Death Tax Repeal Permanency Act Of 2005--Motion To Proceed
Madam President, today and tomorrow could be historic days in the Senate--indeed, in the history of our country--because we have an opportunity to eliminate what some have called the most unfair tax of all. I speak of what has been called…
Madam President, today and tomorrow could be historic days in the Senate--indeed, in the history of our country--because we have an opportunity to eliminate what some have called the most unfair tax of all. I speak of what has been called the estate tax, or the inheritance tax, or more recently has become known as the death tax.
Just a word of the history of this tax would be interesting to my colleagues before I discuss the process by which this consideration will occur and some of the reasons why we need to proceed with it.
It is very interesting that the history of the estate tax actually can be traced back to ancient times and the Roman Empire, but the more relevant history for purposes of the United States, because we borrowed this concept from England, came from the Middle Ages when the sovereign or the state, of course, owned all of the assets--the land and even the personal property--within the country.
What would happen is, when the king owned all of the feudal property in England, he would grant the use of that property to the people within the kingdom. Certain individuals during their lifetimes--let's say a farmer--would have the land to till and the farm animals to take care of. When that farmer died, in effect, his family would have to buy back that property from the king in order to continue to farm that land, to raise those farm animals and so forth. When the king died, the king would let the estate retain the property on which the payment of an estate tax, called a relief, existed. That would then enable the family to continue to run the family farm or the family business, to put it in modern-day terms.
It seems very strange indeed in the 21st century we would retain this odd and clearly out-of-place custom of having to buy back our property from the king. We do not have a king anymore. There has never been a king in the United States of America. Our right to property is guaranteed in the Constitution. So it seems strange, indeed, that we should be following a custom which required us to buy back from the king our property when our father or our mother dies, for our children to have to buy it back when we die. Yet that is the etiology of the estate tax, that you pay the state to continue to enjoy the right to the property that you always thought was yours.
It is a very expensive price, indeed. In recent years, it has been 55 percent for the largest estates. Clearly, a lot of people could not afford this, people who put their life savings into their farm or their business.
I had a friend from Phoenix who owned a printing company. He started it himself, and after 40 years built it up to a prosperous printing company. He took a modest sum out for he and his family but basically plowed everything back into the company because to stay ahead in the printing business you had to buy the most modern printing equipment and technology.
On paper, his family had a lot of wealth. He had a lot of wealth when he died. But it was literally tied up in the company. His family looked at the estate tax. They had spent a lot of money buying insurance and so on. They found they were going to basically have to pay over half of the value of this company to the Government. They did not have that money. They did not have that liquid cash. So they had to sell this printing company in order to collect the money to pay the Government about half of it in the form of an estate tax.
What happened? This particular man was one of the most generous people in the city of Phoenix. He contributed millions of dollars. In fact, there is a Boys and Girls Club named after him. Every year his wife and his daughter would be involved in charitable activities. I know because my wife is one of the best friends of his daughter. They headed up charity events and raised millions of dollars for our community. When his family had to sell the business to pay the estate tax to the Government, they were no longer in a position to do the things for the community they had always done. They have remained very active and very giving but not to the same extent when they had a business to rely upon.
So this community lost in many ways. It lost a great, locally owned, family-owned business. It lost the patriarch of that business, a very generous person, who supported the community, and the family, of course, has not been able to employ those people. Over 200 people were employed in the business.
One of the modern-day rationales for the estate tax is that it prevents the concentration of wealth in just a few families. If there is any Nation that you don't have to worry about that, it is the United States of America. We are a Nation in which anyone can make wealth--and you can lose it quickly. Everyone aspires to get higher on the economic ladder. The notion that somehow there are just a few rich families in this country controlling everything is, of course, a wild myth. So it is not necessary to break it up.
But what happened when people like my friend Jerry, when he passed away and his family had to sell his printing company, what happened to the concentration of wealth? It sure took it away from his family, all right, though no one would contend they were really among the elite of this country. He was a poor Jewish kid from New York who came out west, made good, employed a lot of people and did a lot for his community. No, they sold to a big corporation, a public company. So the concentration of wealth, of course, was enhanced, not lessened, as a result of the application of the estate tax.
