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Death Tax Repeal Permanency Act of 2005

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DEATH TAX REPEAL PERMANENCY ACT OF 2005 -- (House of Representatives - April 13, 2005)

Mr. HULSHOF. Mr. Speaker, pursuant to House Resolution 202, I call up the bill (H.R. 8) to make the repeal of the estate tax permanent, and ask for its immediate consideration.

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Mr. HULSHOF. Mr. Speaker, I ask unanimous consent that all Members may have 5 legislative days within which to revise and extend their remarks and include extraneous material on H.R. 8.

The SPEAKER pro tempore. Is there objection to the request of the gentleman from Missouri?

There was no objection.

Mr. HULSHOF. Mr. Speaker, I yield myself 5 minutes.

Mr. Speaker, I appreciate the fact that we are here today poised to pass H.R. 8, the Death Tax Repeal Permanency Act of 2005.

On behalf of the lead Democratic sponsor, my colleague, the gentleman from Alabama (Mr. Cramer), as well as the over 200 bipartisan Members who have co-sponsored this bill, I am pleased that we are poised to pass in this body this commonsense legislation.

I would like to talk about a couple of constituents, particularly a constituent named Howard Effert who is a resident of Columbia, Missouri, who in 1965 began a lumber yard business there in Columbia. He contributed $100, which was a very modest contribution, as he had three young children to provide for with a modest wage.

He had the idea and a desire for a new venture even though many within the community felt this venture would be unsuccessful, but yet his partners helped him provide the financial assistance and of course some valuable mentoring to help him open the doors to this lumber business.

Fast forward now 40 years. His two sons, Brad and Greg, are running the day-to-day operations of the business. Of course, they want this family business that has been in their family since its modest beginnings in 1965 to be able to be passed on pursuant to the American Dream, that is, to create a legacy, to help your children be better off than you were.

Yet the Effert family today, Mr. Speaker, has to write a check for $1,000 a week, $52,036 to be precise, to purchase a term life insurance policy, the proceeds of which will be to pay the Federal Government on that inevitable day that Howard Effert passes from this world to the next.

In 2001 we passed historic legislation that let all income tax payers keep a little bit more of what they earned, and this historic legislation included a repeal of the Federal death tax which was a top tax priority for a lot of small business and family farm groups. Thus under current law, the death tax is gradually phased out between now and 2010. This is accomplished by increasing the exemption from the tax. Currently it is $1.5 million shielded from this very confiscatory tax, and at the same time we chip away at that top rate, which was as high as 55 percent, and in fact, in a few isolated instances as high as 60 percent tax. We now chip that away, and it is currently 47 percent.

Unfortunately, as we know, the death tax does not stay dead and buried. As things now stand, it will rise from the grave in 2011, and it will revert to its form prior to 2001. Now, 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. The death of a family member quite simply should not be a taxable event. And if it was good policy when we enacted it in 2001, it remains a good idea today.

Let me touch briefly on some policy rationales for finishing this unfinished work. The death tax is fundamentally unfair. By its very structure, the tax punishes thrift, savings, and hard work. Conversely, the tax forces taxpayers to engage in a host of economically inefficient activities to avoid the very punitive nature of the tax. Not only does this have a very real effect on taxpayers and their behavior but a negative impact on the economy.

With a tax like the death tax, a family business or farm has no choice but to divert these precious resources, as in the case of the Effert family, to plan financially for the financial impact for the tax: money that could be used to expand the business, to purchase a forklift, to bring another person on the payroll, whatever is in the best interest of that business. Instead, this money is diverted in anticipation of this very punitive tax.

Now, supporters of retaining the death tax will claim that perhaps redistribution of income promotes economic fairness and social responsibility. We will get to have that debate. I respectfully disagree. Instead of rewarding savings and investment, this tax actually rewards those who spend lavishly and leave no ongoing business interest or assets to the next generation.

I am mindful of the bumper sticker that I saw recently traveling Missouri's highways on a big recreational vehicle that says "I am spending my children's inheritance."

If you wanted to give some good estate tax advice to someone that has put together some assets to pass along, it would be simply to consume it. Yet as we talk about some sort of tax reform and perhaps a consumption tax, this tax actually focuses on non-consumption and on thrift and savings.

For that and for a variety of reasons, we will have the opportunity, I hope, in a good debate, in a civil discourse. I think we should permanently repeal the death tax. We should enact H.R. 8.

Mr. Speaker, I reserve the balance of my time.

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Mr. LEVIN. Mr. Speaker, in a few words, this is fiscal madness. It is a death wish on the part of some of my colleagues about fiscal responsibility. What my colleagues are burying is fiscal responsibility.

