Jon Kyl

Mr. KYL

Mr. KYL. Mr. President, I appreciate the opportunity to take a few moments to reflect on some things you said and also on what the majority leader said a little while ago. After our colleague Paul Coverdell died, I made a very brief statement on the floor. I knew I should speak briefly because it would be difficult to talk very long about Paul without becoming too emotional. I think at a time when politics generally and politicians specifically are the subject of a lot of humor--they are denigrated because of cynicism about the political process, and in fact in some cases the denigration of some politicians is probably warranted--it is important for the American people to be reassured that there are some extraordinarily fine public servants who toil very hard on their behalf and who are responsible for whatever good comes out of these institutions--the House and the Senate. Paul Coverdell was such a man. All of us who have spoken about him have shared with our colleagues and with the American people the same general notion that it is amazing what you can do if you are willing to let others take the credit for it. That was Paul Coverdell--self- effacing, very hard working, totally trustworthy and honest. Everyone could rely upon him to do the things that had to be done without fear he would in any way attempt to take advantage of any situation. He was as solid as a rock and a very important part of this institution-- someone who really helped to make it run, and run in a good way. I am sure my constituents in Arizona for the most part are unaware of Senator Coverdell, but they and others all around this country need to know how sorely he will be missed--not only personally but professionally--and how important a contribution he made to this country. There are truly some wonderful public servants, and Paul Coverdell was one of the best.

Mr. KYL

Mr. KYL. Mr. President, except for those who knew Paul Coverdell and his constituents in Georgia, I suspect it is very hard for others who may be watching here today or who hear other tributes to Paul Coverdell to appreciate the depth of sadness that all of us in this Senate family feel by the loss of Senator Paul Coverdell. Paul Coverdell was a special man. He was so active in nearly everything going on in the Senate that it is impossible to believe he is gone. The images of Paul smiling, gesturing, counseling, are still so fresh. If there was an indispensable Senator, Paul Coverdell was it. Paul was a doer, as we all know. He was successful not because of his energy alone--though that was considerable--but because he was trusted by all and he sought no recognition for himself. His judgment was sound, his intelligence keen. He was always kind and cheerful, never critical. The word ``helpful'' does not even begin to describe the aid and assistance he was always so ready to provide. I have lost a real friend and a confidant. Georgia and America have lost a great leader. Paul's family's loss is incalculable, especially for Nancy and his mother. Our sense of grief is tempered only by the faith that the Lord has His own purposes. We take comfort in the wisdom of Abraham Lincoln who said: Surely God would not have created such a being as man, with an ability to grasp the infinite, to exist only for a day. No, no, man was made for immortality. Godspeed, Senator Paul Coverdell.

Mr. KYL

Mr. KYL. Mr. President, I am proud to support H.R. 1791, the Federal Law Enforcement Animal Protection Act, a bill by Representative Weller which would make it a federal crime to willfully and maliciously harm an animal used by a Federal agency for the principal purpose of investigating crimes, enforcing laws, or apprehending criminals. I would first like to thank Senator Hatch for his help in discharging this important bill from Committee. I would also like to thank the advocacy groups and agencies, most notably, the Humane Society of the U.S., U.S. Police Canine Association, U.S. Customs Service, U.S. Border Patrol, and our very own Capital Police, for helping to publicize the need for legislation to protect federal law enforcement animals. I was pleased when Representative Weller called me and asked for my support of H.R. 1791. Under current law, a person who willfully injures a federal law enforcement animal can only be punished under the statute that makes it a crime to damage federal property. Unfortunately, many of these animals have a monetary value of less than a $1,000, even though their training can cost up to $20,000, so the act of willfully harming them can only be prosecuted as a misdemeanor. H.R. 1791 will address this problem and punish willful and malicious harm done to these animals more severely than an act of damage to an inanimate object. This bill is important for law enforcement. These animals play an integral role in protecting our borders, airports and our own capital grounds. In fiscal year 1999, U.S. Customs Canine Enforcement Teams were involved in over 11,000 narcotic or currency seizures. The street value of the narcotics uncovered by the canines exceeded several billion dollars. The dogs detected approximately 631,909 pounds of marijuana, 50,748 pounds of cocaine, 358 pounds of heroin, and $25.5 million in currency. H.R. 1791 would put federal law enforcement animals on equal ground with local law enforcement animals that are protected in 27 states, including my own state of Arizona.

