Issues Relating to South Dakota

ISSUES RELATING TO SOUTH DAKOTA -- (Senate - August 01, 2006)

Mr. THUNE. Mr. President, I rise today to address some issues that are pending before the Senate, and I also want to acknowledge what I hope will be action we will take somewhere down the road regarding a situation in South Dakota that we are experiencing this year.

We are experiencing what is, I would say, probably a 100-year drought. We are having extraordinarily high temperatures. We haven't had rain. In fact, the rain accumulations this year in South Dakota are less than the rain in many years throughout the Great Depression back in the 1930s, and it is having a devastating impact on our economy and the farmers and ranchers in South Dakota on which our economy relies.

In fact, if one looks at the small grain crop, the wheat crop in South Dakota was a complete bust, a 100-percent loss in many areas of South Dakota.

The row crops, corn and soybeans, are extremely stressed. Much of that crop will be lost this year as well. Cattle producers are selling their herds, liquidating their herds, creating all kinds of economic issues for my State of South Dakota.

What I hope is that as time goes on, we will have an opportunity to address in some fashion that crisis in South Dakota in the form of an emergency disaster relief package.

There is some money attached, currently, to the agriculture appropriations bill that passed at the committee level of the Senate--it hasn't seen floor action--about $3.9 billion that would apply to 2005. Obviously, 2006 is much worse in many parts of the country and for sure in my State of South Dakota. So I am hopeful we will be able to amend that or perhaps move on to some other legislation. I am looking at introducing a piece of freestanding legislation, too, that would address this situation for 2006.

My point is this is something which is a dire emergency in my State of South Dakota. It literally is burning up out there. We have had temperatures that have shattered State records, in the high hundreds--115, 118--temperatures like that for days and days at a time without any rain. In fact, in many cases, there was very little rain going back all the way to the very first of this year. It is a historic event. As I said, it is probably up to a 100-year type event in terms of the actual weather conditions we are experiencing in South Dakota. I hope we can draw attention to that issue and get the support of our colleagues here in the Senate to address it.

I also wish to speak to an issue which has some bearing on that in a lot of ways--trying to keep people on the family farm, on the ranch, keeping these small businesses active, and allowing the next generation to move in and assume those operations and continue to create jobs and keep the economy going in South Dakota. It is really important.

Many pieces of legislation with which we will be dealing this week bear on this. One, the Energy bill has huge economic consequences to farmers and ranchers and small businesses that have to get their products to the marketplace and rely heavily on transportation, that need the inputs to get the crop planted, and the fertilizer and everything with it--all those costs are going through the ceiling as a result of high energy costs. Increasing energy supplies is critical.

The bill we just moved is important. I have another piece of renewable fuel legislation which I hope we will be able to get agreement on and be able to move across the Senate floor, too, this week and get some relief and move the country in the direction that is expanding the use of renewable fuels and expanding the sources of energy and lessening our dependence on foreign sources of energy.

We will also be voting on a pension bill this week, which is important, but the piece of legislation I want to speak to now is the tax bill which will come before the Senate later this week.

There are several provisions in the bill. One on which I have been working for some time is to provide permanent death tax relief. If we want to keep farmers and ranchers on the farm, continuing to grow and contributing to our economy in this country, we need to do something to address what is a very real issue. If we do not take action, in a few years here the death tax will rise back up to 55 percent, the top rate, and the exemption will drop back to $1 million. Anybody who knows agriculture knows that today, with land values being what they are and the capital costs associated with agriculture, we need to provide some additional relief.

The death tax reform bill which is going to be considered and voted on in the Senate would raise that exemption over a course of time to $5 million, indexed for inflation, and then for anything over that amount, over $5 million, it would tax it at the capital gains rate, which is 15 percent, and then on amounts above $25 million it would go up to 30 percent. It would also unify the estate and gift tax to simplify planning for people who are having to address, for planning purposes, what happens when it comes time to deal with the issue of the next generation.

I have always maintained that when someone dies, they should not have to see the undertaker and the IRS on the same visit. We need to do something that addresses this issue, that will bring some relief for hard-working farmers and ranchers across this country who are trying to provide a nest egg, something for the next generation to assume those operations and continue to be a part of the business that is an integral part of our economy in this country, not just in South Dakota but across the entire country. You have small businesses, farmers, and ranchers who are adversely impacted tremendously by the death tax. It is high time we did something about that.

