Jon Kyl

Mr. KYL

Mr. KYL. The Senator from North Dakota suggested this was done in a dark room.

Mr. KYL. I say to the Senator from North Dakota----

Mr. KYL. Just so we know where we are, I know there was time during the quorum attributed to both sides. How much time remains on both sides?

Mr. KYL. Madam President, let me make two quick points. The first has to do with the question of who pays the estate tax or the death tax. We know it is not the person who died. We know it is the people who have the estate and who are required, therefore, to, in many cases, actually sell a business in order to generate the cash to pay the tax. Who are the estate tax filers and what occupations do they hold? I am going to quote from official Internal Revenue Service reports. In the last analysis of the IRS of people's occupation and sex in filing estate tax returns, published in the Statistics of Income Bulletin, summer of 1999, pages 72 to 76, the IRS reports: For males, the largest group of filers at 27.7 percent were administrators, upper management and business owners. The second largest group at 12.3 percent were schoolteachers, librarians, and guidance counselors. For females, the largest group of estate tax filers at 14.1 percent were educators. The next largest group at 9.6 percent were in clerical and administrator support occupations. A significant number of the total of estate tax filers were scientists, sales people, entertainers, airline pilots, military officers, and mechanics. That is according to the IRS. There is a vision of some fat cat sitting on a yacht someplace that we are going to stick and get a lot of money from to run the Federal Government. We know the Federal Government's collections of estate taxes are only 1 percent, slightly more than 1 percent of total revenue collections. Who is that money coming from? The largest group of women were educators. The next largest were clerical and administrator support people. They are airline pilots, scientists, salespeople, military officers, mechanics. I can understand the category of entertainers. But, remember, those entertainers pay a lot of income tax, too. And the second largest group of males is schoolteachers, librarians, and guidance counselors. Do we want to punish these people because they have been lucky enough to have been born into a family in which their father or mother was able to accumulate some kind of an estate? This is perverse tax policy. As I said this morning, the primary problem is that the businesses that have the value are not easily liquidated to generate the money to pay the tax. It is not as if when someone dies there is a lot of money in a shoe box and Uncle Sam taps you, as the heir, on the shoulder and says, I would like half of that, 50 percent. That is not what happens. Ordinarily what happens is there is a business. We talked this morning about the Boone County Lumber Company in Columbia, MO. They have a lot of money tied up in lumber that they bought that they hope to sell--in trucks, in forklifts, in warehouses, and so on. That is equipment that enables 30 people to have a job. When the owner of that business dies, his family is going to have to make a decision. They do not have the money to pay half of the value of that business to Uncle Sam. The salaries that people take out are $48,000, $60,000, some approaching $100,000, and in some cases more than that, but most are the salaries of any other small business. And bear in mind, half the small businesses in this country are women owned. These salaries do not generate a whole lot of capital by which you can pay an estate tax. The only way you can get the money to pay the estate tax is by selling the business on which the estate tax is based. The estate tax doesn't say, How much money did you have left over at the time of death? The estate tax says, What is the value of the company or the business or the farm that you are running? The value of that business is based on the value of the equipment and the land, and so on, most of which are probably going to be financed and therefore probably already heavily leveraged. But that value determines what has to be paid to Uncle Sam--half of it. That is why the estate tax is particularly perverse, especially because you have to do the liquidation right after the time of death. There is an effort by our colleague from North Dakota, who has laid down a second-degree amendment here--to ``improve on the existing law'' would be the way I think he would characterize it. He does this by providing that the exemption we provide in the law, that goes to $3.5 million, would go to $4 million, as I understand it; and for small businesses and farms it would become an unlimited exemption. Certainly the sentiment behind that is laudable. The problem is it simply will not work. How do we know that? Because we know it currently does not work. The law currently provides methods for small business people and family farms to get an exemption from the estate tax. The exemption today is $1 million. It is going to go up in the future. The Senator from North Dakota would make it an unlimited exemption. But the problem is even unlimited exemptions are worth exactly nothing if you cannot qualify. In other words, there is a door you have to get through. There is a gate you have to get through. You have to stay on the other side of that or none of this matters, and that is the problem with the amendment of the Senator from North Dakota. In the business, people referred to it as QFOBI, and I am going to do that for the purposes of brevity here, but it is technically the family-owned business exclusion. That is the provision of the existing law. There are actually two different sections under which people who have a small business or farm and who want to be exempted for part of the estate tax will try to qualify. But as I said, if you can't qualify under this provision, it doesn't matter how big the exemption is, you are out of luck. The problem with this QFOBI is it is much too difficult and too complex for most people to be able to qualify. I will give you an idea. For the calendar year 2000, 108,322 estate tax returns will be filed. Of course, only 1,470 made the QFOBI election; in other words, about 1 percent of the total. By the way, that number is actually a little higher than in some previous years. In 1999, for example, the total number of estate tax returns for which the exemption was requested was 173. In 1998, that number was 889. My colleague from Texas pointed out that only 32 people have ever qualified for a combination