Mr. KYL

Mr. KYL. Mr. President, last Friday, the Senate concluded debate on the Death Tax Elimination Act, H.R. 8, and passed the bill by a bipartisan vote of 59 to 39. I am very grateful to Senators on both sides of the aisle who supported this important legislation. The broad, bipartisan support the death-tax repeal bill received suggests that we have finally found a formula for taxing inherited assets in a fair and common sense way. Unrealized gains will be taxed, but they will be taxed when they are earned--not at death. Death itself will no longer trigger a tax. This change--effectively substituting a capital-gains tax, which would be due upon the sale of inherited assets, for an estate tax at death--is itself a compromise. When I first introduced a death-tax repeal bill in 1995, I did not propose any change in the stepped-up basis--a change that is at the heart of this bill. My original legislation would have repealed the death tax and allowed heirs to continue to step up the tax basis in the inherited property to the fair market value at the date of death. That is obviously the ideal world for taxpayers: No death tax, and a minimal capital-gains tax when the inherited assets are later sold. The problem was, that approach sat idle for four years. We could not get it to the Senate floor for a vote, and we could not attract bipartisan support for it. The idea behind this bill really came out of a hearing before the Senate Finance Committee in 1997. At the hearing, Senators Moynihan and Kerrey acknowledged that the death tax was problematic, but expressed the concern that, if we repealed the death tax without adjusting the basis rules, unrealized gains in assets held until death could go untaxed forever. It struck me then that we had the basis for a compromise. If we could agree that death should not trigger a tax, we should be able to agree that death should not confer a tax benefit, either. The answer was to simply take death out of the equation. Coupling death-tax repeal with a limitation on the step-up in basis does just that. So H.R. 8 represents a compromise. And that is why, I think, we were able to win the votes of 59 Senators, including nine Democrats. And that is why 65 Democrats were able to support the legislation in the House of Representatives. During consideration of the death-tax repeal bill last week, some of our colleagues on the other side proposed a different kind of compromise. They said theirs would repeal the death tax for virtually all family-owned businesses and farms. Some have suggested that, if President Clinton vetoes the death-tax repeal initiative, the Democratic substitute might serve as a basis for further compromise. The problem is, the approach taken in the substitute--while well- intentioned--is fatally flawed. Here is how the Wall Street Journal put it in an editorial on July 13: Senate Democrats also offer to expand a small-business and farm exception that is a tax-lawyer's dream. The loophole, known as IRS Code section 2057, is so complicated and onerous that few estates qualify. Let me take a few moments to explain the deficiencies of this Democratic substitute. First, there are requirements that more than 50 percent of the decedent's assets must be made up of the qualifying business; that the decedent or immediate family must have actively operated the business for five of the eight years preceding death; and that a member of the immediate family must agree to continue to operate the business for at least 10 years after the decedent's death. If any of these conditions is not adhered to for 10 full years after death, the government can still collect the original estate-tax that was due, plus accrued interest. And understand this: to protect its right to recapture the estate tax if the business fails to comply, the Federal Government attaches a Federal tax lien to the property for a full 10 years. For a business, like farming, which is credit-dependent, such tax liens can make it virtually impossible to secure loans and financing for business operations, for growth, and for viability. In addition, the heirs are held personally liable for the estate tax and any penalties. So, far from providing meaningful relief, the Democratic substitute leaves a cloud over the family business for up to a decade after death. The government can come back any time and recapture the estate tax that was due, plus interest, if the business, at any point, falls out of compliance. The threat of reimposition of the tax absolutely limits the family's flexibility in managing and disposing of business assets in its best interest. The Democratic substitute relies on the current law's onerous material participation requirement, which, in effect, forces the family to work in the day-to-day operation of the business, or face the death tax, plus severe penalties. These requirements may be difficult to satisfy if, for example, the present owners are disabled or other family members are not yet involved in the business. It relies on very complex rules for determining the value of farms and closely-held business interests. Historically, the IRS has challenged virtually every valuation method used, and these challenges typically wind up in Tax Court. There are currently 149 tax cases which have been decided and reported involving 2032A issues. The IRS has challenged the validity of 2032A election or planning, and has won in approximately 67 percent of the cases. An equal number may be embroiled in the administrative process before court action. So much for relief--two-thirds of the few who do think they qualify, do not ultimately qualify and have to pay the tax with interest. The so-called family business ``carveout,'' which is embodied in Section 2057 of current law, is so bad that the Real Property and Probate Section of the American Bar Association has urged its repeal. The reason the ABA condemns this section so strongly is that it is extremely complex and has an extremely limited application. It provides little practical help to families trying to preserve the family-owned farm or small business. It incorporates 14 sections from Section 2032A, which the ABA considers the most dangerous section of the estate-tax law because of the risk of malpractice claims against estate-planning lawyers and accountants. So the fact is, if you rely on these sections of the tax code, you can raise the value of the estates eligible for relief as high as you want, and still few estates are going to get the intended relief. Estimates are that only about three to five percent of estates would benefit, and even then, as I said before, if they do not continue to meet all requirements for 10 years after death, the government can still come back and collect the original estate-tax bill plus accrued interest. The government's interest is protected by a lien that is maintained on the business for 10 years. Of course, because the family-business carveout is so complex-- because it requires determining compliance and ensuring continued compliance for 10 years--business owners have to continue to engage in expensive estate-tax planning. That is a tremendous waste of resources--resources that would otherwise be plowed back into the business for new jobs, better pay for current employees, business expansion, or research and development. A recent report by the National Association of Women Business Owners (NAWBO) found that, ``on average, 39 jobs per business or 11,000 jobs have already been lost due to the planning and payment of the death tax.'' NAWBO projects that, on average, 103 jobs per business, or a total of 28,000 jobs, will be lost as a result of the tax over the next five years. That would not change under the Democratic substitute, because there would still be a need for expensive estate-tax planning. Mr. President, 59 Senators voted for a better approach--one that takes death out of the equation and taxes inherited assets like any other assets for tax purposes. A capital-gains tax would be paid when the assets are sold, with only a limited adjustment in the decedent's tax basis to ensure that no one is subject to new tax liability. That is the true compromise. Tinkering with an already unworkable section of the tax code is not an effective substitute. I hope the President will sign the Death Tax Elimination Act when it reaches his desk. If not, we will be back next year when a new President is in the White House, and I predict that we will prevail. I yield the floor.