The national debt is now $4.6 trillion, $6.3 if we add in Social Security funds. As mentioned, this bill would add $290 billion in debt, and who would benefit? The very, very wealthy.

One-third of the estate tax is paid by the wealthiest one of one thousand Americans. I think that is one-tenth of 1 percent. Not farmers or small business people. That is the lamest argument brought to this floor in recent memory.

The Pomeroy amendment would totally take care of this, and what my majority colleagues' bill does, and it is interesting, they do not come here and say so, they would increase the taxes for thousands and thousands of Americans. These citizens would have to pay capital gains tax when they do not now do so. Why do my colleagues not come here and say this is a tax increase for thousands of Americans? They do not say that.

What this is also, everybody should understand, is a further raid on Social Security funds. My colleagues have come here, some of them on the majority side, talking about Social Security and how we need to address the shortfall. For some of these same colleagues, private accounts do not even touch that, and then they come here and increase the shortfall.

This is true fiscal madness. My colleagues will indulge in it again I guess, and I hope, once again, the Senate will come to our rescue.

Mr. HULSHOF. Mr. Speaker, I yield myself 30 seconds.

I am sure the gentleman from Michigan misspoke, and I am certain it was inadvertent. The bill, H.R. 8, actually does allow for a step up in basis of $3 million for a surviving spouse and another $1.3 million for surviving heirs.

If the intent of the legislation, which it is, is to help family businesses be passed from one generation to the next and the surviving heirs choose not to farm or continue the family business, then they are the ones making the taxable decision to dispose of assets that would be subject to a 15 percent capital gains rate but certainly not the 45 percent estate tax.

Mr. Speaker, I yield 1 minute to the gentleman from Florida (Mr. Shaw).

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Mr. HULSHOF. Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, among the many groups that support H.R. 8, including the National Federation of Independent Business, which is the voice of small business, there are many minority owners of small businesses that also support complete repeal.

Mr. Speaker, I yield 2 minutes to the gentleman from Georgia (Mr. Bishop).

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Mr. HULSHOF. Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, I would remind the gentleman from Massachusetts (Mr. Neal) as he mentions Iraq and Afghanistan that the budgetary impact of H.R. 8 is really not felt until the year 2011 and beyond.

Mr. Speaker, I yield 2 minutes to the gentlewoman from Florida (Ms. Harris).

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Mr. HULSHOF. Mr. Speaker, I yield myself the balance of my time.

Mr. Speaker, I appreciate in large measure the tone of the debate. What I would say to the gentlewoman who just spoke and to others who raised the red herring of Social Security is to remind folks, first of all, the Federal receipts from the Federal death tax represent less than 1.5 percent of all revenues, first of all; and, secondly, that none of the income tax money generated from the estate tax goes to Social Security for the trust funds, and eliminating the tax in no way will affect or impact current Social Security benefits. Not one bit.

Now, I do want to respond. I heard, I think, the gentleman from Massachusetts earlier say that really there has been no policy justification for keeping this tax, other than we need the money. In fact, I think one gentleman said something, from Massachusetts, about we need to pay our fair share.

Well, let me just ask you to consider your day. When you woke up this morning, if you hit the snooze button on your electric alarm clock, you are paying an electric tax. When you jumped into the shower this morning, you paid a water tax. If you saw the gentleman from North Dakota (Mr. Pomeroy) and I on C-SPAN debating this issue this morning, you are paying a cable TV tax. When you drove to work this morning, you are paying a gasoline tax. If you stopped for a cup of coffee, you paid a sales tax. If you used the telephone at all today, you are paying a telephone tax. And, of course, when you are at work, your wages are subject to a payroll tax that does go into Social Security, payroll taxes that do pay for Medicare, not to mention your income taxes. If you drive home to your home and you are lucky enough and fortunate enough to own a home, you are probably paying a local property tax.

When you kiss your spouse good night, you think that is free. No, leave it to the Federal Government to continue to have this thing called the marriage tax.

And, yes, if you scrape and invest and save and you build a family business, have the audacity to pursue the American dream, the Federal Government is there with its hand out saying give us 45 percent of the value of your family business.

Now I have heard from my colleagues on the other side who say that family farms are not affected. Well, then let me tell you a very quick personal story, a story of a farm family in Missouri, a young married couple who in 1956 left Portageville, Missouri, in the district of the gentlewoman from Missouri (Mrs. Emerson), with $1,000 in their pocket, and that was going to be the stake that they had. It happened that the woman was an expectant mother with her first child and, as it turned out, her only child.