There are a lot of people who would argue, and I have heard this argued before by Democrats in the Senate, that this is something which just benefits the rich. The reality is, regarding the death tax today, the people who are actually opposing repealing or reforming the death tax are the superrich. The reason is the superrich are not the ones who are paying the taxes. They use accountants and lawyers to figure out ways around paying the tax. It is those small farm and ranch operations, small businesses, that get stuck with the bill.

There are a lot of reasons we need to permanently deal with this death tax issue, but one of the reasons is the death tax revenues that come into the Federal Government are not all that consequential in terms of the overall budget relative to what it costs to collect and comply. Death tax revenues were $24.8 billion in 2005. They have averaged about 1.3 percent of Federal revenues annually over the past 10 years. The other side will argue that requiring this tax isn't too much to ask from the superwealthy. What they don't consider is all the costs imposed on family farms or small businesses to avoid or reduce their tax burden. Basic estate planning documents can cost up to $50,000. Plans involving limited partnerships can cost up to $250,000. One study concluded that in New York, family-owned businesses can spend an average of $125,000 on estate planning.

At the time of death, tax preparation fees can range from $5,000 to $50,000, according to some estimates. Often, family-owned farms and businesses right on the cusp of the death tax exemption will be required to fill out the IRS paperwork to ensure they do not owe anything. In 2004, there were 62,718 estate tax returns filed, but only 30,276 owed any taxes to the Federal Government. What that means is that 52 percent of the estates filing a return were required to hire a team of accountants, lawyers, and other professionals, only to file a few dozen papers with the IRS but pay no tax. What is the point? According to what one estimate indicates, the amount spent on avoiding the death tax could be approximately equal to the amount of revenue generated.

This is not good policy. The cost of repealing the death tax raised the ire of the Wall Street Journal editorial page, and here is what they said:

The Joint Committee on Taxation refuses to take any account of the potential economy-wide benefits of repeal: more investment in family businesses, more money spent on creating jobs than on buying life insurance to pay death taxes, and a higher savings rate. Many studies have found these positive effects could be large and would mean much smaller revenue losses from getting rid of the tax.

If you listen again to the rhetoric of those who are opposed to reforming the death tax, I think we have to be careful when we hear that rhetoric as they begin to describe the cost of this tax relief because their record really has not been very good of late.

In 2003, we reduced the capital gains and dividend tax rate as part of the economic stimulus package. At that time, Democrats in the Senate argued it would add to the deficit and burden our budget. In fact, earlier today the Senator from North Dakota, Mr. Conrad, was in the Chamber talking about how this would adversely impact the long-term budget outlook and how it would impact the deficit. But he said the same things back in 2003 when talking about capital gains and dividend tax relief. He said these tax cuts will worsen the long-term budget outlook, adding to the Nation's projected chronic deficits.

Three years later, we now see the other side of the aisle could not have been more wrong on this issue. The capital gains and dividend rate reductions have paid for themselves many times over in the form of increased Government revenue. May's budget report from the Treasury Department has tax receipts up by about $206 billion, which is a 13-percent increase for the first 9 months of fiscal year 2006. The year before--between 2004 and 2005--there was a $274 billion increase, or 14.6 percent more in Federal revenues for fiscal year 2005 than 2004.

Again, let me emphasize, reducing capital gains and dividends tax rates generated more Government revenue to the Federal Treasury, not less. That sometimes seems counterintuitive to the Democrats, people on the other side.

I would argue as well that some of the people who are doing these estimates have, certainly in this case, been proven wrong. I think the same would be true with respect to reforming the death tax in the way that has been proposed here and that we will have a chance to vote on later this week. But reducing capital gains and dividends taxes spurred economic growth, and it increased Government revenue--not decreased--increased Government revenue by $275 billion between 2004 and 2005, and already in the first 9 months of this year, $206 billion, which is a 13-percent increase over the previous year.

Again, I would say that as it relates to the estimates that have been made in the past and the rhetoric and many of the prognostications that have come from the other side, it clearly has been a very different outcome, a very different result, a very different record when it comes to revenues coming into the Federal Government from reducing capital gains and dividends rates.