Mr. KYL

Mr. KYL. Mr. President, it was about two-and-a-half years ago that I came to the Senate floor to call on the Senate to repeal two of the most egregious and unfair taxes imposed by the nation's Tax Code: the steep taxes imposed on people when they get married and when they die. The good news is, for the second time in two years, the Senate has cleared legislation to repeal the death tax. And this week, for the third time, we will clear a measure to repeal the marriage penalty. In 1995, Congress passed legislation that would have provided a tax credit to married couples to offset this penalty somewhat. President Clinton vetoed that bill. In 1999, Congress again approved a measure to provide married couples with some relief. Last year's bill would have set the standard deduction for couples at twice the deduction allowed for singles. It would also have set the lowest income-tax bracket for married couples at twice that allowed for single taxpayers. President Clinton vetoed that measure last September. According to the nonpartisan Tax Foundation, the total tax burden borne by American taxpayers dipped slightly in 1998. That is the good news. The bad news is that Americans still spent more on federal taxes than on any of the other major items in their household budgets. For the median-income, two-earner family, federal taxes still amounted to 39 percent of the family budget--more than what they spent on food, housing, and medical care combined. One of the reasons why they paid so much is the continuation of the marriage penalty that exists in the Nation's tax code. According to the Congressional Budget Office, nearly half of all married taxpayers--about 21 million couples--filing a joint return paid a higher tax than they would have if each spouse had been allowed to file as a single taxpayer. The marriage penalty hits the working poor particularly hard. Two- earner families making less than $20,000 often must devote a full eight percent of their income to pay the marriage penalty. Eight percent is an extraordinary amount for couples that count on every dollar to make ends meet. Let me stop here and give an example of the marriage penalty at work. In this example, the penalty comes about because workers filing as single taxpayers get a higher standard deduction, and because income- tax bracket thresholds for married couples are lower than the threshold for singles. Consider a married couple in which each spouse earns about $30,000 a year. They would have paid $7,655 in federal income taxes last year. By comparison, two individuals earning the same amount, but filing single returns, would have paid only $6,892 between the two of them. That is a marriage penalty of $763. The average penalty--average penalty--paid by couples is even higher than that--about $1,400 a year, according to the Congressional Budget Office. Think what families could do with an extra $1,400. They could pay for three or four months of day care if they choose to send a child outside the home--or make it easier for one parent to stay at home to take care of the children, if that is what they decide is best for them. They could make four or five payments on their car or minivan. They could pay their utility bill for nine months. The bill before us is the most comprehensive effort yet to eliminate the marriage penalty. It would expand the standard deduction for married couples filing jointly; widen the tax brackets for such couples; and increase the income phase-outs for the earned income credit. Unlike President Clinton's so-called relief bill, the plan Chairman Roth brings to us today does not neglect married couples who choose to have one parent stay at home to raise the children. It gives them relief, and, in so doing, it lets them know we value the choice they have made to stay home and raise a family. Unlike the Clinton plan, which would preserve the penalty for many couples, our plan would eliminate the marriage penalty in its entirety. Sure, that means the revenue loss associated with this legislation is greater than the President proposed, but the smaller cost of providing relief under the Clinton plan is also indicative of just how little it would do to solve the problem. We should not be stingy when attempting to ensure fairness in the tax code. Passage of this legislation would continue the good progress we have made this year in making the tax code fairer. First, we passed the measure to repeal the Social Security earnings limitation, a tax that has unfairly penalized seniors for more than 60 years, simply because they wanted to earn some extra income to supplement their monthly retirement checks. That measure is now law. Last week, we voted to eliminate the death tax, which unfairly taxes people simply because they die. We voted to substitute a capital-gains tax so that inherited assets are taxed at the appropriate time--when they are sold, and when income is actually realized. Hopefully, the marriage-penalty repeal bill, like the death-tax repeal, will pass with a strong, bipartisan majority, and President Clinton will rethink his opposition and sign it when it reaches his desk. We can debate the merits of any number of changes in the tax code: whether a flat tax is preferable to a sales tax; whether tax rates should be reduced across the board; or whether we should make the tax code more conducive to savings and investment. There are legitimate points to be made on both sides. But when it comes to fairness, we need to do what is right. The marriage penalty, like the earnings limit and the death tax, is wrong, it is unfair, and it is time to put it to rest. I urge support for the marriage-penalty repeal bill.

Mr. KYL

Mr. KYL. Mr. President, I'm pleased to sponsor Senator Domenici's amendment, number 3782, to the fiscal year 2001 Interior and Related Agencies Appropriations bill which adds critical funding to the budgets of the Bureau of Land Management and the Forest Service for hazardous fuel removal. These funds are necessary to address the immediate threats to wildland/urban interface areas across the country which are surrounded by public lands choking with natural fuels build-up from a half-century of fire suppression. The Los Alamos fire was a tragic reminder of the threat that exists today around many communities. In my own state of Arizona, which has the largest ponderosa pine forest in the world, the communities of Flagstaff, Tucson, Summer Haven, Pinetop- Lakeside, Showlow, and countless others are virtually surrounded by the national forest. The work being done by the Ecological Restoration Institute at Northern Arizona University to address forest ecosystem restoration is world-class. I believe my colleagues are aware of the forest treatment and public education programs there. I understand that an agreement was reached to provide $8.8 million directly to the Ecological Restoration Institute for its ongoing efforts from within the funds made available to the Bureau of Land Management. Is this correct?

Mr. KYL

Mr. KYL. Will the Senator yield?

Mr. KYL. A good opportunity to summarize: I support what Senator Roth said earlier this morning. The Democratic alternative is no alternative at all because it relies upon a definition in the code that virtually no one can meet. Only 3 to 5 percent of the estates qualify. That is why the Democratic alternative is no alternative at all. Is this only me speaking? No. All of the farm and small business organizations agree. They support the Republican alternative, not the Democratic alternative. I think the best test of which one of these plans best meets their needs is to ask the people who are most affected. They answer resoundingly that it is the Republican plan that best meets our needs; it is the Republican plan that we support. For that reason, when it comes to choosing between the alternative-- you have to make a choice here--the Republican alternative, which passed the House of Representatives with strong bipartisan support, is the one that should be supported and the Democratic should be rejected.

Mr. KYL. Mr. President, how much time do I have remaining?