That married couple happened to be my parents, and over the last 2 ½ years I have had the unfortunate reality that obviously death is inevitable, and I have had the unfortunate experience in our family of having both my father pass away in late 2002 and my mother one year ago.

I do not mind sharing with you, a 514 acre farm, a modest life insurance policy, the house that I grew up in, a combine, three tractors and some irrigation equipment, and that is it. And I am sitting across the mahogany desk from our long-time family accountant with the adding machine with a tape on it, and he is plugging in an arbitrary value for these assets that my parents invested their soul into. And I am breaking out into a cold sweat wondering whether or not this business that they built and wanted to pass on is going to fall above an arbitrary line or below an arbitrary line that we in Congress have set.

Now we did not have to pay the tax, but 14 days ago I had the requirement of filling out the form and paying the $2,000 accountant fee; and, again, I do not quarrel with that. But, Mr. Speaker, the death of a family member should not be a taxable event, period.

Mr. Speaker, I urge my colleagues to vote for H.R. 8.

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Mr. HULSHOF. Mr. Speaker, just a quick comment for whatever time I may consume before yielding to the gentleman from South Carolina (Mr. Barrett).

Did I hear the last speaker correctly, that we have given away, whose money is that? It would be the American taxpayers' money, who are probably, even as we speak, trying to grapple with those forms as they have tax day coming, as the income tax payers of America that provide for the comfortable living that he and I enjoy.

Mr. HOYER. Mr. Speaker, will the gentleman yield?

Mr. HULSHOF. I yield to the gentleman from Maryland.

Mr. HOYER. Mr. Speaker, I ask my friend, whose debt is it?

Mr. HULSHOF. Mr. Speaker, I would say to my friend, and of course, as we have had a lot of unforeseen circumstances that have occurred, as was mentioned earlier, Iraq and Afghanistan. And let us hope and pray that as permanent repeal occurs, if it occurs, in the outyears that we will not be in that war on terrorism. But I would say to my friend, and I appreciate the question, but he also mentioned the Department of Agriculture, and lest, Mr. Speaker, anyone wonder who those agricultural groups are that represent farm families across America, I would place into the RECORD a letter from said groups.

In essence, the letter reads as follows: The groups listed below support permanent estate tax repeal, ask for this body to vote for H.R. 8, and the letter goes on to say, individuals and families own virtually all of the farms and ranches that dot America's rural landscape. Death taxes threaten the transfer of these operations to the next generation of food and fiber producers. Sincerely, Alabama Farmers Federation, American Farm Bureau Federation, American Sheep Industry Association, the American Soybean Association, Farm Credit Council, National Association of Wheat Growers; to my friend from North Dakota, National Cattlemen's Beef Association, National Corn Growers Association, National Cotton Council, National Grain Sorghum Producers, National Milk Producers Federation, National Potato Council, USA Rice Producers Federation, U.S. Rice Producers Association, and the Western Peanut Growers Association.

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Mr. HULSHOF. Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, the gentleman just indicated that the Pomeroy substitute solves the problem once and for all, and I have listened to a number of individuals on the other side during the course of this discussion that this is only going to affect the superwealthy and that really there are no family businesses that are affected by the estate tax. It has been interesting, because some of those comments have come from colleagues of mine on the Committee on Ways and Means.

Mr. Speaker, we have had a number of hearings going back to at least, from my memory, 1997. So I will mention some of these folks who have come and testified in front of the Committee on Ways and Means.

Martin Whalen testified about his family-owned and -operated company, Etline Foods Corporation, a distributor of food service products in York, Pennsylvania. When they purchased the business, 48 employees; in 1997, 105 employees. Rhetorically, I would say to my friend from North Dakota, will this solve their problem?

Wayne Nelson, a farmer from Winner, South Dakota. His father farmed until his father's death in 1993. Their estate planning was inadequate. Several parcels of land in South Dakota were liquidated in order to pay the Federal tax. Will the substitute rectify that situation?

What about Roger Hannay of Hannay Reels, Incorporated, a small manufacturer in the foothills of the Catskill Mountains about 25 miles from Albany, New York, a small manufacturer employing 150 employees?

What about Richard Forrestal, Jr., a principal in Cold Spring Construction, a firm specializing in highway and bridge construction?

What about Douglas Stinson, a tree farmer from Toledo, Washington, that runs the Cowlitz Ridge Tree Farm? Each of these testified, Mr. Speaker, that they were impacted negatively by the existence of the death tax.

What about Carol Loop, Jr., president of Luke's Nursery and Greenhouses, a wholesale plant nursery operation in Jacksonville, Florida? He started his business with a $1,500 loan and a borrowed truck. Would the problem be solved with the Pomeroy substitute?