of both. But even take the larger number we have for the tax year 2000; that is 1,470, and that represents about 1 percent of the total of the estate tax returns filed. If the percentage of people filing estate tax returns is as low as our Democratic colleagues for the most part say it is--and although I will contest it, let's assume for the moment they are right--it is maybe about 2 percent of all taxpayers; and if of that 2 percent only 1 percent of them qualify for this small business or farm exemption, then the amendment of the Senator from North Dakota helps a grand total of two one-hundredths of 1 percent of people filing tax returns--two one- hundredths of 1 percent. The fact is, it doesn't even help that many people because QFOBI is recognized as very treacherous for somebody to get involved in. A representative of the American Bar Association testified before the Ways and Means Committee that the provision was simply too complicated to be effective. A professor of law at Temple noted that very few people would try to meet the qualification because of its complexity. The NFIB, which represents a lot of these people, testified that qualifying for the family-owned exclusion currently is difficult, costly, and complex. Studies by numerous organizations and scholars routinely find that family businesses spend exorbitant amounts of revenue on lawyers, accountants, and financial planners in order to try to do this. The reason I say even two one-hundredths of 1 percent is a high number is that the reality is, if you try to qualify for QFOBI, you are going to find yourself face to face with the friendly IRS. The reason is the IRS will look at every one of these filings. They will contest a significant number of them. As a matter of fact, in the year 2000 there were 149 cases pending, which represents about 10 percent of the total number that were filed at that time--the total number of estate tax returns filed at that time. There are an equal number of cases in the administrative process. You first have to go through the administrative process, and then you will actually have your case taken to court. What happens when the IRS challenges these? The IRS wins. As of the last time we have statistics, the IRS had won 67 percent of the cases. So if you have the courage to try to qualify under this QFOBI election, understand you are going to have the IRS question the value. It is going to be an administrative appeal. At least 10 percent of the cases are going to be in court. And you are going to lose two-thirds of the time. That is why the group of lawyers that works on these kinds of things, the section of the American Bar Association which handles estates and taxes, has recommended to their lawyers that they not try to help people qualify because it is too risky from a malpractice point of view. They have recommended that this particular section be repealed. The bottom line is that it doesn't matter whether you have a $1 million exemption or a $3.5 million or a $4 million exemption or an unlimited exemption for small businesses or family farms; if you cannot qualify in the first instance, it does you no good. From what we can find from IRS statistics, only two one-hundredths of 1 percent qualify. That doesn't take into account the challenges by the IRS. Let me just make one last point, and then I think there are others who would like to speak. I am not going to read to you the page after page of complex provisions. It is a nightmare to read and understand. I am a lawyer. I don't understand it. It takes a real expert to try to figure out how to make this work and, as I said, the ABA itself has recommended to its members that they approach this with extreme caution. One of the problems with the people who qualify is this. Let's assume you are one of the lucky two one-hundredths of 1 percent who actually qualify and you have gotten through the IRS hurdles. What does this mean for you now that you have qualified? Are you home free? Not exactly. There is a 10-year period of time in which the IRS can--and I love this term--``reach back'' and collect the tax from you. There is a lot that can happen that could cause that to occur. If you have trouble in your business, for example, and go bankrupt, that is tough; as far as the IRS is concerned, they can go back and collect the entire estate tax from you. But here is what happens even if things go well. The IRS, if you qualify--believe me, this is the truth. It seems that it could not possibly be, but under the amendment of the Senator from North Dakota and the existing law, the IRS has a lien on your property, all of the estates that would be subject to the estate tax, for 10 years. And they have a first position, which means: Good luck if you want to try to get financing for anything. Every small business finances its inventory, its machinery. We do not go out and buy a house and pay cash for it. We get a loan from the bank or from Fannie Mae, FHA or someone, and we finance a home. That is the way small businesses finance their operations. But, good luck going to the bank when they know the IRS has a first lien for a period of 10 years and the bank only has a second position. That is a poor position to be in, and the bank will tell you one of two things--either: Sorry, we can't lend you the money or: We could lend you the money for 2 or 3 or more percent premium. In other words, if you qualify for this provision, you are going to have to pay a lot more money if you can get financing in order to finance the continued operation of your business. Basically, it is a set up for failure. That is why most people do not even try to qualify for it. Many of those who try cannot qualify for it. It is an extraordinarily complex and ineffective provision. Therefore, with all due respect to my friend and colleague from North Dakota, his attempt to grant an unlimited exemption for small businesses and farms is fatally flawed. Very few, if any, of these small businesspeople or farmers are going to be able to qualify. As a result, the amendment is, in fact, a nullity, and does nothing to help the very people who all of us would like to help. I will relinquish the floor at this point and hope as the debate on the amendment is concluded that I will have an opportunity to talk about the comments that the Senator makes, and also to point out again that the people who actually pay this tax are not the kind of people you might envision but they are schoolteachers, airline pilots, mechanics, librarians, guidance counsellors, and the like, according to the IRS itself.

