Introduction of American Solution for Simplifying the Estate Tax Act of 2014

Floor Speech

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Mr. HARRIS. Mr. Speaker, one area of unfinished business for the
113th Congress is comprehensive tax reform, which would have given us
the chance to reduce the burden of the Internal Revenue Code on
families and businesses and would have stimulated economic growth.

Recognizing that tax reform is an issue that the 114th Congress
should prioritize, I am introducing today a bill that offers a creative
solution to the problems associated with the current federal estate
tax. I want to note at the outset that I was an early cosponsor of
Congressman Brady's legislation to repeal the estate tax. However, as
part of the tax reform process, Members of the Ways and Means Committee
have demonstrated a willingness to consider a variety of policy
suggestions and thus, in the interest of stimulating discussion, I am
introducing the American Solution for Simplifying the Estate Tax Act of
2014, the ``ASSET Act.'' As I will explain further, the ASSET Act is
intended to be a revenue-neutral solution that would provide a new
voluntary simplified method for Americans with large estates to pay a
fair share of taxes but without any of the distortive, inefficient
effects created by the current method of collecting the estate tax.

The origins of the current federal estate tax arise out of the need
to fund World War I and enactment of the Revenue Act of 1916. In that
respect, this law has outlived its original purpose. It might come as a
surprise to some that over the past 50 years, the much-debated federal
estate tax has generated only around one percent of total federal tax
collections and in 2013 brought in $14 billion, or around 4/10th of a
percent of total tax revenue. When one considers the distortive effects
of the current estate tax and the disproportionately low amount of
revenue actually raised, it is incumbent upon us to identify more
appropriate policy solutions.

The case for reform is dramatically illustrated by reviewing the data
cited by the Joint Economic Committee (JEC) in its May 2006 study and
updated in a July, 2012 study issued by the Republican staff of the
JEC. The 2006 study indicated that individuals' costs of complying with
the estate tax (avoiding wealth transfer taxes) roughly equals the
revenue yield of the estate tax for the Treasury. Both studies
demonstrated that the costs of the estate tax includes tens of millions
of dollars of compliance costs, a substantial reduction in the capital
stock of our economy, reduced savings/increased consumption, and the
dissolution of family-run businesses. The 2006 study cited the
Congressional Budget Office in saying that many estates that owed
estate taxes had a tax liability in excess of their liquid assets,
which is a key reason why many family-run businesses are liquidated
prematurely or sold at firesale prices after the death of the primary
owner.

One example of this problem is Maryland resident Jack Fitzgerald.
Jack is a successful owner of a number of automobile dealerships. He
has explained to me and to many others in Congress that he is kept up
at night by concerns that he will pass away and that his heirs will
have to liquidate his thriving small businesses in order to pay the
federal estate tax. He routinely mentions the 1200 employees whose
livelihoods depend to a great extent on him and his managers. To
prevent against the risk of a forced liquidation, Jack says that he
pays nearly $700,000 annually in life insurance premia so that his
estate would have enough funds to cover the IRS tax liability. Those
are funds that he could be reinvesting in his business, his employees,
or otherwise using productively if the current estate tax were not
looming in the distance. We all know of farmers, ranchers, and other
family-run businesses that have to consider selling at an inopportune
time in order to ensure that the tax man will get his share. One famous
example was captured in the film, ``Secretariat,'' when the horse's
owner almost has to sell him and the entire horse farm to pay the
estate taxes after the patriarch's death, but she creatively developed
an innovative syndication scheme to raise the $6 million and to keep
the trailblazing horse and the farm within the family

My office has received letters in support of the ASSET Act from a
diverse group of Marylanders, including a CPA, the owner of a minority/
woman-owned public relations and advertising firm, the president of a
general contracting firm, and the Maryland Auto Dealers Association.
One gentleman, who is a farmer who also owns an agricultural business,
wrote that ``the present federal estate tax law is very detrimental for
businesses (whether it be a farm or other operating business) to pass
onto the next generation. During my lifetime I have seen many
hardworking farmers and business owners' lifetime work be sold upon
their death in order to pay for the inheritance tax. This is a bad
situation for creating and keeping jobs and it also creates a real
hardship on families.''

Responding to their concerns and others I have heard on numerous
occasions when meeting with constituents, the ASSET Act offers a new,
simplified approach that will solve permanently the problems with the
current estate tax. It permits individual taxpayers to opt-in to a new
system in which death would no longer be a taxable event. By taking the
uncertainty of death out of the question of how and when assets should
be liquidated, the ASSET Act will contribute to economic growth and
preserve the stability of companies. Small business owners, farmers,
ranchers, and others will not have to live their lives fearing the tax
liability imposed under the existing estate tax and will not have to dismantle profitable companies, sell farms and ranches, over-purchase life insurance, and waste their money on lawyers and accountants with sheltering strategies.

Under the ASSET Act, individuals could make a ``down payment'' on
their estate taxes during their earning years and then the government
would rely upon traditional capital gains taxes to generate revenue
from estate assets when sold. In the current draft of the ASSET Act, a
taxpayer may ``opt in'' to this approach by agreeing to pay an
additional one percent of his/her AGI each year. (If, based on Joint
Committee on Taxation revenue estimates, the one percent rate needs to
be adjusted to ensure revenue neutrality over time, that would be
possible prior to enactment.) Once in the system, these payments must
continue through the earning life of the taxpayer, but no tax will be
levied against the estate of such a taxpayer at his death. His or her
assets remain intact until they are sold, at which time they will be
subject to capital gains tax at the then current rate Taxpayers must
pay the I percent fee for a minimum of seven years before they can take
full advantage of the ASSET Act system.

There are several primary reasons to support the ASSET Act. As noted
earlier, owners of small and medium sized businesses could better plan
for the orderly succession of their companies and preserve critically
needed jobs. This can avoid forcing the heirs to liquidate the company
at just the wrong time, destroying the business and eliminating jobs.
And, the government can avoid losing significant capital gains tax
revenue that it would have realized had the asset been sold at the
right economic opportunity in the future. The ASSET Act solves those
concerns and ensures stability for vital engines of our economy.

The ASSET Act will help reduce tax avoidance scheming. Current law
exempts estates that are worth less than $5 million for an individual
or $10 million for a couple. However, it does not solve the liquidation
problem for large estates, which will pay 40% on amounts above those
levels. Individuals with very large estates or who expect to accrue
such large estates now spend a great deal of time and significant money
on strategies to shelter their assets from the estate tax. When these
strategies are successful, the government receives nothing. That is
why, historically, estate tax revenues have comprised only 1% of total
federal tax revenues and 2.47% of the AGI of taxpayers earning more
than $1 million per year. The ASSET Act eliminates the incentive to
hide assets from the IRS and to engage in unproductive strategies and
avoidance schemes, so individuals will ``stay within the system'' and
contribute their fair share of taxes to the Treasury.

The ASSET Act is intended to be revenue neutral and would offset the
revenue loss of eliminating the current estate tax collection
methodology for some taxpayers by imposing a very small annual
prepayment surcharge and by capturing the benefits of increased capital
gains tax revenues that would occur over time as estate assets are
sold.

I encourage my colleagues to study the ASSET Act and to work with me
to ensure that as the next Congress considers comprehensive tax reform
proposals, we leave no stone unturned in the effort to rectify the
problems associated with the current estate tax.

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