Some on the other side are also arguing that only the superrich pay the death tax and that Warren Buffett and the Gates family are the ones who are really going to benefit from this. Warren Buffett and the Gates family have both been vocal in their support of keeping the death tax. As I said earlier, the reason is they are not the ones paying it. They have armies of accountants and lawyers to figure out ways to get around it. Don't let yourself think their estates will be subject to the tax. There are lots of folks who will make sure they never have to see the 55 percent of the value of their estates being taxed. In fact, Warren Buffett and Bill Gates have both figured out ways to shelter their net worth in charitable foundations. That is obviously their right, and we appreciate and are grateful for their generosity. But if the superrich support keeping the death tax but have figured out ways to avoid it, who actually is paying the tax? The smaller, family-owned farms and businesses are the ones that pay it because they didn't spend the money preparing to avoid it. That is why agriculture and big industry support repealing this very onerous tax.

If you look at the folks who are in favor of getting rid of this tax, it is not the superrich that the other side argues would benefit from repealing the tax or at least reforming it in the fashion that has been proposed. It is the organizations that represent the small, family-owned businesses and farmers and ranchers in this country. The list of those who support repealing the Federal death tax includes the Farm Bureau Federation, the National Cattleman's Beef Association, National Pork Producers Council, the National Federation of Independent Business, National Association of Home Builders, Large Equipment Distributors Association, Beer Wholesalers Association, National Tax Limitation Committee, National Wholesalers and Distributors Association, National Taxpayers Union, Forest Landowners Association, American Family Business Institute, National Grocers Association, U.S. Chamber of Commerce, National Association of Manufacturers, American Tool Manufacturers Association. In my State, South Dakota, Petroleum and Propane Marketers Association, South Dakota Association of Convenience Stores, the National Restaurant Association, American International Automobile Dealers Association, Family Research Council, the Black Chamber of Commerce--the list goes on and on.

My point simply is that as we engage in this debate this week, the arguments are going to be made, as they have been already, and the issue framed in a way by the Democrats that, again, this is somehow something which will benefit the superrich. As I noted, the superrich are the ones coming out to say we don't need to repeal this. The reason they say that is because they are not going to be paying it because they have at their disposal the lawyers and accountants and professionals who can figure out a way to keep them from having to pay it. The people who get stuck paying the death tax in this country are the small farms, the ranch operations, the small businesses, the people who are just trying to put together a little bit of equity, a little bit of assets that they can then pass on to the next generation and keep that family business growing and prospering.

It just seems to me that as a matter of principle, death should not be a taxable event. We should not be taxing people throughout their entire lifetime on everything they earn, on everything they acquire, on everything they buy, and then when death rolls around say: We are going to take 50 percent of everything you have acquired during the course of your lifetime and give it to the Federal Government. And as I said, much of the cost associated with either collecting or complying with the death tax actually negates, I believe, the positive revenue benefit that comes into the Federal Treasury to start with.

As I said earlier, I think you will find when this happens--and I hope it does happen because I hope we get the votes to pass it later this week--that you will see what happens with the death tax repeal is the same thing that happened when we reduced capital gains and dividend tax rates, and that is you will see more expansion, more investment, and actually more Federal revenues coming into the Treasury, which has been the record with the capital gains and dividend tax reductions.

I might again repeat, because I think it is worth noting and because it is an important part of the debate and the other side maybe will come over here and talk about how this will add to the deficit, how much this is going to cost the Government in terms of lost revenue, how it is going to only benefit the superwealthy. Let's remember again who is paying the tax, and let's also remember again when we reduced capital gains and dividend tax rates, we got more Government revenue and not less.

Let's move forward. Let's do something that has been on the agenda here for a very long time. Failure to act on the part of this Congress means that in the year 2010 going into 2011, these rates start kicking back in. We provided some temporary relief in previous tax bills. But if we don't take action to permanently address this issue, then people who pass on in the year 2010 and beyond that rate are going to be paying on everything they pass on to their next generation; 55 percent is going to be taken by the Federal Government.

It is an issue that needs to be addressed. It has been acted on in the House--not once but on multiple occasions. In fact, the House voted last week on this total package which includes the death tax repeal. It also includes extension of some other tax relief measures and an increase in the minimum wage. The vote coming out of the House was a fairly big bipartisan vote, with 34 Democrats in the House of Representatives voting with the majority of Republicans in the House to send it over to the Senate. We are faced right now with this vote on Friday on whether we are going to do something that will address once and for all this situation that the death tax creates for estates, for businesses, family farms and ranch operations going forward, whether we are going to address these other tax issues which also expire.