Mr. KYL. I yield the Senator 1 additional minute.

Mr. KYL

Mr. KYL. Mr. President, I rise this morning to talk about the issue that will be before us as soon as we resume business, and that is the permanent repeal of the death tax. This Senate has already repealed the death tax. The President has already signed it into law. But most Americans are now realizing there was a catch. Under the special procedures that the Senate operates, that bill came before the Senate with a 10-year sunset. So all we could do was pass a law that was in effect for 10 years and in the 11th year, we are right back to where we were in the year 2001, meaning that while we repealed the death tax, it is back in the year 2010. That is not something we intended when we voted to repeal it. I don't think anybody could argue that they intended only that it be repealed for 1 year. That is extraordinarily bad tax policy and a cruel hoax on the American people, who thought we were repealing it permanently. Obviously, we need to repeal it permanently, and that is what the Gramm-Kyl amendment will do. I want to speak this morning about why this is so important, to bring it down to simple, personal terms. In the Mansfield Room, just a few feet from the Senate Chamber in which we are right now, Mr. President, there is a small businessman, the owner of a lumber company. Actually, his dad owns the lumber company. He is helping to run it now. His name is Brad Eiffert, from Columbia, MO. And it is the Boone County Lumber Company. His problem is this. When his father dies, the U.S. Government says: We want half of the value of everything you own with this lumber company. Let's explore what that means. They have been paying income tax on their corporate income. They have been paying individual income tax on the salary they take out of the company. They pay the payroll tax. They pay the Social Security tax. They generate a lot of taxes for Boone County and for the State of Missouri. And they have created 30 jobs. This has been a successful, now second-generation company. The children of the father who owns the company now pay $58,000 a year in insurance premiums so that when their father dies, they will be able to inherit the business and have the money to run the business. Think of an insurance premium of $58,000 a year. What does the Government do right now? The policy before we repealed the death tax was, the day he dies, his estate--that is to say, the people who would inherit the money the father owns and would inherit the business--has to pay half of that to Uncle Sam--half, 50 percent. There is an exemption of a few hundred thousand dollars. I don't know how much this lumber company is worth, but let's say it is worth $5 million, just to pick a figure. I could be way off. About $4.5 million is now subject to the estate tax when the father dies. So how do people pay the estate tax? This is the perversity of this tax. This lumber company has an inventory of lumber. They buy lumber from different companies that chop down trees and make it for them. So they have a bunch of warehouses full of lumber. And they have trucks that deliver the lumber. They have forklifts that enable them to move that lumber around. They have a little office. They have some other things; I am sure they sell hammers and nails and things such as that. When this business is valued at, let's say, $5 million, they don't have a drawer that says: If you need $2.5 million to pay Uncle Sam, here is $2.5 million. No business has that. What they have is a value in the inventory, the lumber, the trucks, the forklifts, the warehouses, and so on. That is what is worth $5 million. So, in effect, Uncle Sam wants to come in and say: We want half of that value. If you have 10 forklifts, we want 5 of them. If you have 10 lumber trucks, we want 5 of them. We want half of the inventory. In effect, just put it on a railroad car and send it to Washington. We want half of your warehouses. There isn't money to pay Uncle Sam. We are talking about the value of the business. Remember, they have paid their income taxes. We are now talking about the value of the estate. It is called an estate tax. What is the estate? The estate is the Boone County Lumber Company, with its forklifts and trucks and lumber. If that is worth $5 million, Uncle Sam says: I want half of it. How do you keep the business going by sending Uncle Sam half of the forklifts and half the trucks and half the lumber? That is obviously not what happens. You have to sell it to generate cash to write a check to Uncle Sam. You cannot just sell half your business. You end up selling the whole business. Somebody said maybe they could get a loan to pay the taxes. Wrong. Anybody who knows anything about small business knows two things: One, you have financed the purchase of your equipment. You have financed the purchase of the land. Who buys a house for cash? You go get a home mortgage loan. Well, businesses are the same. They don't pay cash for the land and the buildings; they get a loan from the bank so they can buy the property. They get a loan from the bank to buy their trucks, just as you buy a car on time, and you pay a Ford or GMC creditor or whoever it might be. The same with lumber, you get a bank loan to buy the lumber. Then you sell it and pay back the bank. So these small businesses are highly leveraged in the sense they have already gotten all the credit they could get out of the bank. They can't go to the bank and borrow $2.5 million to pay the estate tax. There is another reason, too, and that is there is an exemption. Today you get a $1 million exemption--and some people are proposing the exemption be more than that--but you can't qualify for the exemption. The National Federation of Independent Businesses, which knows a lot about this because it represents a lot of these businesses, has testified, as have other experts, before the House Ways and Means Committee, which considered this, that the provision under which you can theoretically get an exemption is way too complicated and does not work. The ABA, as a matter of fact--the American Bar Association--has advised its lawyers of being very careful of trying to help anybody to qualify for this exemption because they likely will be committing malpractice. So it does not work either. So the bottom line is, hundreds of thousands of small businesses around this country face what Brad Eiffert faces. When his dad dies and Uncle Sam says pay us half of the value of everything in this business, he does not have the cash. He is not going to be able to borrow the cash. He has one choice: Sell the Boone County Lumber Company. I will give you another company. The idea of the death tax was to prevent the accumulation of wealth. I had a good friend in Arizona. His name was Jerry Witsosky. He died. He created a printing company, Imperial Lithograph. He started with one employee, himself. He gradually built it up. He had about 150 employees, somewhere in that neighborhood when he died. It was a very successful business in Phoenix. He contributed more money to charities in Phoenix than anybody I have ever known--a wonderful man. He died. His family could not pay half the value of that printing company to Uncle Sam, and they eventually had to sell the business. Who did they sell it to? They sold it to a great big corporation. So much for preventing the accumulation of wealth. Here you had a family business, a going concern, a wonderful contributor to the community, and it had to be sold to a big corporation just to generate the cash to pay the estate tax. Is this right? No. It is bad tax policy. It is unfair. It destroys all of the incentive. We talk about the American dream: save, invest, and hope that your kids can have a better opportunity than you had. That is the American dream. And the estate tax, or the death tax, just cuts that right to the quick and says: We want half of everything you earned during your lifetime. And, by the way, if you have to sell your business to pay us the money, that is tough. We want to spend it back in Washington. This is a perverse tax policy. The good thing about the version of the repeal that Senator Gramm and I have proposed is that it does not let anybody off the hook in terms of paying taxes to Uncle Sam. They already paid the taxes on the income. What we say is when Brad Eiffert inherits his father's business, the Boone County Lumber Company, he does not pay a tax when his dad dies--that is perverse--but if he ever sells the Boone County Lumber Company, then he pays a capital gains tax, and he pays it based on what his dad paid for the original company. So Uncle Sam is going to get the full take. We will get all the money we need here to spend in Washington, but it is when he decides to sell the business; that is the taxable event. Death should not be a taxable event. So I hope my colleagues will join Senator Gramm and me later today when we have an opportunity to finally repeal this perverse tax and replace it with a capital gains tax. We are not letting anybody off the hook. We are substituting one tax for the other, but we are substituting a tax that is fair because it says if you make a decision, knowing the tax consequences, to sell the asset, you pay Uncle Sam. If you don't, you don't. But that is your decision. It replaces a tax on the event of death which is more perverse and unfair. The U.S. Government should not have that as a policy for the people of the United States of America. I urge my colleagues to reject the alternatives. There is only one real repeal, and that is the Gramm-Kyl repeal of the death tax. I yield the floor. Mr. President, I suggest the absence of a quorum.