It is very hard for small businesses these days, or even small farms, to compete with publicly-owned businesses. When the CEO of a publicly- owned business passes on, nothing happens. The corporation simply goes chugging right along. But when the patriarch of a family-owned business passes away and half of the money in the business has to be paid to Uncle Sam, it can crush that small business. It is one of the reasons we need to eliminate this tax. The small family-owned business or family-owned farm cannot compete with the giant corporation which does not suffer the same kind of tax.
We should not have to buy back the estate from the king any longer. We need to end this most unfair tax of all, the death tax.
It is interesting that even though most Americans will not have to pay the death tax because their estates would fall within the amount that is exempted, by very large numbers, they recognize it is a very unfair tax. So when public opinion surveys ask people their opinion of the tax, the majority of people in this country say they would like to end the tax, that it is unfair and it should be eliminated. As a matter of fact, this applies to liberal and conservative voters.
According to a Gallup poll from April of this year, 58 percent of the respondents said that the inheritance tax is unfair. It is interesting, this poll was taken when Americans were filing their taxes. The death tax was called unfair by more people than the despised alternative minimum tax. Only 42 percent of the AMT said it was fair. Yet, of course, we know that also to be a very unfair tax. It was never intended to apply to average Americans. It was put in there to make sure that even the wealthiest Americans with all of their deductions, exemptions, credits and places to park their money that even they would have to pay some tax--even if they did not owe any income tax, they would owe an alternative minimum tax.
Now, that alternative minimum tax, much like the death tax, is reaching down to take money from more and more and more Americans. So we are recognizing that whatever its good intentions originally, it is an unfair tax.
It is interesting that even though more Americans will be hit with the AMT, a greater number of Americans believe the death tax is more unfair
than even the alternative minimum tax. Of course, they are both unfair. They both need to be eliminated. It shows the sense of fairness that Americans have.
There was a poll taken not long after the Presidential election last year. It was interesting to me that while 89 percent of people who identified themselves as Bush voters believed the death tax is somewhat or very unfair, 71 percent of the Kerry voters also found the death tax at least somewhat or very unfair: 25 percent, somewhat; 46 percent, very unfair. So this reaches across the economic spectrum; it reaches across the political spectrum. Americans know an unfair tax when they see it, and they think it ought to be eliminated.
Of course, the economic theory backs them up. They say it is unfair because, among other things, it is a tax on hard work. It is a tax on thrift over consumption. It is a tax on assets that have already been taxed at least once when they were earned and sometimes multiple times as that money has been invested and then returned a profit.
Americans understand we should have a tax policy that encourages savings and encourages working more. When people know that the next dollar they earn is going to be taken by the Federal Government or that half of everything that is left in this estate could be taken by the Federal Government, what is the incentive for them to continue to work?
Dr. Edward Prescott, a Nobel Prize winner in economics from Arizona State University, got that prize by proving the phenomenon that there is a direct relationship in how much more people will work and how much they have to pay in taxes. When they know most of what they earn, they can put back into their business, save, invest or give to their kids, they will continue to work. When they know it will go to Uncle Sam, guess what. They don't work anymore. That is lost productivity. It is lost productivity that damages our entire country, our economy. It obviously hurts in job creation. It hurts in our ability to continue to enjoy the kind of growth we have.
The studies verify this. The studies verify, according to the Joint Economic Committee, for example, which has done one of these recent reports, that the estate tax has reduced the stock of capital in the economy by about $847 billion over the last several decades, the last 60 years. That is almost $1 trillion in lost capital that could have been put to work creating jobs and creating products.
In comparison, the estate tax raised $761 billion in inflation- adjusted dollars over this same period of time. The bottom line is, this is a destructive tax. It is not a tax that helps taxpayers very much. It is about 1 percent of the revenues we collect, and, according to estimates, Americans actually pay about the same amount in money every year to avoid paying the death tax as it brings into the Federal Treasury.
Alicia Munnell, an economist, has made that point. She was a member of President Clinton's Council of Economic Advisers. She estimated that the costs of complying with the estate tax laws are about the same as the revenue raised. It is expected to raise about $28 billion in this fiscal year.
The bottom line is, therefore, it is a very inefficient tax. It costs, actually, twice as much as we think it does. It does not bring in that much revenue. And certainly it is very detrimental to economic growth and to capital formation.