Mr. KYL. Not right now. Let me finish my point. The reason why the Democratic alternative is not supported by any of these organizations is because no one can qualify for the benefit it purports to grant. It does not matter whether you raise the exemption from $600,000 to $1 million or $2 million if people can't qualify for it. The fact is, it is very difficult, if not impossible, for most small businesses and farms to qualify. I will cite some experts who make that point, but, first of all, the statistics: Only 3 to 5 percent of affected estates qualify under these sections. In today's Wall Street Journal, there is a reference to this fact. The lead editorial ``Death Tax Revolt,'' reads: But Senate Democrats also offer to expand a small-business and farm exception that is a tax-lawyer's dream. The loophole, known as IRS Code section 2057, is so complicated and onerous that few estates qualify. That's why even House Democrats offered the cleaner alternative of a 20 percent cut in estate-tax rates. It then goes on to note that Senate Democrats have offered this instead. Let me quote from a couple of memos from tax experts that make this point: The requirements to qualify for the new exclusion provided by 2057-- Which is the section we are talking about here-- are virtually identical to the requirements to qualify for special use valuation for farms under section 2032A. . . . The 2032A nexus is very important since most estate tax analysts agree that section 2032A is a flawed section of the Code that is virtually unworkable. Let me just go on here: The frustration of farmers with 2032A and its enforcement has resulted in virtually no farm families structuring their estates to take advantage of this so-called relief in the Code. . . . Quite simply, these provisions, while well- intentioned, are flawed and represent ``broken'' sections of the Code. Tinkering with the Code-- I will just interject: As the Democratic alternative purports to do-- and trying to engineer and mandate the circumstances for running a business or farm 10 years into the future is a gross violation of a family's right for self-determination for the business or farm and against the spirit of allowing an individual's hard-earned, after-tax life's work to be shared and enjoyed by his/her loved ones. Here is what one of the experts in estate tax has noted: The current Qualified Family-Owned Business Interest is 4 pages of statute as Code Section 2057. Its predecessor 2033A was condemned by the Real Property and Probate Section of the American Bar Association which urged its repeal. Why? Because it is malpractice waiting to happen. All of the lawyers getting together can't figure out how to make this code work for small businesses and farms. They can't qualify. Reading on: The reason for this condemnation by this respected organization and others was extreme complexity and limited application, plus little practical help in preserving family farms and businesses from forced sale or liquidation to pay the 55 percent estate tax. Although 2057 is only 4 pages of law, it incorporates by reference 14 sections from 2032A--valuation of certain farms, etc., real property. Section 2032A, which is itself 11 pages, ``was considered the most dangerous section of the estate tax law because of the risk of malpractice claims against estate planning lawyers and accountants. Currently, there are 149 tax cases which have been decided and reported involving 2032A issues.'' The IRS has challenged the validity of the estate planning under this section and has won approximately 67 percent of the cases. So what kind of great relief do we have in the Democratic package? Relief which is based upon attempting to qualify under a section that only 3 to 5 percent of the eligible estates can qualify under, where lawyers are frequently committing malpractice if they try to gain this qualification, and where the IRS is succeeding in over two-thirds of the challenges which they are making to attempts to qualify under this section. The point is, you can make this exemption as high as you want to, but it is unworkable. That is the fatal flaw in the Democratic plan. As the Wall Street Journal editorial noted, House Democrats who sought to have an alternative recognized this and went at it in a different way--not our colleagues in the Senate. There are additional memoranda from tax experts who make this very same point. I will move on to another point. My colleague, Senator Conrad, quoted the Larry Summers article which is grossly in error. The Secretary of the Treasury forgot two important points when he estimated the cost of the Republican plan. First, remember that the Republican plan is not just a repeal of the estate tax. It is essentially a substitution of the capital gains tax for the estate tax. That is an important point. When somebody such as Secretary Summers or Senator Conrad says, here is how much the repeal of the estate tax is going to cost, and then doesn't take into account the revenue that is brought in by the application of the capital gains tax, they are presenting a distorted picture. The first point is that while the capital gains tax rate is lower at 20 percent, lower than the estate tax rate, it will nevertheless produce revenue when the property of the heirs is sold, at least it is their decision as to when to sell their property. It does not have to be sold at the time of death of the decedent in order to pay the tax. They can wait and hold it forever if they want to maintain the small business or keep on the family farm. If they would like to sell those assets sometime, they do so knowing that there is going to be a capital gains tax. Granted, at a rate lower than the estate tax, but it is still a tax they are going to have to pay. The second thing Secretary Summers did not take into account--and it has not been taken into account by our friends on the other side--is the step up in basis. Under the existing law, the basis is stepped up at the time of death. So let's take one of these billionaires they are fond of talking about. If the widow of a billionaire sells all of the estate the day after the death of the decedent, there is no gain. As a result, the step up in basis results in a payment of zero capital gains tax, none whatsoever. They have to pay the estate tax but zero capital gains tax. By removing this step up in basis, we take death out of the equation. If and when the assets are ever sold, they are sold knowing that the capital gains tax applies and that it is calculated on the basis of the original cost to the owner of the property. So the decedent bought the property 10 years before at $10 a share, and it is up to $100 a share now. The basis is the $10. The gain is calculated based upon that. Then you pay the capital gains tax. That is why all of these wild estimates of how much this is going to cost are off the mark. They don't take into account the fact that we substitute the capital gains tax and that we repeal the step up in basis. There is another point I will make. Given the fact that we are talking about a budget surplus of trillions of dollars over a 10-year period, obviously any ``cost to the Treasury'' is irrelevant. It is, A, a drop in the bucket and, B, not needed because we are running a huge surplus. Why are they so worried about this loss in revenue to the Federal Government? By definition we are running a surplus, and we don't need the revenue. One of the comments the Senator from North Dakota made was that our proposal costs less. Yes, it costs less because it provides less benefit. If it is so good for the family farms and small businesses that they seem to care so much about, why would they then want to stress the fact that their plan costs less, when in fact that means it provides fewer benefits. The bottom line is, the Republican alternative, which is supported by the agricultural and small business groups, is the better plan for them. It is a better plan because it doesn't rely upon a fatally flawed provision of the Tax Code to make it work. It repeals the estate tax, but it provides an important substitute. That substitute is that the estates would be subject to a capital gains tax to the extent that the property of those estates is ever sold. We believe that is a very fair way to approach this issue. It takes death out of the equation. It removes that horrible Hobson's choice that a family must make at the worst possible time for them to have to deal with it, at a time when the head of the family has died; he is the person perhaps most responsible for making this farm or small business a success. They are then faced with the difficult choice of having to figure out how to pay the estate tax and, in many cases, having to sell this business in order to do so. One more important point. There is a recent Gallup poll that points out that 60 percent of American people favor outright repeal. Only 35 percent oppose that. Yet 43 percent of the people who favor repeal say they know they would never benefit from the repeal. That demonstrates to me that they understand this is a very unfair tax. Only 17 percent believe they will benefit by a repeal of the tax. That may be a fairly representative number. But it is an unfair tax. Another one of the reasons why it is so unfair is because a great deal of the expense associated with this is not the payment of the tax, but it is the payment of all of these lawyers and accountants and estate planners and the purchase of insurance and other products which are designed to avoid the payment of the tax. The very wealthy, these billionaires the other side likes to talk about, can well afford all of the lawyers. They end up shielding the bulk of their income as a result of the estate planning they do. It is the smaller estates that end up having to pay the tax because they haven't been able to afford these expensive products to try to avoid the tax. Besides simply being jobmakers for lawyers, which I don't think we are in the business of being, this is a very expensive proposition. It is interesting that the bulk of the people who pay the taxes are the smaller estates. I ask unanimous consent to print in the Record a brief explanation from an article by Bruce Bartlett of why the larger estates pay only 20 percent of the total taxes.

