Masonry Magazine June 1996 Page. 14
It is no wonder that Americans immediately spend their paychecks and businesses take on debt. The tax code provides tax breaks for certain debt, but punishes most savings. When Americans set aside money in a savings account, the interest earned is subject to taxes. If they invest their earnings in stocks, they face taxes on their dividends. When they later sell their stock and enjoy a gain, they must pay capital gains taxes. Finally, when a taxpayer has the audacity to die, the government snatches a portion of the deceased individual's estate before it can be passed on to his family.
I have introduced legislation to abolish all these taxes with a package of legislation I call the Savings and Investment Liberation Bills. The estate tax in particular is the least productive of the federal taxes. The federal estate tax contributes only 1 percent to annual federal revenue, but it has created devastating economic consequences for Americans. The Institute for Research on the Economics of Taxation conducted a study of the estate tax between the years 1971 and 1991. The study concluded that if there had been no estate tax during that time, U.S. gross domestic product (GDP) could have been $46.3 billion higher and the government could have collected $21 billion more in taxes. For the future, the study predicted that between 1993 and 2000 we can expect the estate tax to drain $79 billion in GDP and 228,000 jobs from the economy.
Simply stated, the estate tax discourages family businesses from engaging in productive activity for fear of success. If the business is a success, the government extracts a larger penalty when the owner passes the business on to his heirs. Instead, owners now prepare for transfer of ownership by sheltering business income instead of reinvesting it in the business to create more jobs.
Although I, and a majority of my colleagues would like to repeal the estate tax, we cannot accomplish that goal in the present political circumstances. The Republican controlled Congress is willing to deliver such relief, but such a change in the tax code also requires a willing Chief Executive to sign our bill into law. That change is dependent on voters.
Although Republicans could not repeal the estate tax during this Congress, we did try to provide some relief from the estate tax. One of the most important pieces of the House Republican "Contract with America" was the Job Creation and Wage Enhancement Act. With that bill, we increased the effective estate tax exemption from $600,000 to $750,000. After 2001, the $750,000 exemption would be indexed annually for inflation. Beyond that, we created a special reduction in the estate tax for family owned businesses. Specifically, the bill lowered the estate tax on family owned businesses by exempting from tax the first $1 million of family owned businesses and farms. The bill also provided a 50 percent cut in the estate tax owed on the next $1.5 million of family owned businesses, including farms.
Congress incorporated the Job Creation and Wage Enhancement Act into the Balanced Budget Act of 1995. This bill encompassed both tax relief as well as the spending cuts necessary to achieve a balanced budget in seven years. Unfortunately, President Bill Clinton vetoed that bill. Despite this setback, Republicans in Congress will continue to move forward with legislation to cut taxes on small businesses with the hope of seeing a bill enacted this year. If tax relief legislation is not enacted into law this year, the American people will know who is standing in the way.
Beyond tax cuts in the near-term, as Vice-Chairman of the Ways and Means Committee, I look forward to the day when I can dump my copies of the Internal Revenue Code in the trash can. Over the course of this year, our committee will hold over 30 hearings to lay the foundation for replacing the current tax code with some type of alternative tax system. These hearings will not be grandiose exercises without substance, but rather the information gathered from these hearings will be vital to the effort to reform the tax code. For the first time in recent history prominent leaders in Congress advocate comprehensive tax reform. House Majority Leader Dick Armey (R-TX), House Minority Leader Dick Gephardt (D-MO), House Ways and Means Committee Chairman Bill Archer, Ranking Minority Member of the Ways and Means Committee Sam Gibbons (D-FL), Senate Banking Subcommittee Chairman Richard Shelby (R-AL), and Senate Budget Committee Chairman Pete Domenici (R-NM) all advocate specific tax reform proposals.
The leading tax reform proposals include the flat tax, national retail sales tax and various other types of consumption taxes. While they differ substantially in their method of collecting revenue, all of these proposals have important similarities. Specifically, leading tax reformers agree that taxes on savings and investment have seriously stunted the growth of capital formation in the U.S. Therefore, any new tax system must first abolish taxes on capital gains interest and estates.
The transition from the current tax system to a new alternative tax will naturally be complicated. I argue that this transition can be made easier or more difficult depending on the type of tax that is implemented. I advocate a transition that first eliminates the capital gains, interest and dividend, gift, and estate taxes. From there we should implement a flat rate tax. In 1982, I first introduced a 10 percent flat tax bill which I referred to as the Tithe Tax. The basis of the rate was on the reasoning that if God requires 10 percent of your earnings, then