Kent Conrad

Mr. CONRAD

Mr. CONRAD. Yes. I will get the Senator a copy of the analysis on that.

Mr. CONRAD. Mr. President, this afternoon we begin a very important debate on the question of the estate tax. My friends on the other side characterize it as a death tax. It is really not. There is no such thing as a death tax in America. Nobody pays taxes at death. There is an estate tax. For estates over a certain amount, they contribute to the revenue of the Federal Government by paying an estate tax. The problem with the current estate tax is that it cuts in at too low a level. Currently, estates begin to be taxed at about $1 million. The fact is, only about 2 percent of all estates pay any tax, even under that circumstance. But with what has happened in the national economy, many of us believe we do need to reform the estate tax--not eliminate it but reform it. Why? First of all, because it is not fair to have the estate tax cut in at that level, given the increase in assets that has occurred in the country in the last decade. At the same time, it does not make much sense to us to eliminate the estate tax completely because of the cost. What our friends on the other side of the aisle are proposing is a $100 billion cost in this decade and a $740 billion cost in the next decade, right at the time the baby boom generation retires--all of this in the context of budget deficits as far as we can see. I believe we ought to reform the estate tax. I believe we ought to increase the level at which it cuts in on individuals and their families. But to eliminate the estate tax and dig the deficit hole deeper, put us deeper into debt and take it all out of Social Security, I do not think is defensible. Last year, the President said this about paying down the debt: My budget pays down a record amount of national debt. We will pay off $2 trillion of debt over the next decade. That will be the largest debt reduction of any country, ever. Future generations should not be forced to pay back money that we have borrowed. We owe this kind of responsibility to our children and grandchildren. What a difference a year makes, because just a few hours ago we responded to the President's request for the biggest increase in the debt--the second biggest increase in the debt in our Nation's history. That is what we did just hours ago. Has this Chamber already forgotten? Have we already forgotten that we just responded to the President, who said he was going to pay down the biggest amount of debt in our Nation's history, in fact he said the biggest amount of any country ever? And now, just 2 hours ago, 3 hours ago, we responded to his request for not debt paydown but the biggest expansion of the debt--the second biggest expansion in our Nation's history? Here is the comparison. The only time we had a bigger increase in the debt than what the President is seeking was when his father was President. When his father was President, we had to increase the debt by $915 billion, in November of 1990. Now this President comes and asks for a $750 billion increase in the debt. That is after telling us last year he was going to pay down the debt by the maximum amount possible, the biggest of any country ever. Last year, the President told us it would be 7 years before we would have to increase any debt. In August of last year, he told us it would be 3 years before any increase in the debt. In December 2001, he told us 2 months. Right now, the Treasury Department is using extraordinary means to finance the debt of the United States. They are taking from the retirement funds of Federal employees to cover the Federal debt. Let me say this. If any private company tried that, they would be on their way to a Federal facility, but it would not be the White House of the United States, it would not be the Congress of the United States, they would be on their way to a Federal penitentiary because that is a violation of Federal law. But that is what is going on right now. You recall in the previous administration they did that for a short time and in the House of Representatives our friends across the aisle filed impeachment proceedings against the Secretary of the Treasury for doing what this Secretary of the Treasury is now doing. Can we forget what just happened a few hours ago, when there was a vote here to increase the debt of the United States by $450 billion? The President requested $750 billion in increased debt. We increased it $450 billion. Mr. President, how much time do I have remaining?