Mr. KYL. I thank Senator Roth for yielding me the time. I appreciate the Senator from North Dakota at least attempting to yield for an answer to his question. Here is, I think, the simplest explanation. I will give two. If the Democratic plan is better for small businesses and farms, then why is it that every small business organization and every farm organization support the Republican plan? I am responding to the Senator's question. We have politicians on both sides of aisle saying: Our plan is better. No, our plan is better. Why is it that all of the organizations that we are concerned about-- the farmers and the small business folks--all support the Republican plan? Let me read into the Record a few of these organizations. The American Farm Bureau supports the Republican plan. There are a whole number of organizations such as the Soybean Association, the Sheep Association, and others. Let me list a few of them: the National Association of Wheat Growers, the National Association of State Departments of Agriculture, the National Cattleman's Beef Association, the National Corn Growers Association, the National Cotton Council of America, the National Milk Producers Federation, and with regard to small business, the umbrella organization, the National Federation of Independent Business. And back to the farm groups: the Pork Producers Council, the Small Business Legislative Council, the United Fresh Fruits and Vegetables Association. I could go on and on reading from this list. This is a three-paged, single-spaced list of small business organizations and farm organizations, and every one of them support the Republican plan, not the Democratic alternative. So I think that is the answer to the question: Which one of these plans is better for small businesses and farms? It is the Republican plan. Why is that? There is actually a fairly simple answer, and then an answer that takes a little more explanation.

Mr. KYL. If I could have 15 minutes, I think that would do it.

Mr. KYL. For a question.

Mr. KYL. Mr. President, I thank my colleague from Minnesota for offering this amendment. This has been a long time in coming. Just about 7 years ago, on August 6, 1993, the Vice President cast the deciding vote in this Chamber to raise taxes on Social Security benefits. That same day, in the House of Representatives, I introduced legislation to roll back that Clinton-Gore tax hike for seniors. I was proud to have my colleague from Minnesota as a cosponsor of that bill, and I am pleased to offer my support for his amendment today. Millions of Americans depend on Social Security as a critical part of their retirement income. Having paid into the program throughout their working lives, older Americans plan their retirement budgets very carefully assuming that expected benefits will be there. The 1993 Clinton-Gore Social Security tax hike upset the carefully laid plans of millions of retirees by subjecting to federal taxation 85% of the benefits earned by seniors above $34,000--or $44,000 for a couple. For affected seniors, this constituted an increase of as much as 70 percent in the marginal tax rate. The result is that seniors who had planned to continue building their nest eggs after retirement found themselves facing an overwhelming disincentive to continue earning. This is not just counterproductive--it is blatantly unfair. Younger investors face no such disincentives to save and invest. And yet investment income is much more important to seniors than it is younger citizens. Sixty percent of seniors' income is derived from their investments. It is simply not credible to dismiss the millions of Americans who must pay this unfair tax hike as ``the rich.'' Last year, 4.6 million American households had to pay more in taxes than they would have had the Clinton-Gore increase not been in effect. That is more than a quarter of all households that include at least one Social Security beneficiary. Earlier this year, we came together on a bipartisan basis to repeal the Social Security earnings limit. At that time, I wondered if the unanimous vote to put an end to that relic of the Depression Era indicated a new willingness to remove the barriers that discourage older Americans from supplementing government assistance with self-help. Our vote on the Grams amendment will demonstrate which Members of this body are prepared to follow through on that principle. I certainly hope that this vote will be just as overwhelming as the vote on the earnings limit.

