Incorporated.

   DEAR SENATOR HUTCHINSON: Since I've been in business, my company and I have paid in income tax ranging from 25-75%. I have worked hard all my life and worked those 60-100 hr. weeks building a company. I am 66 yrs. old and still work 50-60 hrs. a week. When I die, in all probability, the family will not be able to afford to keep the business going because of the Death Tax (opponents call it estate tax) . Some relief was given because so many family farms were being lost. Small businesses like mine should not be lost because of a ``wealth distribution mandate''. We should have some feeling of comfort and pride that we can leave a successful business to our children.

   I urge you to support the Death Tax Repeal Proposal approved by the House.

   Mr. Kinnaman, I agree with you. I agree with you.

   Richard Posner put it this way:

   Since the accumulation of a substantial estate is one of the motivations that drive people to work hard, a death tax on saving is indirectly a tax on work.

   It is a fundamental difference. Do you think you ought to tax the products and the fruits of somebody's labor or do you believe you should not? It is a basic difference of philosophy. You can tweak it. You can finesse it. You can expand the exemption. But you are still saying, if you make too much, we are going to penalize you because we are going to tax you at 55 percent. We are going to take half of everything you earned, worked a lifetime to make. That is wrong. You can make all the rationalization and justifications, we should not penalize success in America. We should not say: you worked too hard; you did too well; you succeeded too much. That ought to be exactly the kind of thing we reward in this country.

   These hard-working--not wealthy but hard-working--and successful Americans are right when they say this tax should be repealed. It takes from Americans an incentive to save, a will to work. The National Federation of Independent Business, the American Farm Bureau, the Black Chamber of Commerce, the Hispanic Chamber of Commerce, the National Indian Business Association, the Pan-American Chamber of Commerce, and on and on, all support H.R. 8, and so should my colleagues on the other side of the aisle.

   The death tax has been repealed in 20 States since 1980, including that of Senator KENNEDY of Massachusetts, Oregon, Vermont. The nation of Canada repealed it, Israel repealed it, Australia abolished it, and so should we. It is past time. It is time to make friends of logic and taxation by repealing the death tax. Let's clear the way for parents to bequeath to their children, not bequeath to the Federal Government.

   I yield the floor.

   The PRESIDING OFFICER (Mr. ALLARD). The Senator from Nevada.

   Mr. REID. The minority yields 15 minutes to the Senator from North Dakota, Mr. CONRAD.

   The PRESIDING OFFICER. The Senator from North Dakota.

   Mr. CONRAD. Mr. President, perhaps it is useful to this debate and discussion to put in perspective what we are talking about in budget terms, and then to go to the specifics of the proposals that are before us. I think it is useful, first, to review where we are in terms of the projected surplus over the next 10 years because those numbers have just changed. We are now told we will have a total surplus, a projection of a surplus, of $4.2 trillion over that 10-year period.

   I think it is also important to remember that two-thirds of that money is from Social Security and Medicare; $2.3 trillion represents surpluses from Social Security, $400 billion represents surpluses from Medicare.

   Between those two, over $2.7 trillion of the $4.2 trillion projected surplus is from Social Security and Medicare. That leaves us over the next 10 years $1.470 trillion of non-Social Security, non-Medicare surplus. This is money that I argue is available for tax relief, is available for additional debt paydown, and is available for high priority domestic needs such as education, prescription drug coverage, additional expenditures on defense, and

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other high priorities that we might have in this country. I also argue that Agriculture ought to be given additional resources to confront the Europeans, our major competitors, who are outspending us dramatically as they attempt to buy markets that were once ours. That is the money we have available over the next 10 years

   The other day in the Washington Post, Secretary Summers, the Secretary of the Treasury, warned us that the proposal that has come out of the House, which is before us now as the Republican proposal, explodes in cost in the second 10 years.

   I just reviewed our budget circumstance in the next 10 years according to the latest estimates. In the second 10 years, the Republican tax proposal on estate tax explodes in cost. It goes from $105 billion to $750 billion. Here is the Secretary of the Treasury alerting us that the tax cut will cost too much. He points out that the estate tax repeal measure passed by the House and now before the Senate would cost about $750 billion in the second 10 years, more than 7 times its cost in the first 10 years. He points out:

   If it were to be enacted, it might be the most backloaded piece of tax legislation ever.

   That is the Secretary of the Treasury.

   The respected columnist, David Broder, wrote in the Washington Post the day before the Summers' column, Sunday, July 9, a recommendation to the President that he veto the Republican estate tax proposal. He points out that 98 percent of the inheritors in 1998 paid nothing in estate tax- -nothing. The $28 billion in inheritance taxes came from 2 percent of very large estates.