Mr. KYL

Mr. KYL. Mr. President, I compliment the Senator from Idaho for making this last point. He is absolutely right. Under the law that we passed, we have to consider what we are going to do with nuclear waste before the middle of July. And there is only one procedure under which it can be done. If the majority leader does not bring it up, then the statute provides anybody else can. That is what will happen. The Senator from Idaho is exactly correct. I compliment him on his leadership on this issue.

Mr. KYL

Mr. KYL. I thank the Senator.

Mr. KYL. Also, not taking away the time of the Senator from North Dakota, the Senator from Nevada is correct. I just inquire, then, for the benefit of all Senators, when the Senator from North Dakota has completed his 5 minutes of concluding remarks, could the Senator from Nevada explain what happens at that point?

Mr. KYL. If the Senator from North Dakota still has 5 minutes, I will yield the floor to the Senator from North Dakota. But if we could get a clarification about what is going to happen when that time has expired, I would appreciate it.

Mr. KYL. I am sorry. I thought the Chair said all time had expired.

Mr. KYL. Might I address a question to the Senator from North Dakota since the Senator from Nevada is not here. It is our understanding under the unanimous consent agreement the next amendment that will be laid down will be laid down by Senator Dorgan or by Senator Reid on his behalf? Here is Senator Reid. Perhaps we could get this underway now. If I could inquire of the Senator from Nevada, the time having expired under the unanimous consent agreement on the first amendment laid down, is the amendment of the Senator from North Dakota next? The next thing that will transpire is that the Senator from Nevada on behalf of the other Senator from North Dakota will lay down an amendment; is that right?

Mr. KYL. I agree with the point in the first year there is a greater benefit for individuals but a higher cost to the Government. Would the Senator continue the timeline over the next 10 years?

Mr. KYL. Will the Senator yield for a question?