Mr. KYL

Mr. KYL. The point the Senator just made is validated by a Gallup Poll that just came out, conducted from June 22 to 25. It shows that 60 percent of adults favor this proposal that would eliminate all inheritance taxes, compared to 35 percent who oppose it--almost 2-1 support for elimination of the death tax. Interestingly enough, to the point the Senator just made, only 17 percent of Americans say they would personally benefit from the tax elimination, while 43 percent say they would not benefit.

Mr. KYL. Yet they support its repeal because they understand it is unfair. To the point of the Senator from California yesterday, who said this all boils down to whose side are you on, no, it does not. What it boils down to is that the vast majority of the American people, understanding, even though it may not affect them, it is a totally unfair tax, agree with us that it should be repealed.

Mr. KYL. Would the Senator yield for a brief comment, a question?

Mr. KYL

Mr. KYL. Mr. President, I rise in support of the amendment to add $240 million to the budgets of the Bureau of Land Management and the Forest Service for fuels reduction on our public lands. In April 1999, the General Accounting Office reported to the Congress that 39 million acres on the national forests in the interior West are at high risk of catastrophic wildfire. The GAO also stated in that same report to Congress that the ``most extensive and serious problem related to the health of national forests in the interior West is the over-accumulation of vegetation, which has caused an increasing number of large, intense, uncontrollable, and catastrophically destructive wildfires.'' As we've seen this summer on the Rim of the Grand Canyon in my state of Arizona, on the Hanford Reach in Washington State, in the community of Los Alamos, New Mexico, and now in Colorado and other western states, it's time to pay the piper. If we don't spend the money now to treat the forests and other public lands, mechanically and through the use of fire, we will pay later--and we will pay a lot more. The National Research Council and FEMA have recognized wildland fires in California in 1993 and Florida in 1998 as among the defining natural disasters of the 1990s. The 1991 Oakland, CA fire was ranked by insurance claims as one of the ten most costly all-time natural disasters. And in terms of damage, the magnitude of these catastrophic fires was compared with the Northridge earthquake, Hurricane Andrew and the flooding of the Mississippi and Red River. As the findings of these organizations reveal, we are setting ourselves up for costly and deadly disaster unless we act now and send money to the Forest Service and the Bureau of Land Management for hazardous fuels reduction in the wildland/urban interface. In response to the GAO report, the Forest Service is working on a Cohesive Strategy to restore and maintain fire-adapted ecosystems across the interior West. I've seen a draft of that report, and the price tag on the draft is about $12 billion over 15 years to treat 60 million acres on the National Forest. As I understand it, the Forest Service had hoped to release a final Strategy about a month ago, but this Administration's OMB has put a hold on the Strategy as too expensive. I'm not willing to wait until Flagstaff or Tucson or any other community virtually surrounded by the National Forest burns. I support providing the Forest Service and the Bureau of Land Management with emergency funds, assuming that the Administration designates these funds as emergency funds as required by the Balanced Budget and Emergency Deficit Control Act of 1985. Mr. President, I also want to draw my colleagues' attention to the comments of Stewart Udall that were published in the Arizona Republic on Thursday, July 6th. As my colleagues know, Stewart Udall, who now lives in the fire-threatened community of Santa Fe, New Mexico, served as Secretary of the Interior and represented Arizona in the House of Representatives. Mr. Udall notes with complete accuracy that we have altered the ecology of our forests and that it is only a matter of time before these man-made tinderboxes will ignite. Mr. Udall implores citizens to unite and demand restoration plans and aggressive, science- oriented, landscape-scale restoration action plans to prevent Los Alamos-style disasters. Mr. Udall praises an organization of which I, too, am proud, the Ecological Restoration Institute, located at Northern Arizona University, and its leader, Dr. Wallace Covington. Mr. Udall opines, and I agree, that with appropriate support, the Ecological Restoration Institute can show other forested states how to use controlled burns and mechanical thinning to eliminate the threat of devastating fires. Mr. President, I ask unanimous consent that these remarks of Mr. Udall be printed in the Record.

Mr. KYL

Mr. KYL. Mr. President, I will make this point briefly. One of the alternatives suggested by the other side is to increase the amount of the exemption. The problem with that is there has never been a way to define who qualifies for the exemption in a simple enough way for it to be effective. In fact, we have a lot of tax experts who point out that few people are able to take advantage of the exemption today because it is just too difficult with which to comply. In fact, the American Bar Association condemned it because it, in effect, created too much malpractice risk for lawyers who could not figure out how to make it work for their clients. It is considered the most dangerous section of the tax law because of the risk of malpractice claims. I point out that currently there are 149 tax cases that have been decided and reported involving issues relating to section 2032A. The IRS has challenged the validity of section 2032A in estate planning, and the IRS has won approximately two-thirds of those cases. Now section 2057, the successor, is the most dangerous and, if changed as suggested here, is going to be even worse, but it will, of course, create billions of dollars in legal and accounting fees. That is not what we should be all about, Mr. President. We should be about saving money for those who would no longer have to spend all of these millions of dollars to plan against the possibility of the estate tax. That is a huge amount of money that could be saved, about as much as is paid in estate taxes, by the way, and we can get back to a situation which is fair; namely, there will be a tax, but it will be a tax when the property is sold, not when the death occurs. That is the basic fairness of this proposition. That is why I urge my colleagues to vote for cloture so we can vote for H.R. 8 and repeal this unfair death tax.