There is a way we treat this phenomenon in the Tax Code. It really tells us how we should treat the estate tax. Think about the unintended events that occur in your life. Obviously, death is the chief among them. You cannot choose when you die. Everyone knows they are going to die, but it is not an event that is a voluntary event or that we decide when we are going to do it, certainly not for tax-planning purposes.
It is much like a couple of other things that are recognized in the Tax Code as involuntary events. One of them is what happens when there is a theft. Someone breaks into your home and steals a lot of your property. You might get the insurance company to give you that money back. Should that money be taxed as income when you get it back from the insurance company? Of course not. It is merely a replacement for what was stolen from you. The Tax Code recognizes this in what is called an ``involuntary conversion,'' and they do not force you to pay the ordinary income tax on the money you get back when you suffer that loss.
It is the same thing for death. Death is not a planned event. Death is not something like a sale of property for which you would expect to pay a capital gains tax but, rather, something that occurs to you involuntarily; certainly you should not suffer a price when the estate is passed to you from your loved one, let's say. It comes, of course, at the worst possible time in people's lives to begin with, when they are grieving the loss of a loved one and now are going to have to pay the king to get that loved one's estate. This is not something which Americans believe is fair or right or just.
There is a way we treat this in the Tax Code--involuntary conversion. You don't get taxed on it. The same philosophy ought to apply to the estate tax. There are a lot of reasons. There are the purely economic reasons. There is American public opinion. There is the philosophy of the Tax Code. All of these things mitigate against having this unfair death tax today.
What we have done is to, therefore, set up a process by which we can take up the House bill which voted overwhelmingly to eliminate the death tax. That is H.R. 8. What we are debating now is the taking up of H.R. 8 so that we, too, can vote to repeal this fundamentally unfair tax. We will have a cloture vote. It will occur presumably sometime tomorrow. I urge colleagues to vote yes on cloture so that we can take up the House bill.
Some of my colleagues do not want to support the House bill for full repeal. I understand that. They are well aware of the fact that since there may not be support for that to get 60 votes, a lot of work has been done to develop an alternative which would end the most pernicious impact of the tax but still allow some revenue to be collected from the most wealthy estates each year. I will discuss that in a moment.
The bottom line is that in order for us to vote on full repeal or to vote on an alternative to full repeal, we will have to support the first cloture motion to proceed so that we can take up the House bill. Presumably, then, the majority leader would have a cloture vote on that underlying bill and people can vote yes or no on that as they please. I will vote to repeal the estate tax. Should that fail, we will then have the opportunity to vote on an alternative. That alternative has been relatively widely discussed, and we will have an opportunity to discuss it more later.
In general terms, what it would do is provide that most people won't have to spend the $30 billion a year that is spent on insurance policies, lawyers, accountants, estate planners, and the like to try to avoid paying most of the estate tax. For most people, under this alternative compromise, the exempted amount will be large enough that they won't have to worry about it, or if even after the exempted amount, their estate will be covered--and with the increase in real estate prices today and with the value of businesses and farms going up, frequently, simply because of the value of the land or the personal property, a lot of estates could get caught even with a generous exempted amount. We have a plan that only the capital gains tax rate would apply. If that is the case, then, whether you choose to sell the property before death or you are willing to pay whatever you have to after the exempted amount after death, it is the same. It would be 15 percent today; after 2010, it would be 20 percent, if that is not changed. Everybody knows, therefore, that the penalty, in effect, to the Government is the same. You pay on the gain if you sell the property before death. If your heirs inherit the property, they would pay that same 15 or 20 percent. There may be an addition to ensure that the very wealthiest estates pay at a higher rate. That is something we are discussing with colleagues.
The bottom line is, what we will do is make clear that for most people, they won't have to worry about the death tax anymore. For the very few who do, it would be only the very largest estates which would clearly have the financial means of doing something about it.
We are not going to be able to get to either a vote on full repeal or the alternative unless we vote for cloture to
take up the House bill. That is the critical vote which will occur tomorrow.
We have a series of speakers. I believe the Senator from Texas, Mr. Cornyn, is next. Then we have Senators Talent, Shelby, Bunning, Allen, Thune, and Grassley on the Republican side. I urge them to be here to ensure their place in line so that they have an opportunity to speak for the allotted time on this important issue, laying the foundation for what is going to be a historic vote tomorrow to finally get on the process for getting rid of this most unfair tax.
I urge colleagues' support and yield the floor.