Mr. CONRAD. Mr. President, remember last year? We have to put this in context. We have to think about the circumstance within which we are making decisions. Last year, we were told there was going to be $5.6 trillion of surpluses over the next decade. That is what we were told just last year. Now we look at the budget circumstance of the United States, and the surpluses are all gone. There are no surpluses. In fact, if we look at the President's budget and we look at the latest shortfall in revenues and we look at the stimulus package just passed, what we see over the next decade is not $5.6 trillion of surpluses, what we see is $600 billion of deficits. It is a pretty stunning turnaround. In 1 year we go from $5.6 trillion of surpluses to $600 billion of deficits. And our friends on the other side want to dig the hole much deeper--much deeper--by adding $100 billion, and another cost in the next 10 years of $740 billion, right at the time the baby boom generation retires. It does not make much sense to me to eliminate this estate tax instead of reforming it. Yes, let's address the problems that exist with the estate tax. Let's increase the amount of the exemption in a responsible and rational way. But let's not dig the hole deeper and deeper with respect to the deficits and debt of this country. Here is where we are, looking back to 1992, when there were deep deficits, not counting Social Security. We were able, over a period of years, to pull our country out of this deficit and debt morass. We were able to run surpluses for 3 years. But look at what happened last year. We are right back in the soup. For anybody who thinks it is going to be short-lived, here is the hard reality. We are poised to be back in deficit for the entire next decade--billions, hundreds of billions of dollars of deficit and debt. Again, I say our friends on the other side, in their proposal, say: Don't worry about that; don't worry about all this red ink; don't worry about all these deficits; don't worry about piling up the debt; let's just go out there and cut some more taxes and not pay for it. That is their answer. They will add another $100 billion to these deficits over the next decade. But what is really stunning is in the second 10-year period they would take another $740 billion right out of Social Security trust funds. There is an alternative that deals both with the question of reforming the estate tax and making it more fair and at the same time reducing the cost dramatically over what our friends on the other side of the aisle are proposing. What I am proposing is immediate relief. Take the estate tax exemption to $3 million next year--$1 million now, and increase that to $3 million next year--$6 million for a couple for 2009, and thereafter the exemption would increase to $3.5 million. The maximum estate tax rate would be frozen at 50 percent. We retain the stepped-up basis. Mr. President, I ask for an additional 3\1/2\ minutes and for the other side as well.

Mr. CONRAD. Mr. President, we have retained the stepped-up basis. The other side's proposal goes to what is called a carryover basis. This is a hugely important issue that people should understand. We will have a chance to go into it as we proceed. Let me say at this point that in a stepped-up basis, when a relative dies, you inherit their property at its value at the time they die. That is a very important concept to understand. Let me repeat it. Under a stepped-up basis, you pay future taxes based on the value of the property of the loved one that is giving you the property. You pay on the basis of the value of the property at the time they died--not what they paid for it but the value at the time they died. Under the alternative proposal offered on the other side, you are going to go to what is called a carryover basis. You are not going to pay future taxes based on the value at the time that your relative died. You are going to go back to the value of what they paid for it. Let us say you inherit a farm. You don't inherit the value of the farm at the time your father died or your grandfather died. You are going to pay future taxes based on what they paid for the property. There is a big difference between our proposals. It is an accounting nightmare. What our friends are proposing we tried before--the carryover basis, going back to what grandpa paid for a property. It was an administrative nightmare for all concerned. And we quickly abandoned it. They want to go back to the bad, old days. Not only does this proposal fundamentally reform the estate tax and make it more fair and avoid going to carryover basis, but it also saves hundreds of billions of dollars in the second decade. In this decade it saves $87 billion. The cost of our proposal in this decade is $12.5 billion. The cost of their proposal is $99.4 billion. Under the proposal I am making, by 2009, only .3 percent of estates will face any estate tax liability. That means 99.7 percent of estates would pay zero, nothing, have no estate tax liability. We will have more to say about this as we go forward. At this point, I want to yield the floor so my colleague from Arizona, Senator Kyl, can have a chance at this initial moment to speak on this subject.

Mr. CONRAD. Will the Senator yield?

Mr. CONRAD. The amount that the Senator refers to is not over the budget. Every penny of the money in the farm bill is within the budget. Does he acknowledge that?

Mr. CONRAD. I inquire as to the time.

Mr. CONRAD. Do I have time on my side?