Mr. KYL. I will read from part of this piece. He is a senior fellow with the National Center for Policy Analysis. The latest data from the Internal Revenue Service tells the story. In 1997, more than 50 percent of all estate and gift taxes were collected from estates under $5 million. Only 20 percent came from the very wealthy--those with estates more than $20 million. He goes on: An estate between $2.5 million and $5 million actually pays a higher rate than that paid by estates of more than $20 million--15 percent for the former and only 11.8 for the later. How can this be, he asks, when estate tax rates are steeply progressive, taxing estates of more than $3 million at a 55-percent rate? The answer is, that estate planning can eliminate the tax if someone wants to spend enough money and enough time in setting up trusts and organizing one's affairs for that purpose. Those with more wealth obviously take advantage of that, whereas the small farmer, the small businessman or someone with a modest stock portfolio is not going to do it, and, in fact, doesn't, according to the statistics. The Government gets more than two-thirds of all estate tax revenue from the estates under $10 million. The idea that taxing the stuffing out of such estates does anything to equalize the distribution of wealth in America, he says, is ludicrous. All it does is prevent those with modest assets from becoming wealthy. Academic research has shown that estate taxes squeeze vital liquidity out of small businesses, often forcing them to sell out to larger competitors. I told the story earlier in this debate about a family in Arizona in which that is precisely what happened. Thus, he concludes, the estate tax makes it more difficult for small firms to grow and become large. He makes another point: One could, perhaps, make a case for a heavy estate tax if there were evidence that a large share of the nation's wealthiest families got that way through inheritances. But this, in fact, is not the case in America and never has been. A 1961 study by the Brookings Institution found that only 6 percent of the wealthy acquired most of their assets through inheritance. Sixty-two percent reported no inheritance whatsoever. A 1995 study by the Rand Corp. got similar results. They found among the top 5 percent of households, ranked by wealth, inheritance accounted for just 8 percent of assets. A 1998 study by U.S. Trust Corp. found among the wealthiest 1 percent of Americans' inheritances were a significant source of wealth for just 10 percent of them. He concludes his piece with this: It simply defies logic to tell people they need to save for retirement and then punish them for doing so by threatening to confiscate their estates after death. It is absurd to tell such people that they are the unworthy rich who merely won life's lottery, when every penny they have has come from their own hard work and investment. Yet that is what those fighting estate tax repeal are doing. It is precisely because the estate tax is more of a tax on the middle-class that the left believes it to be that the repeal effort has gotten so far. It seems to me, that the argument we have to keep this because it is important to soak the rich flies in the face of the studies I have cited. It is not the rich, in fact, who are getting soaked. There has also been a suggestion, and Senator Dorgan made the point, there are all kinds of ideas for how to spend the money collected by this tax. I am sure those who like to tax and spend, who like to redistribute wealth, who believe in the liberal class warfare rhetoric, will find lots of ways to spend money. As I pointed out, we already have a huge surplus. This doesn't even make a dent in it. Their argument is, therefore, we ought to be voting on other issues rather than voting on this. One of them was we should vote on the Patients' Bill of Rights. We already voted on the Patients' Bill of Rights. The other side lost. They don't like to accept the fact they lost, but it is called accept majority rule. That is what democracy is all about. They also want to vote on drug benefits. We are going to have votes on drug benefits. Everybody in America understands that you do things in order. The House passed the estate tax repeal. It is now before the Senate. Let's get it done and then we can take up that other legislation the other side wants to take up. It will be taken up. Let's do this now. What is the reason not to? It all boils down to politics. That is the unfortunate proposition. There is another point I find very interesting.

Mr. KYL. I will not read the entire list. It includes not only organizations that we are familiar with such as the American Farmer Bureau Federation, the National Federation of Independent Business, the National Newspapers Association, the Small Business Legislative Council, and groups similar to that. It also includes groups such as the National Black Chamber of Commerce, the National Indian Business Association, the National Association of Neighborhoods, U.S. Hispanic Chamber of Commerce, the Texas Conference of Black Mayors. Also, environmental organizations such as the Wildlife Society, the Isaak Walton League, Wildlife Management Institute, International Association of Fish and Wildlife Agencies, and more. Whose side are you on? We are on the side of the American people who believe, by percentages of 70 to 80 percent, the death tax ought to be repealed. That is whose side we are on. If we could ask the American people, 70 percent to 80 percent of whom believe this ought to be repealed, how do they vote, they vote to repeal it. That is whose side we are on. The second point was, we should soak the rich; after all, they can afford it. There was a suggestion by Senator Feingold a moment ago that, after all, this property never gets taxed unless we can tax it at the time of death. That is not what this bill says. We replace the death tax with the capital gains tax. Death is taken out of the equation. There is no tax when someone dies. But when the heirs decide to sell the property, if they ever do, they pay a capital gains tax, as the original owner would. They pay it on the basis of the original owner's cost in that. This is why, according to the President's own budget, the Analytical Perspective of the Budget of the United States, for this next fiscal year, notes that the step-up basis of capital gains on at death--the current law--in effect costs the Federal Government almost $153 billion over a 5-year period. That is about the tax collections from the inheritance tax. While I am not suggesting this is going to be a complete wash, I am suggesting there is not going to be all that much revenue lost to the Treasury, if you are concerned about that and with multihundreds of billions of dollars of surplus. I am not concerned about revenue to the Treasury. If that is your concern, be not concerned. According to the President's own budget, the step-up in basis loses the Federal Government about $153 billion. If you calculate the amount of the estate tax that will be collected over 5 years, it is not a great deal more than that. What is this business of step-up in basis? Senator Feingold said this property is never taxed and that is why we have to have a death tax. It is taxed. First, your income is taxed. You are then going to buy things with it. You buy stock; you will invest in other kinds of investment. Of course, you spend a great deal of it. Whatever you spend, you are spending with after-tax dollars. It has already been taxed. However, if you want to tax it again, the fair way to tax it again is not at death, over which the decedent has no control, but rather as a capital gain by the individual or people who end up selling the asset, if and when they sell. That is an economic decision taking tax consequences into account. That is what we do here. I am afraid some on the other side have not read the bill. What it does is, in effect, replace the estate tax with a capital gains tax. But a 20-percent capital gains rate is a whole lot better than a 55- percent death tax rate. The voluntary decision to sell the property and accept that tax burden is a whole lot more fair than having to pay the tax at death. This is not property that is not being taxed and, in fact, it is taxed as a result of the way we have structured this legislation. Let me make another point about soaking the rich. It is simply not the case that it is the wealthiest estates that are paying most of the estate tax. I ask unanimous consent that an op-ed piece by Bruce Bartlett, appearing in the Washington Times, be printed in the Record.