Mr. KYL. I appreciate that. The first point the Senator from Texas made was that the death tax is bad tax policy. Let me explain a little bit more of what we mean by that. The Tax Code generally taxes you for voluntary conduct. If you sell property, you know there is going to be a capital gains tax on that. If you work, you know you are going to earn income and you are going to be taxed on that. People make decisions based upon tax consequences. But there are a few situations in our Tax Code that are treated as involuntary conversions. If the Government condemns your property and pays you money for that, you don't want that money; you want your property. The Government recognizes that as an involuntary action on your part, so you don't pay ordinary income at that time on that money. If your house burns down and you collect money from an insurance policy, you didn't intend for that to happen. The Government doesn't treat those insurance proceeds to you as ordinary income. It is taxed in a different way. The same thing is what we are proposing to do with the estate tax. Nobody intends for your father, or whoever it might be, to die. He certainly doesn't. The money that you may get as a result of that is coming to you involuntarily. You didn't take some action in order for it to occur. So that money coming to you should be treated in a different way. The way that it is treated under the amendment of the Senator from North Dakota is to take 50 percent of the amount over $3 million. In other words, there is a $3 million exemption and, after that, every other dollar is taxed at 50 percent. If it is over $10 million, it is at 55 percent. Now, that is bad tax policy. What we say instead is that the tax is not due on the date of death. Death is not a taxable event. Instead, the money passes to the heirs and, at that point, if they sell the property, there is a taxable event. You pay the capital gains on that property. In fact, the basis for the capital gain is the original basis on when the property was purchased by the decedent, not the value at the time of death. So, in effect, we are replacing one tax with another tax. Much of the revenue is not lost to the Treasury as a result. But at least as to the decision to pay Uncle Sam, the money comes from the voluntary act of people who inherited the property and who are willing to pay the capital gains tax if they sell the property, or part of it. But what you don't have to do, as the Senator from Texas said, is visit the IRS the same day you visit the mortuary. That is wrong. That is why over 60 percent of the American people believe this is an unfair tax. It is interesting that three-fourths of the people surveyed who say it is an unfair tax say they would favor its repeal, even though they don't believe that repeal would have any effect on them because they would not be receiving any of that money, or paying it, as an heir. So it is an unfair tax. As a matter of fact, the Senate agreed that it was unfair. We repealed it. A majority of Senators voted to repeal the estate tax. Now, under the procedures under which that was done, no action that we took could last longer than 10 years. So the irony is after 10 years, none of our tax relief exists; it evaporates and we go back to where we were in 2001. Did we intend that? When we told our constituents we reduced the marriage penalty and reduced their individual income-tax rate and repealed the estate tax, were we kidding or did we really mean it? We will find out tomorrow. If we were just kidding, then we will defeat the Gramm-Kyl amendment, or adopt some other proposal. If we meant what we said, saying we meant to repeal it, to cast the vote to do that, and since that sunsets after 10 years, we are going to permanently repeal it with our vote today, you will support the Gramm-Kyl amendment. Some say this doesn't affect many people. The fact is that it doesn't just affect the rich. The descendant--the rich person--died. He cannot be affected; he is gone. Most of the people who inherit the money are not rich, and certainly the employees of their companies or the farms are not rich. So most of the people who are affected by the death tax are not wealthy at all. The question is, Do you want to take half of what they are going to get from the person who worked so hard during his or her life to provide it to them? According to the Treasury Department, 45,000 families paid some level of estate tax in 1999. That is families. If it is a family of four, multiply that by 4 to see the number of people who are immediately affected, and then you can add to that the people indirectly affected. What is not included in the statistics is twice as many people sell their business or their farms. Many more people are adversely impacted when jobs in the community are lost when a family- owned business is sold to pay the tax. In addition, more than 2 percent of Americans bear the aggregate costs of this tax--fees to lawyers and accountants and life insurance agents. As a matter of fact, it costs just about exactly as much for the people who pay the lawyers and insurance agents and the accountants to avoid the total consequence of the tax as the Federal Government collects from those who actually end up paying. So it ends up being a double tax on Americans. Half pay the tax to Uncle Sam and the other half pay the lawyers. I don't know which is worse. The death tax not only impacts more than 2 percent of Americans, it burdens family-owned businesses under $100 million in value. According to the IRS, in 1999, 116,500 estate tax returns were filed; 60,700 of these returns were filed by estates with values of less than a million dollars. Estates valued between $1 million and $5 million filed 50,600 returns. There were 5,200 estates filed of more than 5 million. So even combined, the millionaires filing for the tax do not exceed the nonmillionaires. The bottom line is that Americans recognize it is an unfair tax. It affects a lot more people than the person who had wealth when he died. The Senate recognized the same thing when it adopted the repeal of this tax. Madam President, I was a bit surprised by the amendment of the Senator from North Dakota. I know a lot of our colleagues on the other side of the aisle are opposed to permanent repeal of the estate tax. I thought what they would do was offer a fairly generous package that would be tempting for our colleagues to vote for in lieu of the real repeal, which is the Gramm-Kyl repeal. As it turns out, that was not done. It is a very straightforward proposal which is not generous at all. As a matter of fact, it is worse--it is worse--than the status quo. People would be better off under the existing law, even without the ultimate repeal, than they would be taking the amendment of the Senator from North Dakota. It is interesting that while he is concerned about the cost of repeal in the first 5 years, for which we have figures, the repeal of the proposal before us of the Senator from North Dakota would be about $22 billion versus $9 billion for our proposal at a time when we are in a deficit situation, as the Senator from Texas noted. The only way this is made up is that in return for that, we immediately go from a reduced rate of taxes under our bill and under the status quo to a 50-percent rate under the amendment of the Senator from North Dakota. The exemption amount is $3 million. The exemption under ours by the year 2009 is $3.5 million and, of course, in the final year, there is no need for an exemption from the estate tax because the estate tax is repealed. Under the substitution of the capital gains tax for the estate tax in the Gramm-Kyl proposal, we retain a $5.6 million equivalent to an exemption so that nobody will pay a capital gains tax who would not have paid an estate tax. People are made whole, in other words. Under no scenario would you be better off under the amendment of the Senator from North Dakota. You would be much better off under the amendment Senator Gramm and I have proposed. Let me make one other point. When we talk about the cost of this proposal, it is always a bit frustrating for me because we are talking about lost revenues to the Federal Treasury. To me, that is not a cost; that is an opportunity for Americans to keep more of their own money. What we know from tax policy generally is if you reduce people's taxes, you improve the status of the economy. One thing we forget when we talk about the alleged cost of the repeal of the estate tax is the positive effect that has on the economy. A study conducted by Alan Sinai shows the GDP of our country could increase a total of $150 billion over 10 years and job growth could increase 165,000 per year with repeal. The increase in household savings would be between $800 and $3,000 annually. So the impact on families and on the GDP would be significant from a repeal of the estate tax. A Joint Economic Committee study estimates the existence of the tax has reduced the Nation's pool of savings by $497 billion. An expert in this area testified before our Finance Committee and said immediate repeal of the death tax would result in a $40 billion economic stimulus. If you really want to stimulate the economy, if you really want to create more jobs, if you want to enhance the GDP and if you want to enhance personal savings and personal income, then repeal the tax. It is true that the Federal Government is a little worse off if we repeal the tax. It does not take in quite as much money. But American families have a lot left, and the American economy is a lot healthier as a result. What happens when the economy grows? We all know that tax collections by the Government actually increase when the economy grows. We do not have an exact study on what Federal revenue increases would be, but we know they would be significant. A final point: There is always the bottom line argument: when you cannot scare people any other way, say that Social Security might be affected. There is zero effect; there can be no effect on Social Security by repeal of the death tax. The death tax has nothing to do with Social Security. The death tax goes to the general revenues. It is about 1 percent, 1.5 percent of general revenues. It has no impact on Social Security. It pays none of the Social Security benefits. Today, in the year 2002, we will be taking in about $624 billion in Social Security, and the payments to Social Security recipients are about $465 billion, so we have about a $175 billion surplus in Social Security funds. No Social Security recipient could be affected by repeal of the death tax. Let's at least understand that and not scare people by suggesting there is an adverse impact on Social Security. We have more points. I reserve the remainder of our time.

Mr. KYL. I will go ahead. Will the Chair let me know when I have spoken for 12 minutes?

Mr. KYL. Madam President, I appreciate the fine explanation of my colleague from Texas. He has been an advocate of the repeal of the death tax for a long time. I am pleased to join with him in this amendment and to be able to say that we have finally been able to bring before the Senate the permanent repeal of the death tax. I want to make several points. I see that the Senator from Oklahoma is here. Was he intending to make a point at this time?

Mr. KYL. I am curious about the source of the statement that the majority of assets has never been taxed.

Mr. KYL. Will the Senator yield for a question on that?