Mr. CONRAD. Mr. President, I have already described what my amendment does. I will use the first part of my time to answer the very creative arguments made by my colleagues on the other side. I have never heard such imaginative arguments on the Senate floor. This is really intriguing. They start out by justifying eliminating the estate tax by an attack on the farm bill, saying the farm bill was over the budget and, therefore, what does it matter if we take another $700 billion out of Social Security in order to eliminate the estate tax. How soon they have forgotten their own votes. They voted for the farm bill budget which they decry. Yes, they did. The farm bill budget was provided for in the last budget resolution. Our colleagues on the other side of the aisle voted aye. They voted for the Republican budget resolution. The Republican budget resolution passed on the floor of the Senate was their resolution. Their colleagues in the House passed exactly the same budget resolution. Do you know what else? Their President proposed a budget with exactly that amount of money in it for the farm bill. I hate to rain on their parade, but they supported the Republican budget resolution that funded the farm bill. That was their budget resolution. That was their proposal. They voted for it. Now they come out here and attack it. They should have been here voting against their own budget resolution because that is what provided the budget for the new farm bill. The Senator from Texas talks about the bill that just passed that was requested by the President. He has attacked the supplemental appropriations bill that was requested by the President. The difference between what we passed here, which he attacks, and what the House of Representatives passed, according to the Congressional Budget Office, is $1.3 billion, not the $10 billion to which he referred. The $10 billion he referred to is an absolute myth. There is $1.3 billion of difference between what the Senate passed and the House passed. By the way, the President praised what the House passed and condemned what the Senate passed. In a $30 billion bill, there was only $1 billion difference. Where is the difference? The Senate bill has more money for first responders, the policemen and the firemen we expect to protect this Nation, a $600 million difference there. There was $300 million more in the Senate bill than the House bill to protect our nuclear facilities. Has anybody read the paper the last few days? Of what did the administration warn us? They warned us of a ``dirty'' bomb attack on the Capitol of the United States. What is a ``dirty'' bomb? It is a regular bomb with nuclear fissile material around it. Do you know what would happen if that kind of bomb were dropped in the vicinity of the Capitol? The former Vice Chairman of the Joint Chiefs of Staff, Admiral Owens, told me in a breakfast just 2 weeks ago, it would make the Capitol area uninhabitable in a mile circumference for 400 years. From where might that nuclear fissile material come? It might come from our own labs. That is why the Senate added $300 million to protect our nuclear facilities and added $650 million for our first responders--our policemen and firemen--and added another $700 million to protect our ports, because one of the things we know is that nuclear fissile material might come into this country everyday in thousands of containers. And only 2 percent are checked. So is this some big, wasteful spending program to protect our nuclear facilities, to protect our ports and to provide funding to our first responders? I don't think so. That is the difference between the House bill the President praised and the Senate bill that the President attacked. There is no $10 billion difference. That is total fiction. Let's go back to the question of the fundamental issue before us. Is spending a threat to our fiscal future? Absolutely. But our fiscal future is determined not just by spending, but by the relationship between spending and revenue. Deficits are created by an imbalance between spending and revenue. You only have deficits when you spend more than your income. We know the circumstance we face as a nation. It has become abundantly clear to all of us. We face a circumstance in which we see in our future an ocean of red ink. Here it is. We go back to 1992 on this chart. We were facing deficits, not counting Social Security, of $341 billion. In 1993, we passed a 5-year plan that started lifting us out of deficit. By the way, not one of our friends on the other side voted for it. It was the plan that started lifting us out of deficit. Each year, we were coming out of deficit. Then in 1997, on a bipartisan basis, we passed a plan that finished the job. We actually got back into surplus. We were there for 3 years, and then we got plunged back into the deficit hole by the events of last year: No. 1, the tax cut advocated by our friends on the other side; No. 2, the attack on this country; No. 3, the economic slowdown. When you wonder where the surpluses went, here is what we find: 42 percent went to the tax cuts that were passed last year; 23 percent went to the economic slowdown; 18 percent went to the increased costs of the attack on our country; 17 percent are due to technical changes, mostly underestimations of the cost of Medicare and Medicaid. We have before us a fundamental question: How are we going to deal with this ocean of red ink? Our friends on the other side say: Well, let's keep digging the hole deeper. It doesn't matter. We were for eliminating the estate tax last year, and we are still for it. It doesn't matter that the surpluses have evaporated. It doesn't matter that the money is all gone. We are going to stay steady on this course--even if the course leads to insolvency. It doesn't matter that just a few hours ago this Chamber voted to increase the debt of the United States by $450 billion. That is after the President and our friends on the other side promised us last year that they had a financial plan that was going to lead to the maximum paydown of our debt. That is what they said a year ago. They had a plan that would lead to the maximum paydown of the debt. Now they have asked for the second biggest increase in the debt in our Nation's history. They told us a year ago that we would have surpluses of $5.6 trillion in the next decade. Now the money is all gone. Instead of surpluses, there are deficits. That is the hard reality. So the question before us is, what do we do about the estate tax? Let me stipulate that they have one part of this argument right. We need to change the estate tax. We should not leave it the way it is. We should not let it hit people with a million dollars of assets. We ought to increase it. That is what my proposal does. My proposal goes to $3 million next year, $6 million for a couple. You don't have to wait until 2007, as you do under their proposal. We go to $3 million for an individual and $6 million for a couple next year. You don't have to pay a penny of estate tax. In 2009, we go to $3.9 million. On their side, they talk about how much they care about helping people. But they want to wait. They want to wait. I don't want to wait. I want to go to $3 million for an individual, $6 million for a couple next year. Give them the estate tax relief they deserve. Don't eliminate it. Don't say to the wealthiest among us--the super wealthy-- you don't ever have to face any estate tax. Why? Because it costs too much, Mr. President. Their proposal costs $99 billion--$99 billion in this decade. The proposal I am making costs $12.6 billion in this decade. So it seems to me it is a pretty good proposal. No. 1, it gives immediate and substantial relief to estates by going from a million dollars of exemption to $3 million for an individual, $6 million a couple, not in 2007 or in 2008, but next year. No. 2, it costs a lot less because you don't eliminate the estate tax, you reform it. Their plan costs $99.4 billion. Mine costs $12.6 billion. Mine includes a stepped-up basis rather than a carryover basis. I know that is confusing and I know those are words most people don't use. What it means is simply this: Under my plan, you will pay future taxes based on the value of the assets you inherit at the time you inherit them. You will not be paying taxes based on what grandpa paid for the asset you inherited. Think of the difference. Not only is that a big tax difference, that is a big difference in terms of practicality and simplification. We tried what they are proposing, this idea of carryover basis, this idea that you are going to go back to the value of what grandpa paid for the farm, of what grandpa paid for the stock, of what grandpa paid for the real estate. Do you know what we found? Most people don't even have the records. Most people don't even know what grandpa paid. Most people don't have any idea, and they can't find out because it happened 30 or 40 or 50 years ago. We tried this. We tried what they are proposing. It was an administrative disaster, an administrative nightmare. We will hear the other side saying that these assets have already been taxed. The fact is, an analysis has been done. The vast majority of these assets have never been taxed. Yet they say it is double-dipping. Most of these cases are assets that have never been taxed. I believe the proposal that----

