Service Members Home Ownership Tax Act Of 2009

Floor Speech

SERVICE MEMBERS HOME OWNERSHIP TAX ACT OF 2009 -- (Senate - December 16, 2009)

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Mr. KYL. Mr. President, the argument that the chairman of the Finance Committee made reminds me of a story told in law school of the fellow accused of murdering his parents. He pled for mercy on the court since he was an orphan.

I asked the chairman of the committee numerous times this year to address this problem, and the response always was: We are too busy. We are too busy with health care was the usual response. Now we find ourselves at the end of the year, and it is odd that the chairman argues that we have a big emergency on our hands and we have to act.

It is not as if we have not known this issue was out there. Nor, as Senator Bingaman just suggested, has it been a big mystery that the rate on the estate tax was going to go to zero next year. That is the 2001 law. We have known that for years.

Frankly, people have applauded the fact there is not going to be an estate tax next year. The only problem is if the people on the other side of the aisle intend to repeal that law so we do have an estate tax. I know that is their intention. They are creating the confusion because the law has been known about for 10 years that we are going to have a zero rate. Now all of a sudden they say we cannot let that happen. We are going to have to change it next year. Since we think we may be able to do that, we should extend what we have right now and not let the zero rate take hold.

I suspect the great dilemma that is being posed is one most folks would love to have as a problem. The dilemma being proposed is that if the rate goes to zero and the heirs of the property decide to sell the property at some point, they will have to pay a capital gains tax. That is just fine. That is what most people would like to do.

Since this income is taxed twice--it is taxed once when you make the income, then it is taxed again if you have any of that left over when you die--that is unfair. What we have always argued is that the estate tax, therefore, should go away and just leave the existing Tax Code where it is, which says: If somebody inherits property and later sells that property, sure, they should pay a capital gains tax on it. I would think most people would think that is a pretty good deal.

The capital gains tax is 15 percent; whereas the estate tax under the proposals of my friend from Montana would go to 45 percent. As between paying 45 percent and 15 percent, I think it is pretty clear what most small business folks and farmers would like to do.

Of course, the original basis of the property is the basis for paying the tax. Again, if you put that question to small business folks or farmers, they would tell you they would rather pay the capital gains tax than they would an estate tax of 45 percent.

Mr. President, I ask unanimous consent to have printed in the Record at the conclusion of my remarks an editorial from the Wall Street Journal from December 11 called, ``The Tax That Won't Die, Death Blow, Night of the Living Death Tax, Estates of Pain.''

The PRESIDING OFFICER. Without objection, it is so ordered.

(See exhibit 1.)

Mr. KYL. Mr. President, among the things pointed out in this editorial, they say:

We've long argued that the economically optimal and fairest death tax rate is zero. The tax is applied to income that was already taxed when it was earned, so it is a double tax on savings and capital. The correct way to tax a gain in the value of assets bequeathed to an heir is with a capital gains tax of 15 percent when the assets are sold, rather than at the time of the funeral of the original owner.

I think that says it all. I hope the problem my friends are so concerned about--first of all, they recognize a problem they themselves manufactured by not getting around to doing anything about this until the eleventh hour. Second, it is a problem that does not have to exist if they will leave the existing law alone and let the rate go to zero, which is what everybody wants it to be.

Sure enough, if your heirs sell property after that, they will have to pay capital gains. Ask them what they would rather do--pay a 15-percent rate or a 45-percent rate. I think the answer to that is pretty clear.

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