Mr. KYL. No. Let me reiterate what I said. The fact is that the distinguished Senator from North Dakota, chairman of the Budget Committee, has not been able to bring a budget to the floor. So there is no budget. We are talking about the baseline. I believe my number is accurate with respect thereto. We are spending billions on this farm program above what we originally had decided to spend; under trade adjustment assistance, over $11 billion over the President's request--a 10-year number; in the supplemental that we just passed--a 1-year number--about $4 billion above the President's request. The highway bill is about 5.7 above the President's request. My point is that it seems to be a little contradictory when some colleagues are so concerned about the debt, and all of a sudden they are happy to spend very large sums of money above the baseline. Let us get into this debt business a little bit more. With what do we pay down debt? We pay down debt with Social Security income. Under Social Security revenues--the FICA tax--you pay in 7.6 percent and your employer pays 7.6 percent. That is Social Security. The death tax receipts don't pay for Social Security. Not one nickel of the death tax collections or estate tax collections pay for Social Security benefits--not one nickel. If we repeal the entire death tax today, Social Security wouldn't lose one nickel because that isn't where Social Security gets its money. You all know where Social Security gets its money--from the FICA tax, the Social Security payments. Those right now are in surplus. What do we do with the surplus? We pay down the debt with it. If my colleagues are worried about the need to pay down the debt, then they are talking about taxes, Social Security money, and paying down the debt with that. That is exactly what happens every single year. We all agree to that. If they are worried about taking away money for Social Security, then they need to be worried about the Social Security tax collections and not the estate tax collections. None of that money goes for Social Security. This is a bogus argument that Social Security would in any way be affected by a reduction of the estate tax collections. Finally, to this argument that somehow it is unfair for us to step up the basis--or, rather, to carry over the basis rather than have a stepped-up basis, this may seem to be an arcane argument to folks who aren't familiar with these terms. Here in practical terms is what it means. You have a billionaire and he dies. His wife inherits the money. Under the proposal of the Senator from North Dakota, if the spouse decides the day after her dear loved one's departure to sell all of that property, cash it in, do you know how much she pays in capital gains tax? Zero. Zip. Nothing. That is how much you pay under the amendment of the Senator from North Dakota. Under our proposal, you would pay the capital gains on the original value of the property. If her dear loved one bought that property for $100 million way back when and sells it for $1 billion, that is a $900 million gain. She would pay a capital gains tax on that again. Our idea is that death should not be a taxable event. You can't anticipate it. It is the worst possible time to have to pay a tax. It is not fair. Most of the Tax Code says you pay a tax when you do something knowing what the tax consequences will be. You earn money, you sell property--those are taxable events. What we are doing is replacing one tax for another. The estate tax is unfair, it is wrong, and it should be repealed. It will be replaced by a capital gains tax. The interesting thing about it is that really wealthy people will end up paying a tax when they sell that property; whereas, they would not pay nearly as much tax as they would under the amendment of the Senator from North Dakota. What it really boils down to is you are still paying the tax. What it really boils down to is a matter of policy. You are going to pay sooner or later. But do you want to pay with death being the taxable event or do you want to pay a tax based on an economic decision you made knowing what the tax consequences would be. That is what our Tax Code theory is and the death tax should comport with that.

Mr. KYL. I am happy to yield for a moment--for a moment, please.

Mr. KYL. I will speak for 5 minutes, and our colleague from Texas will speak for 5 minutes. I thank the Chair. Mr. President, let me make three points. First of all, I find it very interesting that our Democratic colleague is worried about the debt of the United States. This does not seem to be much of a concern to him or his colleagues when they vote for spending bills around here. Just recently--I took some of the more recent ones--the railroad retirement bill was $15 billion in one payment. I voted against that. The farm bill was $82.8 billion over the baseline, over the budgeted amount. I voted against that.

Mr. KYL. Which includes the 3 minutes.

Mr. KYL. Mr. President, in addition to the 3 minutes granted by the extension, I inquire about how much time remains on our side.

