REFORMING AND ABOLISHING THE ESTATE TAX

Testimony of
Senator Chuck Hagel

Senate Agriculture Committee

February 25, 1997

Mr. Chairman, thank you for calling this hearing today and for allowing me to testify. It is appropriate that we are discussing the estate tax in the Senate Agriculture Committee because the estate tax is one of the great threats to the long-term survival of rural America -- a place where roots are deep, pride of ownership is strong, and family farms and small businesses are a way of life that has been handed down from parents to children for generations.

The estate tax is the most unfair, most punitive, anti-growth and un-American tax we have -- and we have a lot of those types of taxes! It says to our people: Go ahead, work hard, pay your taxes, save, plan and build something for your family's future. But realize that when you die, the government gets its share first.

The estate tax also perpetuates cheating and injustice. It turns taxes into a beat-thesystem game where those with the best lawyers and accountants win, and the vast majority of middle-class Americans lose.

We all know too many stories of second- and third-generation farmers, ranchers and small business owners run out of business by oppressive estate taxes. The high value of their assets triggers the estate tax, but their low cash flow makes it impossible to pay. So they have to sell their asset to pay the taxes.

We need to abolish the estate tax. We should phase it out completely over eight years. At a bare minimum, we should take immediate steps to lift the estate tax burden from farmers, ranchers and small businesses by increasing the unified credit and significantly increasing the size of an estate that can pass tax-free.

Mr. Chairman, I commend you for your leadership in putting alternatives before the Senate. I am a cosponsor of each of your estate-tax reform bills, as well as a cosponsor of our distinguished colleague Senator Kyl's legislation.

I feel strongly about this subject because the estate tax is among the least sensible of all taxes we pay. Estate taxes provide the federal government with less than I percent of its tax receipts, but eat up 8 percent of America's savings. By one recent estimate, if we repealed estate taxes today, our gross domestic product would be at least $80 billion larger seven years from now. It has also been projected that trillions of dollars of potential productivity and capital investment are locked up in America because of this tax.

But the real problem with the estate tax is not about economics. It is about real people. Let me relate an example from my state of Nebraska:

This is the story of David Pankonin, the fourth-generation owner of Pankonin's, Inc. Dave's story was featured last year in the Wall Street Journal. His great-grandfather established their retail farm equipment company in 1883 in Louisville, Nebraska. The business has been handed down three times through his family, and David hopes someday he can hand it down yet again--to his son. But he worries because the odds--and the estate tax laws-- are against him. Only 30 percent of businesses survive a first intergenerational transfer. Only 4 percent survive to the next generation. ' A third transfer--the transfer that put Pankonin's, Inc., in David's hands--puts the business's survival odds at less than 1 percent. Now David worries about his business surviving the next transfer. In his words: "Will I be able to pass the company inherited from my father along to my son or, in spite of what my will might say, am I just working hard to pay an heir called Uncle Sam?"

Mr. Chairman, people like David Pankonin look to us for leadership--and for help.

A year ago, Mike Royko--the syndicated columnist--compared estate taxes to a kind of grave robbing that "is legal and socially acceptable." I would ask that a copy of that column be included in the record.

The truth is that estate taxes are not socially acceptable, and they should not be legal. The government should not be entitled to a share of the assets of American families simply because there is a funeral.

Estate tax reform is about making sure that what hard-working men and women build for their future and their children's future, and for America's future -- the American Dream -- not be confiscated by the government just because that's the law.

This law is wrong. This law needs to be changed. We owe it to the millions of Americans who have built this country and who have made it stronger and better. We owe it to their children so they too can continue to build America on the same farms and ranches and in the same small businesses as their parents and grandparents.

Thank you, Mr. Chairman.