Wednesday, June 8, 2006

U.S. Senator Johnny Isakson (R-GA)
Floor Statement on Repealing the Estate Tax  
Remarks as Delivered on the Senate Floor

Mr. President, Senator Sessions is absolutely correct, Senator Gregg is absolutely correct, and this Senate will be absolutely correct if we vote to go to cloture so we can proceed on the total repeal, or at least an additional repeal, of the estate tax. There are a lot of reasons, but I want to try and make my point succinctly and I want to make it briefly because I want to point out how punitive the estate tax is today.

Most Americans are employed by small business; 75, 76, 77 percent of all Americans are employed by small business. It may be a restaurant, it may be a laundry, it may be a farm, it may be a construction company, it may be a utility contractor just like the ones that are in town today lobbying all of us for the best interests of their business. Most people work a lifetime to build a business. They employ people to whom they pay income. The people to whom they pay income pay income taxes. Yet when the tragedy of death comes, an individual owner of a small business dies, immediately they are confronted with one of the most punitive and confiscatory taxes that has ever been devised in the history of taxation.

Granted, we did a good job when we passed the accelerated improvements in the unified credit or the deduction on the estate tax. This year, based on the bill we passed a few years ago, there is a $2 million exemption, and that is a help, and it goes to $3.5 million in a couple of years. Then, magically, the estate tax is repealed in 2010, only to return to us a year later, to return to us at 55 percent. So we are asking people who work a lifetime to save and build a business, to plan, based on a tax that is here today, gone tomorrow, and then returns with a vengeance a year later.

To best illustrate what the estate tax does to American small business, ranchers, and family farmers, I would like to do a little demonstration on the Senate floor. For the sake of argument, let's just round the 55 percent estate tax off to 50 percent, and let's assume for a moment that a small business owner, a family farmer, passes away and dies and their estate becomes taxed at 50 percent. After the credit that is available now, or when we get back to 2011, no credit at all, the United States of America and the department of revenue, the IRS, want to tell the heirs of that estate that within 9 months of the death of that individual, they want this much of that person's estate. If one sheet of paper is the whole estate, they want half of it in taxation.

So when the first generation owner of a small business passes that business on to the second generation, after the Government gets its half, there is only this much left.

Let's assume that family is able, because of savings and because of borrowing and because of productivity, to pay that 50 percent tax without liquidating the business, and that second generation small business owner operates that business, employs the workers in that business, pays them the income that pays the taxes, but let's assume that second generation person meets their demise. And when they die, before they can pass that family business on to the next generation, once again, the IRS gets half of what is left.

So in two generations, what was a full estate ends up with three-fourths of it going to the United States Government, and one-fourth of it left to the individual or family. Of course, that is in reality not really what happens because before that last passing takes place, that business is sold or liquidated, or it is leveraged to such an extent that the amount of cost of the debt service on the leverage makes that business go from profitable to unprofitable. That is why the estate tax is punitive. That is why it is wrong for this country.

I want to address another point that Senator Sessions made that is so important for us to focus on as we listen to the two sides of this debate tonight and tomorrow. You will have some come and they will take that score on how much the repeal is going to cost us, and they will talk about that score, saying that is a reason we should not repeal the estate tax or the death tax. I submit, as Senator Sessions did, that score is dead wrong because just as the scoring of the reduction in the capital gains tax was dead wrong a few years ago, this scoring is equally dead wrong and it is wrong for this reason: If that family business that was reduced to almost nothing has to be sold, then along with what is sold is the jobs that went with it, the income that went with it, and the future taxes that were paid because of it.

Think of this for a second. If someone has stock they have to sell and liquidate in order to pay the one-time capital gains tax, then it is gone forever from the standpoint of the income production that they otherwise would pay with dividends year in and year out. Wouldn't we rather have people hold assets such as businesses and stocks and real estate and pay taxes on its profitability and its income year after year after year? Wouldn't we rather that happen than all at once to take 50 percent, cause the business to be sold, the stock to be liquidated, the real estate to be divided, and the revenue never to be paid again? It is short-sighted and it is wrong.

I hope the Members of the Senate, when we come to the cloture vote tomorrow, will recognize the death tax is the third bite of the apple. We charge people income tax when they earn income, with what is left they make investments, and then as those investments pay dividends or pay income, we tax that, and then we say: When you die, we want half of that asset. It is wrong. It is wrong for individuals, it is wrong for family farmers, it is wrong for landowners, and it is wrong for America.

I urge all of my colleagues when the cloture vote comes tomorrow to vote yes to bring about a meaningful debate on the repeal of the estate tax or the death tax, and let's take that third bite of the apple away from the Government and put it back in the hands of the people, so those assets, farms, and investments can be productive, not just for one year, but for a lifetime.