I might add that in my State of South Dakota, there is one on this list that is extremely important to the people I represent, and that is the State and local sales tax reduction. We are not an income tax State. We don't have a personal or corporate income tax. We do have a sales tax. For a long time, people who paid State income tax got to deduct that on their Federal tax return. People who had sales tax and used the sales tax as basis for taxation were not able to take the same benefit. We changed that in 2003. That is set to expire. If we don't do something to extend that tax relief, then people in my State of South Dakota and other States across this country who use the sales tax as their primary source of raising revenue to fund State governments are going to lose this deduction. That again creates an inequity between States that use the sales tax and those States that use the income tax to fund their governments.

There are other things on this list as well--college tuition deduction, work opportunity tax credit, welfare to work tax credit, timber capital gains that are also on the list of taxes, tax revenue that would be extended, teachers' classroom expenses deduction, something a lot of teachers across this country have benefited from.

My point very simply is these are all things included in this package. This is our one opportunity to get this vote. I think there are those on the other side who are hopeful they can take this down and then they will figure out a way to split these things off. But I think it is fair to say we have this one opportunity. We get one shot. We get one shot at providing some permanent death tax relief by extending these death tax relief measures that are set to expire, and we get one shot at an increase in the minimum wage.

I think if you look at this body and the way it works, there is a sort of sense of finding a consensus. It has been a long-time priority for our colleagues on the Democratic side to get an increase in the minimum wage. There is a phased increase in the minimum wage in this bill.

There has been a long-term priority for those of us on this side to be able to provide some death tax relief for farmers and ranchers and small businesses in this country. This bill accomplishes that.

It is not a total repeal. As I said, I think it is a very modest approach. It goes to $5 million for an individual and $10 million for a couple, basically if you have a spouse, and it also uses after that amount the capital gains tax rate as a level of taxation up to $25 million at which point it would be a 30-percent rate.

So it is not a complete repeal. You are still going to capture the superrich who are going to pay the 30-percent rate because most of their estate assets are going to be well over the $25 million threshold or limit.

So this is a moderate, modest approach. It represents what this institution is about; that is, trying to bring both sides together, trying to figure out where that middle ground is and form a consensus around these issues. The minimum wage, as I said, is phased in. The estate tax death tax relief is phased in. It doesn't happen overnight. It is phased in to get up to the $5 million unified credit, or the exemption. And then these other tax extenders are something I think most Members here in the Senate on both sides at one time or another have supported and voted for. I would argue it is very important to many of their constituencies.

Again, if you are a State such as my State of South Dakota that relies on State sales tax as your primary source of revenue to fund State government, extending the deductibility of that is a matter of fairness for those States that have income tax and, therefore, are able to deduct the State income taxes they pay.

Again, it has been voted on in the House by a big bipartisan vote coming out of the House.

This is an opportunity, I think, for this Senate to come together on a set of priorities which reflect, I think, the agendas of both sides.

As he said, the minimum wage increase is something that the Democrats have been advocating for some time. I voted for a minimum wage increase in the past coupled with small business tax relief.

The estate tax--or death tax--relief is something our side has been actively working on for years. As a Member of the House, we voted numerous times on this and now as a Member of the Senate I will have that same opportunity.

Of course, the extension of the other forms of tax relief are in this bill. We get one shot. I hope Members on both sides will recognize what an incredible opportunity we have right now to address this whole range of issues that have been languishing here for a long time, and do something that will be meaningful in terms of continuing to give our entrepreneurs in this country, small businesses, farm and ranch operations the opportunity to grow, to continue to build wealth, to create jobs, and to keep the economy strong. That is what this particular bill and what it contains is all about.

Again, my hope is that at the end of the day we will see a good, strong, bipartisan vote in the Senate as we saw in the House of Representatives, and be able to send this on to the President where he can sign it into law and we can demonstrate to the people of this country that we are addressing the issues they care deeply about and, most importantly, I say to them the issue of the economy, and dealing with energy costs today with an energy bill, dealing with the death tax, dealing with the minimum wage, dealing with these other forms of tax relief are all things that have been on the agenda for some time.

I believe we have an opportunity to get this done. I hope we can.

I appreciate the work of my colleagues who have labored so diligently to get this far in the process, to get it on the floor for a vote. I hope when Friday rolls around and we have this vote that we will have the 60 votes necessary to move forward and to get this done once and for all.

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