Mr. CONRAD. Yes.

Mr. CONRAD. The hard reality is that we have to make choices. We ought to reform the estate tax. We ought to increase the amount of exemption. We should not wait for 2007 and 2008. We ought to do it now. Under my proposal, we go to $3 million from $1 million today for an individual, $6 million for a couple. At the same time, it costs a lot less. That means we do protect Social Security. We do protect the financial structure of this Government. We are fiscally responsible. Mr. President, I yield the floor.

Mr. CONRAD. I will be happy to do that. Maybe I will take a minute.

Mr. CONRAD. Mr. President, we have heard a lot from the other side about spending running away. If we examine the budget before us, all of the increase is in two areas: defense and homeland security. Both sides of the aisle have supported those increases. The President proposed major increases in defense spending after the attack on this country. Those of us on our side of the aisle immediately agreed. The President proposed major increases in homeland security. Those on our side of the aisle immediately agreed. There are big increases in spending, but every part of that increase is in those two areas of defense and homeland security. That is where the big increases are occurring, and I think it is understandable why we have big increases in defense proposed by the President and agreed to by our side of the aisle. I think it is very easily understood why we have a big increase in homeland security proposed by the President and agreed to by our side of the aisle.

Mr. CONRAD. Yes, I would be happy to yield.

Mr. CONRAD. Yes. Actually, the Senator will recall, we were told a year ago that we were going to have $5.6 trillion of surpluses over the next decade. That is what we were told a year ago, January of 2001, $5.6 trillion of surpluses. Now when we look at the President's budget proposal, plus the shortfall in revenue in this filing season, plus the stimulus bill that has been passed, there are no surpluses, none. Remember, about half of this money was Social Security money. In other words, $2.5 billion of this amount of surpluses is Social Security money. It is all being used for other purposes now. When the Senator from Arizona says it does not matter about the estate tax and Social Security because estate tax money is not used for Social Security, the point he misses is when money is taken out of the revenue stream, and there already is not enough to meet the obligations and now even more money is taken, something has to give. What is the one place that is left to give?

Mr. CONRAD. The Social Security trust fund. So he can say there is no connection, but there is a very direct connection. There is a very real connection. The only place there is any money is the Social Security trust fund. So if he takes a big chunk more of revenue, how is it going to get covered?

Mr. CONRAD. I would be happy to.

Mr. CONRAD. There is no question about it. If we look at, where did all the money go, here is where it went. Our friends on the other side like to say it all went to spending. No, no, no. Forty-two percent went to the tax cut. That is the biggest reason for the disappearance of the surplus. The second biggest reason is economic changes. That is the economic slowdown. That is the second biggest reason. The third biggest reason is spending, and virtually all of it is defense and homeland security. The final reason was underestimations of the cost of Medicare and Medicaid. That is where the money went.

Mr. CONRAD. Sure.