Or Christopher and Kimberly Clements of Golden Eagle Distributors in Tucson, Arizona. They lost their father unexpectedly after a valiant bout with cancer. He lost his life at the age of 58.

Or Jeannine Mizell, a third-generation owner of Mizell Lumber and Hardware Company of Kensington, Maryland.
What about Robert Sakata, a vegetable farmer from Brighton, Colorado, or Jean Stinson, a railroad track manufacturing company in Barto, Florida, running the R. W. Summers Railroad Contractors? Their family had to shut down a facility in North Carolina, laying off two-thirds of the 110 employees to pay the estate tax.

Or Jack Cakebread, founder of Cakebread Cellars in Napa Valley, California. Would each of these individuals be solved or their estate problems solved by the substitute?

It is a rhetorical question, and the gentleman from North Dakota (Mr. Pomeroy) knows it, and I do not mean to put him on the spot, but he cannot answer the question because when we draw a line, an arbitrary line, wherever we draw that line, we still are going to have those entrepreneurs that have been willing to invest in their businesses, hire employees, build local communities; and as long as the death tax remains in existence, they are going to have to do some sort of estate planning.

I think it is much the better course to completely and finally permanently repeal the tax.

Mr. Speaker, I reserve the balance of my time.

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Mr. HULSHOF. Mr. Speaker, I yield myself such time as I may consume.

As the gentleman from North Dakota recognizes; and, again, I do not think he meant to misspeak, but the underlying bill, H.R. 8, does provide a step up in basis of $3 million for the surviving spouse and a $1.3 million step up in basis for surviving heirs.

Mr. Speaker, many have worked on the death tax repeal and going back even to the, I think, Family Heritage Preservation Act of 1993. The gentleman from California introduced that bill and I think had 29 cosponsors. Now, of course, we are over 200 on permanent repeal.

Mr. Speaker, I yield 4 ½ minutes to the gentleman from California (Mr. Cox).

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Mr. HULSHOF. Mr. Speaker, I yield myself such time as I may consume.

Mr. Speaker, notwithstanding the gentleman's props, I would commend to him for his reading leisurely "The Economics of the Estate Tax: An Update," a Joint Economic Committee study dated June 2003 which in essence states the estate tax raises very little, if any, net revenue because of distortionary effects of the estate resulting in income tax losses roughly the same size as the revenue collected. Secondly, estate taxes force the development of environmentally sensitive land. Through 2001, 2.6 million acres of forest land were harvested and 1.3 million acres were sold every year to raise funds to pay the estate tax.

Regarding his criticism on philanthropy, the estate tax according to the Joint Economic Committee study, the estate tax may actually be one of the greatest obstacles to charitable giving as estate taxes crowd out charitable bequests.

Mr. Speaker, I yield two minutes to the gentleman from Iowa (Mr. Latham).

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Mr. HULSHOF. Mr. Speaker, I yield myself the balance of the time.

Let me first say, Mr. Speaker, how much I appreciate my friend from North Dakota as we have done this in a number of sessions of Congress, and I appreciate the tone, and he is a friend of mine, and I have a lot of respect for him and the intent with which he comes to this debate.

Let me answer a couple of points that have been raised in particular, first of all, about the tax simplification. Tax day is 2 days away, and I am sure taxpayers, in particular small businesses and family farmers, would appreciate anything that we can do to simplify our tax laws, and I would submit that permanent repeal of the death tax does just that.

In fact, H.R. 8 is one simple paragraph, and it reads as follows: "Section 901 of the Economic Growth and Tax Relief Reconciliation Act of 2001 shall not apply to title V of such Act." Basically, we repeal the sunset.

Now, again, the gentleman from North Dakota's (Mr. Pomeroy) substitute, I counted, and I hope I am counting correctly, but 40 subparagraphs and directing accountants and the like to this subparagraph or that particular paragraph.

The reason that we are here is because of complicated and arcane Senate budget rules, called the Byrd rule, that we phase out the death tax for one single year. In 2010, it magically disappears, and then on January 1 of 2011 it springs back to life, and the uncertainty, how would one as an estate planner advise a client when the tax is gone today and comes back again in the very next year? By making death tax repeal permanent, we give taxpayers the certainty they need to make those long-term financial decisions.

The form itself, the blank form I am holding here, Form 706, is 40 pages in length for the estate tax return, 40 pages in length, and it comes with a handy dandy 30-page instruction booklet. So when one is talking about simplification, what better simplification would there be than ripping these pages dealing with the estate tax completely out of the Internal Revenue Code?

