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Testimony of U.S. Representative Kenny Hulshof (R-MO) Regarding H.R. 8

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Location: Washington, DC


Testimony of U.S. Representative Kenny Hulshof (R-MO) Regarding H.R. 8, the Death Tax Repeal Permanency Act of 2005
Before the U.S. House Committee on Rules April 12, 2005

As you probably know, I am the lead sponsor of H.R. 8, the Death Tax Repeal Permanency Act of 2005. On behalf of our lead Democrat sponsor, Representative Bud Cramer, and the 201 bipartisan members who have cosponsored this bill, I am pleased that the House is poised to consider this common-sense legislation.

Chairman Dreier, Ranking Member Slaughter, I appreciate the opportunity to testify before your committee today.

As you probably know, I am the lead sponsor of H.R. 8, the Death Tax Repeal Permanency Act of 2005. On behalf of our lead Democrat sponsor, Representative Bud Cramer, and the 201 bipartisan members who have cosponsored this bill, I am pleased that the House is poised to consider this common-sense legislation.

In 2001, we passed historic tax relief legislation that let all income taxpayers keep more of what they earn. This effort included a repeal of the federal Death Tax - a top tax priority for many small businesses and family farms. Thus, under current law, the Death Tax is gradually phased-out between now and 2010. This is accomplished by increasing the amounts exempt from the tax - currently $1.5 million - while simultaneously reducing the top rate imposed by the tax - which is currently 47%.

Unfortunately, the Death Tax does not stay dead and buried. As things stand now, it will rise from the grave in its pre-2001 form in 2011. This quirk in the law can be directly attributed to the Senate's Byrd rule, which applies to the consideration of reconciliation bills.

As a matter of basic fairness, we must permanently repeal the Death Tax. Death should not be a taxable event. If repeal was a good idea then, it remains a good idea today.

Let me touch briefly on the policy rationale for finishing the job on the Death Tax.

The Death Tax is fundamentally unfair. By its very structure, the tax punishes thrift and hard work. Conversely, the tax forces taxpayers to engage in a host of economically inefficient activities to avoid the punitive nature of the tax.

Consider these facts. Pre-2001, the top Death Tax rate was 55%, with some taxpayers subject to a 60% marginal rate. Today, the top rate is 47%. From the standpoint of basic fairness, these are exorbitantly high rates of taxation to impose on a lifetime of work.

Not only does the Death Tax have a very real effect on taxpayers and their behavior, it has a negative impact on the economy. With a tax like the Death Tax, a family business or farm has no choice but to divert precious resources to plan financially for the potential impact of the tax. Money that could be used to expand a business or hire employees is instead used to lessen the bite of the Death Tax.

Supporters of retaining the death tax will claim that the redistribution of income promotes economic fairness and social responsibility. I disagree. Instead of rewarding savings and investment, the tax actually rewards those who spend lavishly and leave no ongoing business interests or assets to the next generation. A small business owner that tries to pass a family operation to their children will face a higher Death Tax burden than a person who earned the same amount of money and spent it lavishly on expensive cars and jewelry.

The Death Tax's incentive to allocate capital inefficiently hurts job creation and economic growth. The Heritage Foundation estimates that the tax costs the American economy between 170,000 and 250,000 jobs annually. The Joint Economic Committee noted the tax reduces the stock of capital in the economy by $497 billion, or 3.2%.

With April 15 fast approaching, I think it is worthwhile to note that permanent repeal of the Death Tax will simplify tax law and facilitate long-term financial planning. Right now, it is almost impossible to plan with any real degree of certainty for the effects of the tax. Most glaring is the situation where if a person dies on December 31, 2010, no death tax is imposed. Should they, however, die on January 1, 2011, their lifetime of work can be subject to marginal tax rates as high as 60%.

By making death tax repeal permanent, we can give taxpayers the certainty needed to plan for retirement and avoid wide disparities in the application of tax law as a result of the day of one's death.

From a simplification standpoint, I would also note that Form 706, the IRS Death Tax form, is a 40-page document. Form 706 comes with 30 pages of instructions. Based on the IRS on data, it takes nearly an entire work week to complete a Death Tax return.

I have some first-hand knowledge about the Death Tax. I grew up on a family farm in Southeast Missouri. The money my parents earned from the farm supported our family and helped pay for my college education. After I left home and started my own career and family, the Hulshof farm in Bertrand, Missouri supported my parents.

Over the course of the past two and a half years, I have experienced the passing of both my parents. I have sat across from our family accountant in a cold sweat as the value of our family farm is totaled on an old adding machine, knowing that our proud farm tradition was in jeopardy. Ours is a modest farm, and from my experience, I know that small businesses and family farms across this land are being negatively affected by the Death Tax.

From an economic standpoint, from a tax simplification standpoint, and most importantly, from the standpoint of basic fairness, it is only appropriate that we bury the Death Tax once and for all.

I would be more than happy to answer any questions you may have.

http://hulshof.house.gov/news.aspx?A=275

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