Mr. KYL

Mr. KYL. Mr. President, I would like to speak to this legislation. First of all, I compliment the ranking member on the Judiciary Committee for the points he made, with which I am in agreement. Recall, this bill federalizes two new hate crimes, adding gender and sexual orientation and disability to existing law. It is a far-reaching proposal. I am sorry, I cannot accept the excuse that has just been proffered by the assistant majority leader with respect to why cloture was filed on this bill some 14 minutes after the bill was brought to the Senate floor. This is unprecedented. With all due respect, I characterize it as a gag rule on Senators, unprecedented in the way the Senate ordinarily, traditionally acts. As a matter of comity to Members, it is traditional that Members are allowed to debate and offer amendments to legislation. Only rarely is cloture filed--ordinarily, after there has been an attempt to filibuster a bill. The majority then rightly has the opportunity to bring that debate to a close if enough Members are in agreement to do so. It is very rare cloture motions would be filed immediately after bringing the bill to the floor. This does not give Members enough time to debate the bill or offer amendments and have those amendments voted upon. The reason proffered by the distinguished Senator from Nevada was that they had read in a publication that Republican Senators intended to file some 40 amendments to the bill. I suggest that is not appropriate as a reason for immediately invoking cloture. To my knowledge, it has never been done when the Republican majority introduced bills to the floor. I remember on one occasion a cloture motion was filed almost immediately and there was a great hue and cry from the other side, as a result of which my recollection is the Republican majority, by unanimous consent, extended the time for debate an additional day. It is, frankly, a breach of the comity that heretofore has characterized the opportunity for debate in this body, to file that cloture motion some 14 minutes after the bill was brought to the floor--especially because this is such controversial legislation. The two votes that previously were cast here were like 50 to 49, and I have forgotten exactly what the other vote was, but this is a highly contentious issue and one which deserves a great deal of thought and debate. I, therefore, am very hopeful our colleagues--whether they agree with the ultimate legislation or not--will agree it is simply unfair to close off debate and amendments at this very early stage of the consideration of such important legislation. One reason the Senate should not rush to consideration of this bill is because of the very controversial change that it makes to criminalize not a defendant's actions alone, but the defendant's thought process. Think about this for a minute. This legislation focuses not on the defendant's conduct, or even on his intent--on whether he acted purposefully or with knowledge of risk. Rather, this bill criminalizes the defendant's subjective motive. We are moving perilously close, down the path of creating a penalty for thought crimes. This is not as distant as you might think, considering, for example, the FBI data that is used by advocates of hate crimes laws to justify this bill. In 1999, they report there was a total of 9,430 hate crimes in the United States. Of these, only 19 were murders. By far, the largest category of actual hate crimes against persons, including property crimes and crimes against society, was the crime of intimidation. Yet this crime is so vague and so inchoate that the FBI does not even bother to calculate incidents of intimidation in its overall crime reports. What exactly does intimidation mean? Does it simply mean something that is perceived as offensive by the hearer? Some groups, in fact, increasingly invoke terms such as ``hostile speech'' or ``climate of violence'' to describe speech in favor of traditional morality on social and sexual issues. Would a traditional viewpoint on homosexuality or transsexualism be hostile speech and thus a hate crime? It very likely could be under the definitions here. One organization, the largest organization of women in the country, the Concerned Women for America, has cited an example of a pastor in New York whose billboard advertisement with a Bible verse on it was taken down by city officials who cited hate crimes principles as the rationale. The CWA also cites a recent incident in San Francisco. The board of supervisors officially approved a resolution urging local media not to run an advertisement by a group. Again, even those who do not agree with the message of traditional values should at least recognize these groups' right to be heard and to exercise their first amendment right of speech. With this type of legislation, we risk criminalizing this speech. In addition, it is wrong to treat some victims of violent crimes as more special than others. All victims of violent crime should be equal in the eye of the law. When such a crime occurs, the police should not first have to ask, for example, what the victim's race, religion, or sexual preference is. Nor do the 19 murders classified as hate crimes in the year 2000 nor the 17 in 1999 provide much justification for the legislation when more than 15,000 other murders occurred each year--all crimes under State law. It is not as if we have to add this crime in order to assure there is punishment for people who commit violence. Congress should be concerned about all of these victims, not about just a subset constituting one-tenth of 1 percent of the total. Yet that is what we spend our time on in this body. I note that one of the bill's provisions attempts to justify or provide a constitutional rationale for the bill. I note that section 2 states that Congress has found ``the incidence of violence motivated by the actual or perceived race, color, religion, national origin, gender, sexual orientation, or disability of the victim poses a serious national problem'' and that the ``prominent characteristic of a violent crime motivated by bias is that it devastates not just the actual victim and family and friends of the victim, but frequently savages the community sharing the traits that caused the victim to be selected.'' I would like to focus on that in two respects. First of all, it says this is a national problem. But I note that not all national problems are Federal problems. People are murdered every day in this country. That is a national problem. But States provide the laws under which people are prosecuted, and it is ordinarily by a local or county prosecutor. In other words, not every national problem is a Federal problem. As I will note later, no less than the Chief Justice of the United States has warned Congress against federalizing every crime and finding a Federal solution to every national problem. But even more important is the suggestion that only certain kinds of crime victims ought to be of concern to us. It said here that this kind of crime devastates not just the actual victim but frequently savages-- and I am not exactly sure what the word ``savages'' means--the community sharing the traits that caused the victim to be selected. I presume that is the class of victims--people such as the victim. As the Presiding Officer is well aware, Senator Feinstein and I have had a constitutional amendment before this body for several years to grant rights to victims of crime. We have argued all of these years that victims of violent crime feel themselves frequently savaged by a system which gives a lot of rights to the defendant but, at best, ignores their rights, and sometimes actually results in them being victimized a second time by the judicial system by not getting notice of key hearings and procedures in which they would have an interest in attending, or by not even being able to sit in the courtroom sometimes. This clearly is activity that savages the community that has been victimized. Anybody who has been a victim of domestic violence can empathize with the other victims of domestic violence. I have gone to many meetings at a lot of centers at which women who have been abused are sitting in a circle sharing their experiences in order that they be able to cope with and eventually rise above the problem and to understand that they themselves are not the cause of the crime that has been perpetrated against them. They are savaged, all right. They are a group of people to whom we ought to be paying attention. Yet we can't get the support in this body to grant them the rights that are at least somewhat equal to the rights of the accused perpetrators of the crimes upon them. The numerous constitutional amendments which have granted defendants rights should at least be equal in the constitutional rights of these victims of crimes. I am going to state this in a rather blunt way. It seems to me to be inconsistent, at best, for people to be very concerned about a couple of specific groups of people--transsexuals or homosexuals, for example--that they would believe that other members of their group would feel savaged when someone else in their group has a crime perpetrated upon them but we wouldn't extend that same feeling and that same support and that same kind of action to a vast and much larger number of people who are victimized by crimes every day and for whom there are no victim's rights. We don't designate them hate crimes, and therefore these people have no such rights. I find it discriminatory. In this Senate body, we never characterize the motives of legislation. It is a very dangerous thing to do, and I resent it. In no way do I characterize the motives of anyone offering this particular amendment. But I ask them to stop and think for a moment about