Lastly, when it comes down to the nuts and bolts of it, whether or not the Pomeroy substitute, and again, in the effort to pursue the American dream, whether those businesses are going to be shielded by the Pomeroy substitute or not shielded, the fact is that as long as the tax is on the books, as long as Congress draws some line in the sand, and that is all we are doing with the substitute, is just some arbitrary line, we are still going to have those family businesses that are going to be taking some of their resources and these convoluted schemes, legal, but efforts to avoid the tax.

Again, we hear a lot about these very high-profile individuals who have been successful. I mean, this is the land of opportunity, is it not? I would submit to my colleagues that the billionaires and the top of the Fortune 500 lists, those folks have a stable full of lawyers and accountants to create this intricate estate plan to thwart the estate tax.

Not so, and I go back to the original discussion, that small family in Columbia, Missouri, the Eiffert family who spends $52,000 a year just to buy term life insurance because they might have to face the estate tax. Under the current law, or probably even under the gentleman from North Dakota's (Mr. Pomeroy) substitute, there is no certainty for families like the Eiffert family.

So I salute my colleague.

The gentleman from Illinois (Mr. Emanuel), again a colleague of mine on the Committee on Ways and Means, said, why are not we debating real reform? Interestingly, there is a lot of discussion. I am not here to advocate one particular tax reform proposal because we have got this blue ribbon panel that is happening and looking at various options. There is a lot of talk about the consumption tax, and yet it is notable that, while there may be support for the idea of a general consumption tax, the death tax, by contrast, is a tax on nonconsumption.

We talk a lot, too, about sin taxes. Why can we not put taxes on alcohol or on cigarettes and the like and whether or not that generates support among certain groups. This death tax is a tax on virtue. In other words, if you work hard, you play by the rules, if you scrape together your savings, and, again, we as an industrialized Nation, not only do we have even under the Pomeroy substitute a 47 percent death tax rate which would be the second highest in the world, but the fact is that we are not very good at savings and investments. In fact, if you are looking at your 1040 right now, look at line eight because it says if you have been thrifty and you are able to generate a little interest income, guess what, Uncle Sam says put this amount here because we are going to take our bite of the apple.

Permanent repeal of the death tax actually rewards virtue.

Let me just paraphrase a column recently, actually it was some years ago but I think republished recently by Professor Edward J. McCaffery. He is a professor who says this: "As a committed liberal myself, I used to believe that the gift and estate tax was essential to a just society. But as a former estate planner and a scholar in both law and economics, I confess that I was mistaken. The gift and estate tax is quite simply a bad tax, even, and maybe especially, when viewed from a liberal perspective."

Professor McCaffrey goes on and says, "This is not a supply-side argument but a moral one. People who die with large amounts of wealth have done three good things for society. They have exercised their talents, rather than living a life of leisure. They have saved, contributing to a common pool of capital whose benefits manifest, for example, in lower interest rates, inure to all. And they have refrained from spending all of their wealth on themselves."

In fact, Professor McCaffrey across the Capitol some years ago I think before the Senate Finance Committee said, to paraphrase Scripture, the reason he changed his mind, I was blind but now I see.

If this comes from an unrequited liberal that the estate tax, the death tax, is a bad tax, then I would suggest to all of my colleagues here that it is time to permanently and completely repeal the tax.

Finally, I would say to my friend again, because there has been some discussion about creating a new tax, as the gentleman knows, the intent of H.R. 8, the underlying bill, is to help make it easier to pass a family business from one generation to the next. As we have heard from nonpartisan groups, 70 percent of family businesses do not make it to a second generation, 87 percent of family businesses do not make it to a third generation, and often the reason cited is because of this very confiscatory punitive tax called the death tax.

The fact is that under H.R. 8, if it were to pass and become the law of the land, the tax rate imposed at death on a lifetime of work and thrift is zero percent. Under my friend's substitute amendment, the rate imposed would be locked in at 47 percent.

Now I mentioned my personal experience, and I am running our family farm. If a surviving heir chooses not to farm and then makes the conscious decision to dispose of assets, then that is a taxable event, but that is a purposeful decision made by the heirs of that family business owner. It is not the Federal Government requiring the death of a family member to be a taxable event.

So I would simply say to all of my colleagues that death should not be a taxable event, period. Under the underlying bill of H.R. 8, it would no longer be a taxable event. Under the substitute from my friend, individuals above an arbitrary line drawn by this body, death would continue to be an event that triggers the Federal death tax. That is why prominent organizations such as the Chamber of Commerce, National Federation of Independent Business, American Farm Bureau Federation and a host of other small business coalition members, representing the interest of small businesses and family farms across the country, support H.R. 8 and oppose my friend from North Dakota's substitute.

I urge a "no" on the substitute and a "yes" on the underlying bill

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