Mr. President, I want to make a few comments regarding the need to repeal the estate tax. The United States has had an estate or death tax of some form since 1916. The current version of the death tax came into existence after the Tax Reform Act of 1976. This change combined the estate and gift tax structures in one gift and estate tax system, which is essentially a wealth transfer tax. Of course, that's what many on the other side stand for: they want to transfer your money to the federal government so they can decide how your money will be spent.
The Public Interest Institute at Iowa Wesleyan College has recently released a Policy Study entitled, "A Declaration of Independence from Death Taxation: A Bipartisan Appeal." The director of the Institute is Dr. Don Racheter, who I know and respect very much. I'd like to thank Dr. Don Racheter for his help with providing this information.
The study was written by Edward McCaffery of the University of Southern California Law School and Richard Wagner of George Mason University. I'd like to just mention three points made by the study. These three points show from both a liberal and conservative perspective that the death tax should be repealed.
First, we've heard the other side argue that this repeal really only affects the wealthiest of taxpayers. So, once again, the other side has rolled out the old, tired class warfare argument. The fact is the death tax affects nearly everyone, not just the wealthy. In fact, a 1999 poll showed that 84 percent of the people surveyed believe the estate tax affects other groups of Americans besides the wealthy. Anyone who owns a family business knows that the estate tax creates major hurdles for small and large family-owned enterprises, which in turn negatively affects local communities.
While only about two percent of inherited estates are large enough to actually fall under the death tax, millions more people have to spend substantial amounts of time and money planning their way around it.
All of society loses opportunities by these avoidance procedures. Such tactics are costly, inefficient, and they monopolize many professionals who could be spending their time on more productive endeavors.
The study also shows the death tax damages the patterns of work, savings, and capital formation by encouraging taxpayers to slow their work and savings, give money away whenever possible, and spend the rest so they can die broke. By encouraging people to avoid this tax, we are damaging the entire system.
A second point the study makes is that the death tax does not provide the government with extra funds for social purposes, which our friends on the other side have been advocating. It only generates .01 to .0125% of the federal budget. More importantly, the amount of revenue collected from death tax filings has a negative impact on other forms of tax revenue and cash flow. This includes restricted savings and capital formation, hindered creation and growth of private family enterprises, lower amount of jobs, and a lower personal income. These effects lead to the loss of revenue from income taxes which is equal to or greater than that collected from the death tax. So, when you add up the cost of collecting for the death tax, we do not gain much, if anything for our efforts.
I've heard these Treasury numbers of a $750 billion cost over 20 years or so from the other side. The Minority Leader mentioned the $750 billion number. Then, the senator from Minnesota, Senator Wellstone, upped it to $850 billion. Then, we heard Senator Boxer come up with a trillion dollar number. Among the three of them, they've already lost $250 billion!
And, of course, this close to the election, the Treasury Department is acting like an arm of the Democratic Party throwing numbers out of thin air to justify their cause. These estimates are about as believable as a Treasury three-dollar bill. It's important to remember that many estates will lose their stepped-up basis under this repeal bill. Then, once the assets are sold, there will be a sizeable capital gains tax on the entire appreciated value of the estate. So, the government will still get a substantial amount of money from these estates over the long run, despite what the Treasury Department and the other side would have you believe.
Finally, we hear the argument that if the estate tax didn't exist, taxpayers would give less to charity since they wouldn't have to avoid the tax. I hope no one took seriously the so-called estimates that the senator from California alluded to, citing some ambiguous Finance Committee estimates that charities would lose $250 billion if the estate tax is repealed. I assume these estimates were created by the other side. So, once again, we have the Democrats conjuring up their own facts to make their arguments.
Beyond the cynicism of this charitable giving argument, the study argues that the tax exemption for charitable giving does not necessarily benefit private philanthropy. If encouraging charitable giving is going to be the goal of a tax, more specific income tax laws need to be made.
The study makes the point that this charitable giving claim is based on the assumption that the tax works as a subsidy to charitable bequests. In reality, the cost of one dollar of giving, no matter the tax rate, is one dollar. The death tax is neutral towards charitable bequests as long as those bequests are exempt from tax. Keeping a complicated death tax to encourage charitable giving is not worth the economic and social costs to the government and the taxpayers.
Mr. President, the estate tax does not accomplish any of the goals it's supposed to. It doesn't raise money overall, or promote well-being. It stands in the way of human progress and encourages wasteful and time-consuming financial planning. I hope we repeal this complicated and inefficient tax, and I urge everyone to support this effort.