Mr. CONRAD. I am. I say to my colleague, I looked at the increases because, frankly, there were parts of that bill that I did not support. I voted against a number of the provisions in that bill. If one is fair and objective about what was offered, where did the increases occur? According to the Congressional Budget Office, the difference between the Senate-passed bill and the House-passed bill is $1.4 billion, not the $10 billion that is being discussed on the other side; $1.4 billion of differences between the House bill and the Senate bill when scored consistently by the Congressional Budget Office. Where were the differences? First responders, $600 million more in the Senate bill; nuclear facilities, $300 million more to protect our nuclear facilities; port security, $700 million more. If anybody has been reading the newspapers, they know there is a tremendous vulnerability of the United States to a so-called ``dirty'' bomb that would make this Capital uninhabitable for 400 years. I do not think it is unreasonable to say we are going to protect the nuclear facilities where that fissile material might come from, that we are going to protect the ports of America where those threats could come in to America. Another $250 million was added for airport security to protect against these materials coming into the airports of the country in the holds of planes. I say to my colleagues, that is spending that was designed to protect America.

Mr. CONRAD. It not only closed down a major office building in the Senate but closed down post offices and closed down businesses.

Mr. CONRAD. Killed people. Now that we know a significant part of the planning by the al-Qaida network is bioterrorism, we know that a significant part of the planning of the al-Qaida network is a ``dirty'' nuclear device to be dropped on this Nation's Capital, we cannot choose to turn our backs and not worry about defending the country. Our first obligation as United States Senators is to defend this Nation.

Mr. CONRAD. Yes.

Mr. CONRAD. I ask my colleague, are there times when money is spent inappropriately? Absolutely. Do we need to restrain spending? Absolutely. Under the budget proposal I made to my colleagues, we would take spending to the lowest level since 1966. I applaud the Senator from Texas and the Senator from Arizona for saying we have to restrain spending. There is no way out of this hole that has been dug except to look at both sides of the equation--spending and revenue. To eliminate the estate tax that costs $99 billion under their proposal, when instead we could reform the estate tax and increase the exemption to $3 million for an individual, $6 million for a couple, at a cost of one-eighth as much, a cost of $12.5 billion instead of $99 billion, makes no earthly sense to me. I hope we think carefully about these votes and what it means for the financial future of the country. I yield the floor.

Mr. CONRAD

Mr. CONRAD. Madam President, I voted against S. 2578, a bill that would increase the public debt limit by $450 billion. I support taking action to increase the debt limit, in order to protect the full faith and credit of the U.S. government. Frankly, we have no choice but to raise the limit. The United States must pay its bills. What I cannot support, however, is increasing the limit without also putting in place procedures for arresting this dramatic downturn in our nation's fiscal health. I want to provide a little background on how we arrive at this juncture. You might remember that a little over a year ago, when the Bush administration submitted its first budget, we were told that, even with the enactment of the President's proposed tax cut, we would not hit the Federal debt limit until 2008. By August, with the tax cut enacted, the administration acknowledged it was wrong and that we would actually hit the debt limit in 2004. By December, that estimate was moved up again, with the Treasury Secretary admitting the debt limit would be reached within months and pleading with Congress to raise the limit so that the United States wouldn't default on its financial obligations. And, I should not, the administration didn't just request a small debt limit increase. It requested a $750 billion increase, which would constitute the second largest one-time increase ever-surpassed only by the $915 billion increase signed into law by the President's father during his term in office, in November 1990. That dramatic turnaround in events followed a period of rapidly falling deficits in the 1990s and 4 years of surpluses. In total, as a result of the fiscal discipline put in place in the 1990s, we paid down $400 billion of publicly-held debt and were on the path to eliminate our debt in preparation for the retirement of the baby boom generation. What a sad turn of events we now face today. It is imperative that we find a way out of this mess. Last week, we were close in the Senate on adopting a bipartisan deal to restore budget discipline and prevent us from digging the hole any deeper. That deal would have extended PAYGO and the Budget Act points of orders, and set a cap on discretionary spending for 2003. Unfortunately, our Republican colleagues blocked its consideration. It seems that many in this chamber are still in denial about the dire position we find ourselves in today as a result of last year's tax cut, the brutal attacks on this nation last September, and the slowdown in the economy. Let me state again that the Congress has an obligation to ensure that the government avoids default, an event that would have severe consequences for our financial markets and for the government's cost of borrowing funds. However, I feel just as strongly that we should either have passed a much smaller increase--in the range of $100 billion to $200 billion--or passed the current bill in conjunction with the adoption of bipartisan budget measures that would help us stop the fiscal bleeding and return the budget to a path of balance. Simply increasing the debt limit does nothing to force the President and this Congress to deal with the very real fiscal problems we now face today, problems that will only worsen as the baby boomers begin retiring over the next decade. I feel we missed a great opportunity today to adopt those measures as part of the increase in the public debt limit.