   He goes on to point out that under a 1997 law, a couple with a farm or business worth up to $2.6 million can give it to their heirs tax free. The Democrats raise that to $4 million for a couple, which means that only 1 of every 100 estates would face any inheritance tax. In fact, our proposal is to raise it to $4 million for a couple, and $8 million for those who own small businesses or farms. We are talking about a fraction of 1 percent that would have any liability under the plan we are offering.

   These charts tell the story. The Republican plan explodes in cost in the second 10 years. It goes from $105 billion over that period in the first 10 years to $750 billion in the second 10 years.

   There is also something very interesting about the estate tax proposal of our Republican colleagues. They talk a lot about eliminating estate taxes, but really what they do in the first 10 years is not eliminate the estate tax at all. In the first 10 years, they reduce the rates at the top end so the people they are helping are the people who are the very wealthiest in the country. Those are the people to whom they are providing the first relief.

   It is, frankly, very odd. I have to ask my Republican colleagues why they would choose to provide estate tax relief in this way. Why don't they begin by helping the small business

   owners and the farmers and the couples who just qualify for paying estate tax? Why not?

   Mr. KYL. Will the Senator yield?

   Mr. CONRAD. If I can continue.

   Mr. KYL. For a question.

   Mr. CONRAD. I will be happy to yield for that purpose after I have gone a little further. I then will be happy to engage my colleague. Why do they have an estate tax plan that gives the first relief to the very wealthiest among us? Why not provide the first help to those who really need it: small business owners, the farmers who we think ought to be exempted from the estate tax because the estate tax structure, as it is, is out of date.

   That is not what the Republican plan does. The blue line on this chart shows current law. The red line shows the GOP estate tax proposal. They reduce the rate starting at the top rate first. They reduce that and then create this incredible cliff effect when it goes into full effect supposedly 10 years from now. Frankly, because of the exploding cost, I doubt their plan would ever go into full effect. We would have the worst of all worlds. We would have the top rates reduced, nobody relieved from estate tax liability for the first 10 years, and then I believe because of the exploding costs, this cliff effect would never occur, and we would have the worst of all worlds. We would have lost the ability to plan, to manage estates; we would have lost the opportunity to take people off the rolls who really ought to be off the rolls, and we would have, as I say, the worst of all worlds.

   If we look at the underlying facts, 98 percent of estates currently are exempt; 98 percent of estates pay no estate tax because of current law which provides substantial credits to exempt the vast majority of estates. Only 2 percent have some requirement to pay under current law. The Democratic proposal in the first year relieves 42 percent of those 2 percent of any liability. That is the Democratic plan. The Republican plan relieves 0 percent of estates from taxation in the first year. Let's go back and review what I have said.

   Under current law, 98 percent of estates are exempt. Only 2 percent pay any estate tax. Under the Democratic plan, of those 2 percent who have some estate tax liability, in the first year we take 42 percent of them off the rolls completely, entirely. The Republicans take none of them off the rolls--none.

   At the end of the 10-year period, the Democratic plan takes 67 percent of those 2 percent of estates that have a liability now off the rolls. We take two-thirds of them off the rolls entirely. The Republicans, by the year 2009, takes none of them off the rolls of liability.

   There is an enormous difference between these plans, and the Democratic plan is far superior in the next 10 years to the Republican plan--far superior for couples, far superior for small business, far superior for farmers.

   In this morning's New York Times on the front page of the business section, it says:

   Two prominent experts on estate taxes said yesterday that the Democrats were offering a much better deal to small-business owners and farmers, because the relief under their bill would be immediate and the estate tax would be eliminated on nearly all of them. ``The fact is that the Democrats are making the better offer--and I'm a Republican saying that,'' said Sanford J. Schlesinger of the law firm of Kaye, Scholer, Fierman, Hays & Handler in New York. With routine estate planning, he said, the $4 million exemption could effectively be raised to as much as $10 million in wealth that could be passed untaxed to heirs. Only 1,221 of the 2.3 million people who died in 1997 left a taxable estate of $10 million or more, I.R.S. data shows.

   Neil Harl, an Iowa State University economist who is a leading estate tax adviser to Midwest farmers, said that only a handful of working family farms had a net worth of $4 million.

   Of course, we would permit $8 million by a couple to be passed untaxed to heirs.

   Above that--

   Above the $4 million he is referencing--

   with very few exceptions, you are talking about the Ted Turners who own huge ranches and are not working farmers,'' he said.

   Mr. Harl said he was surprised that farmers were not calling lawmakers to demand that they take the president up on his promise to sign the Democratic bill.


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