Mr. KYL. Thank you, Mr. President. I thank the Senator from Alabama for his kind remarks. Mr. President, I heard some astonishing claims this morning and somewhat this afternoon. I would like to try to respond to some of the things that have been said by some of our friends on the other side of the aisle. Let me, first of all, note for those who might be watching this that the primary object of those on the minority side is to stop us from having a vote on the repeal of the death tax. That is the last thing in the world they want. That is why they are trying to confuse the issue by suggesting that they want to offer all kinds of amendments that have nothing whatsoever to do with the death tax in order to prevent us from ever getting to a vote on the death tax. When we keep talking about cloture, I will explain to those who aren't familiar with Senate terms that it is required because the distinguished minority leader will not reach an agreement with the majority leader on the terms under which we could bring this up for a vote. So we have to get 60 Senators who will agree to finally bring this matter to a close so we can actually have a vote. That will be a very important vote. Whether or not we get 60 votes, we don't know. But I am counting on a great deal of bipartisan support because we have bipartisan support in the House of Representatives which voted overwhelmingly for H.R. 8, which is the bill before us. There are nine Democratic sponsors of the Kyl-Kerrey bill, which is part of H.R. 8. That is the bill we introduced to repeal the death tax which was then incorporated in the House bill. Just a quick reminder that the House bill and what we are debating here today will reduce the rates over a 10-year period and in the tenth year repeal the estate tax altogether by, in effect, replacing it with a capital gains tax. That is one of the points I will get to later. We are not forgoing all of this revenue, as people on the other side of the aisle have argued. Actually, the taxes that will be collected when property is eventually sold and taxed under capital gains is just about the same amount that would be collected under the death tax. Anyway, chances are there won't be much revenue lost, even if that is a concern in this era of many hundred-billion-dollar surpluses. I want to start with those particular comments. As I said, I was astonished by some of the claims made here. Let me mention two: One by the Senator from North Dakota, Mr. Dorgan, who in effect said that the estate tax should be imposed on successful people as the price for the privilege of living in America and making a lot of money. That turns the American dream on its head. The American dream, as I understand it, and as folks with whom I have talked in Arizona understand, is being able to work hard, to save, to invest, and to be able to create a situation where the next generation can have a little better opportunity than you had. That is the American dream. We all live for that, for our kids and our grandkids. It is exactly the opposite as expressed by some on the other side--that if you are successful, by golly, the Government is going to come in and take it all from you. No, excuse me--take half it from you when you die. First, they are not taking it from you. They are taking from your employees, from your kids, and from your grandkids. That is not fair. That is not the American dream. The Senator from California, Mrs. Boxer, employing some of the new Gore rhetoric, said it all boils down to a question of, Whose side are you on? Well, I will accept that challenge. Whose side are we on here? Mr. President, I have a list of about 100 different organizations that strongly favor the repeal of the estate tax. I ask unanimous consent that this list be printed in the Record.

Mr. KYL

Mr. KYL. Mr. President, Senator Nickles made the point that the amendments the minority have sought to bring up have nothing to do with repeal of the death tax. That is why the majority leader said he will enter into an agreement with them but let's make it relevant and germane to the issue before the Senate. When the American people see us going through these charades, I wonder how they can have any confidence in a body that seems to be so partisan and intent on changing the subject. We have one subject before us today: repeal of the death tax. It is the House bill that passed overwhelmingly. Why can't we simply consider this bill with relevant and germane amendments? Why do we have to get off into prescription drugs and the rest? Our distinguished colleague from North Dakota has said there is an alternative with respect to the repeal of the death tax. I would like to take that on because it relies on a section of the code today that is absolutely unworkable. Two-thirds of the cases that have been brought with respect to this section of the code have been won by the IRS. It does not work. Try to qualify, if you are a small business or a farm, under the section that they are taking about; you are not going to get relief. It is a sham proposal. You can raise the exemption all you want, but if the definition precludes you from qualifying, you have not gained a thing. I can't wait to debate the alternative that the members of the minority want to propose. I will agree, right now, to consider that as an amendment that we would vote on here. If we can agree to consider that, we can move right on to the consideration of the death tax repeal because the provision they are talking about is unworkable, it is unfair, and it will not provide an adequate alternative to the repeal of the death tax that is called for under H.R. 8, the House-passed bill. I urge my colleagues to support the cloture motion so we can get on with the debate about how we can finally bring an end to this most unfair and pernicious section of the Tax Code. I welcome a debate of any germane alternative that members of the minority would like to present because I think when you hold them up side by side, H.R. 8 will win.

Mr. KYL

Mr. KYL. Mr. President, might I inquire either of the Chair or Senator Levin, is there time remaining or is the vote scheduled to occur right at 5:30?

Mr. KYL

Mr. KYL. Madam President, on behalf of the leader, I ask unanimous consent that the Senate now proceed to executive session for the consideration of Calendar No. 473, the nomination of Madelyn Creedon to be Deputy Administrator for Defense Programs, under the terms of the consent agreement reached June 14.