whether it is fair to single out a very small group of people who have a very large lobbying voice for special protection as victims of hate crimes because the group they are a part of feels savaged when they are the victim of a crime. That is the Federal nexus. That is the basis upon which the constitutionality of this action rests, and I submit it is inadequate under our Constitution. But that is the alleged basis. We will do it there, but we will not give rights to the vast majority of people who are victims of violent crime in this society. Do we not believe or do we not understand that they feel savaged as well? Is their lobbying voice just not as strong? I don't know what it is. But it is unfair. Let me turn to two other points before I close. It is obvious to me from the legislative history--I am not elaborate at this point but just to note this--that using the word ``gender'' rather than ``sex'' is a very intentional and very specific choice of words. The bill is intended to take the unprecedented step of making transsexuals and transvestites a federally protected class. There are those who think this is a good idea. I cannot imagine what the Founders--the people who wrote our Constitution--would think of such a provision. But I believe Congress should accept that not all human impulses are necessarily healthy, that not every desire should be pursued, and that, in any event, these kinds of activities should not be singled out as constitutionally protected given the large number of people in this country who have very different points of view of what is right and wrong. We single out minority action I gather as being constitutionally protected because we are concerned about what the majority would do. In so doing, I believe we pervert the language of the Constitution. That gets to the next point: the constitutional overreach of this bill. The bill is almost certainly unconstitutional and beyond Congress's powers. The first new offense, justified as an exercise of Congress's 13th amendment power to outlaw the incidents of slavery, fails because it is not tied to the exercise of civil rights or access to public accommodations. The second new offense, justified under the commerce clause, goes too far when it punishes noneconomic violent crime simply because of the use of a weapon that has allegedly traveled in interstate commerce. The bill also unnecessarily contributes to Congress's federalization of criminal law--a point to which I alluded earlier and on which I said I would expand. This is a process that places great burdens on our Federal courts and undermines their role as a forum for addressing uniquely Federal issues. I mention the Chief Justice of the United States, Justice Rehnquist. He has repeatedly warned the Congress against unnecessarily creating new Federal criminal offenses, especially where the matter has traditionally been addressed and can be addressed by State courts. The Chief Justice expounded on this problem in his 1998 Year-End Report of the Federal Judiciary. I believe this is important enough to quote at length. He said: The number of cases brought to the Federal courts is one of the most serious problems facing them today. Criminal case filings in Federal courts rose 15 percent in 1998--nearly tripling the 5.2 percent increase in 1997. Over the last decade, Congress has contributed significantly to the rising caseload by continuing to federalize crimes already covered by state laws. The trend to federalize crimes that traditionally have been handled in state courts not only is taxing the Judiciary's resources and affecting its budget needs, but it also threatens to change entirely the nature of our federal system. The pressure in Congress to appear responsive to every highly publicized societal ill or sensational crime needs to be balanced with an inquiry into whether states are doing an adequate job in these particular areas and, ultimately, whether we want most of our legal relationships decided at the national rather than local level. Federal courts were not created to adjudicate local crimes, no matter how sensational or heinous the crimes may be. State courts do, can, and should handle such problems. While there certainly are areas in criminal law in which the federal government must act, the vast majority of localized criminal cases should be decided in the state courts which are equipped for such matters. This principle was enunciated by Abraham Lincoln in the 19th century, and Dwight Eisenhower in the 20th century--matters that can be handled adequately by the states should be left to them; matters that cannot be so handled should be undertaken by the federal government. As is very clear by the language of the statute itself, that is not the test used for determining whether or not prosecutions will be held by the Federal Government for these crimes. The Federal courts are already overwhelmed with existing Federal offenses, at the same time that this Senate is dragging its feet on filling the Federal court vacancies that currently exist, or even holding votes on new judges. Yet here we go creating a whole new set of Federal offenses for crimes that are already proscribed by State law. No doubt the Federal judiciary is watching this debate and thinking to itself, about the Congress, ``there they go again.'' It bears emphasis that the States not only already punish the crimes we are dealing with here as violent crimes; in addition, 45 States and the District of Columbia already have laws punishing hate crimes. What we are doing is creating a double redundancy, a new Federal offense for hate crimes that are already punished in two different ways at the State level. Nor is it fair to accuse the States of inadequately enforcing their laws in this area. For example, consider the first and third incidents cited in the committee report for this bill involving murder in Humboldt, NE, and in Yosemite Park, CA. The committee report relies on these incidents to supposedly show the need for a new Federal law. But what these incidents show, instead, is how this law is unnecessary and redundant. Indeed, it would punish these offenses less severely than they have been punished under State law. In the Nebraska crime, prosecutors sought and obtained the death penalty. In the Yosemite case, they are currently seeking the death penalty. Yet had either of these offenses instead been prosecuted under the law envisioned by this bill, the death penalty would not have been an option. The bill provides for no death penalty, even for the most brutal murders. And we call this an appropriate reaction to something we detest so much, something we call a hate crime, that we are willing to bend the Constitution to make it a new Federal offense. The death penalty would not have been available under this bill, either as a deterrent or as leverage to secure a life sentence during plea bargaining, which is frequently why the death penalty can be successful. So why do we need a Federal law to provide less punishment than is already available under State law? Finally, this bill would explicitly allow the same defendant to be punished twice for the same crime, based solely on a Federal official's determination that the State sentence that the defendant is already serving has somehow left Federal interests ``unvindicated.'' Although the Supreme Court has been willing to ignore such double prosecutions, Congress, at least, should recognize the unfairness of allowing a defendant to be tried twice punished twice, by two different courts, for the same crime. Since I see my distinguished colleague from Wisconsin in the Chamber, and because I have such respect for him, for the sense of fairness that he has exhibited over and over in the Judiciary Committee, on which we both sit, while I know he is an ardent supporter of the legislation, I would just ask him, and other colleagues, with whom I have had good dealings over the years, to acknowledge the fact that it is inappropriate for us to have debate on this important matter cut off so soon after the filing of the bill--14 minutes after the bill was brought to the floor, cloture was invoked--to have very little opportunity to present amendments and to have the nature of those amendments restricted. I could be wrong, but I have been told by staff that even making these crimes' punishment subject to the death penalty would be ruled not germane. I cannot believe that. But if that is true, it shows you how restrictive the cloture rule would be. I would ask my colleague, and any others who are supporters of this bill, to consider, on something so important, that we should not be invoking cloture so soon in the process but should allow those of us who have constructive suggestions--as in the case of the alternative mentioned by the Senator from Utah--that those of us who have amendments, including those which I would like to offer, to have an opportunity to debate and offer those amendments, and have them acted upon in the way that has traditionally been done in this body. If it is the case, as the distinguished assistant majority leader said, that we have a lot of other business that we need to get to, then maybe we should not have brought this particular bill at this time. If it is so important, then we need to have the time to debate it. If it takes a back seat to issues that are more important, then we should not have brought it up at this point. I do not think we can have it both ways. I would ask my colleagues for the same kind of fairness that has been offered to them when the majority was held by another party, and to give us more time to debate and consider amendments on this legislation, and not to proceed with cloture at such an early time in the legislative process. I thank the Chair and yield the floor.