Middle Class Tax Cut Act--Motion to Proceed--Continued

Floor Speech

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Mr. THUNE. Mr. President, if I might respond to my colleagues from Mississippi and from Indiana, the Senator from Mississippi is absolutely right. The proposal we will vote on as presented by the Democrats today would allow the death tax exemption to go back to $1 million, that is the pre-2001 level, and apply a 55-percent tax rate on top of that.

To give you an example of how that might work in a State such as mine, I represent South Dakota. The average size farm in my State is a little under 1,400 acres.

And if you look at the average value per acre of land and multiply it by the size of the average farm, you are talking about an average farm of between $2 million and $2.5 million in value. You could be talking about--and this is average, and we have a lot of farms that will be impacted more significantly than this. But you will be subjecting about $1.5 million of that farm's value to a 55-percent tax rate; and 84 percent of the value of farm assets, according to USDA, is in real estate. They are land rich but cash poor.

What happens? When the IRS comes calling after somebody passes away and says: Your farm is worth this amount, we are going to assess a 55-percent tax, they will say: We cannot pay that. We have it in land but not cash. So they have to sell land, assets, and equipment to pay the IRS. Here we are trying to promote the intergenerational transfer of farms and ranches as part of the tradition and backbone of our economy, and this is the absolute opposite of what we ought to be encouraging. We want policies that encourage the situation that family farms and ranches stay in the family.

Having a confiscatory tax like this that would apply a 55-percent tax to assets above $1 million will have a crushing impact on farms and ranches in my State and, I submit, to other States.

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Mr. THUNE. If I might say to my colleague from Mississippi and to the Senator from Indiana, to put this into perspective, the proposal in the Democratic bill, which would take the exemption back down to $1 million and raise the top rate to 55 percent, would apply to 24 times the numbers of farms and ranches as does current law. In other words, it increases by 24 times the number of family farms and ranches that would be impacted by the estate tax relative to where we are under current law.

As the Senator from Mississippi pointed out, lots of mom-and-pop businesses--13 times the number of small businesses--would now be subject to the death tax as is the case with current law. So if we look at the impact of this, certainly on farm and ranch country--and I see that Senator Moran is here, who represents a lot of farmers and ranchers very much like those in my State of South Dakota--this is profoundly impactful. It would have a very negative impact on farm and ranch country--and I also argue, as the Senator from Mississippi pointed out--and on a lot of mom-and-pop small businesses.

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Mr. THUNE. Mr. President, I first want to thank the Senator from Indiana for his very astute observations about the impact of these taxes on hard-working men and women in this country. I would say to my colleague from North Dakota, who is now here, and the Senator from Kansas--both of whom represent very rural States--this is not an issue that is inconsequential. A lot of people think people who have $1 million in assets are rich. But as I said earlier, in most farm and ranch operations, 80 percent of the value of that is in real estate. So they may be land rich but cash poor.

When we talk about imposing a tax of this size on hard-working farmers and ranchers in this country, we are getting at the very heart, as the Senator from Kansas pointed out, of their ability to transfer that farm or ranch operation to the next generation. That is what is at stake.

The Senator from North Dakota is here, and the farmland in North Dakota is similar to what we have in South Dakota, except they have energy. They found oil in a few places in North Dakota, which drives those land values up even higher. We would like to see some of that in South Dakota, but in either of the Dakotas or in Kansas we have seen land values going up in the past few years and it takes a bigger operation to make it work to survive in modern agriculture. So the size of these operations, in many cases, exceeds by multiples the million-dollar exemption that would be allowed by the Democratic proposal, and everything above that, as was said, would be taxed at 55 percent, which would be absolutely disastrous for American agriculture today, and that is on top of the other taxes.

This proposal also raises taxes on about 1 million small businesses that employ about 25 percent of the American workforce. It raises taxes on capital gains and dividends and then it puts this death tax back into place with the million-dollar exemption. As I said earlier, if we look at the number of people who would be subject to and covered by the death tax today, this proposal would increase those people subject to whom the death tax would apply by 24 times--a 2,400-percent increase in the number of people who would be subject to the death tax, according to the Joint Committee on Taxation. That is the group that studies these issues and that looks at the impact of tax policy. According to the Joint Committee on Taxation, 24 times more farmers and ranchers would be subject to the death tax than are subject to it today and 13 times more small businesses. That is the scale of the proposal the Democrats have put forward.

I would say to my colleague from North Dakota, my neighbor, that I assume, as he talks to farmers and ranchers in his State, he gets the same sort of feedback I do in visiting with people in South Dakota; that is, they are very concerned about what would be a huge tax increase, so to speak, when someone passes on and tries to pass that operation on to the next generation.

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Mr. THUNE. I appreciate the remarks of my colleague from North Dakota who understands this issue very well, representing a State that is composed largely of family farms and ranches and small businesses. It is similar to my State of South Dakota, similar to Senator Moran's State of Kansas. We share not only a lot of commonalities in terms of how we make our living but also in the kind of hard-working people who are the backbone, as my colleague said, of our country.

There is a work ethic among people involved in working the land, people who are involved in agriculture, that we hope gets rewarded. One of the ways that gets rewarded is when someone works very hard all their life--and that is very true in agriculture. There are very few jobs in agriculture that are easy. It is a hard way to make a living. The men and women who are involved in production agriculture have, in my view, among the best work ethic in the country, and we want to see that hard work rewarded. One of the ways we hope that gets rewarded is when it comes time to pass that operation on, to allow that operation to be handed off to the next generation so they, too, can benefit from that hard work and build that enterprise and grow the family farm in a way that is good for our economy generally and certainly good for the economy in places such as North Dakota, South Dakota, and Kansas.

That is why a proposal such as this is so devastating, because you are subjecting 24 times more farms and ranches in this country to the death tax than are currently exposed to it under current law.

This is a dramatic increase in the number of folks who would be impacted by the death tax--obviously a significant increase in the amount people are going to be forced to pay when the time comes. I think at a time when we are facing unemployment now for 41 consecutive months over 8 percent, some 23 million Americans either unemployed or underemployed, and some Americans have been unemployed for a longer period of time, one thing we don't need in the middle of this kind of economy is a big fat tax increase.

That is what the Democratic proposal does--not just on the estate tax but also the marginal income tax rates going up on small businesses on January 1. There will be almost 1 million businesses impacted by higher rates, which employ 25 percent of the workforce in this country, as well as increasing taxes on investment, on capital gains, and dividends.

A big fat tax increase in the middle of a very fragile economy is the wrong prescription. I would hope, as the Senator from North Dakota suggested, that our colleagues on both sides will support the alternative we will put forward which will extend the rates for all Americans, so not any American is faced with higher taxes come January 1 of this year. I think it would be devastating for our economy to do that. Certainly it would be devastating to the family farms and ranches in places such as the Midwest.

I know my colleague from Kansas understands very well, because he represents the same kind of people we do in the Dakotas. They are hard working. All they want to know is that they have an opportunity to be able to benefit from that hard work and hopefully pass it on to the next generation when the time comes.

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Mr. THUNE. I thank the Senator from Kansas. I too look forward to working with him on fundamental tax reform, because that is what we need to do to get the economy turning around. I think you will see tremendous economic growth. I think you would see our economy unleashed if we would reform our Tax Code in a way that broadens the tax base and lowers the rates. The Senator from Kansas talked about the fair tax--certainly another proposal out there that many people support. But in any event, we do need a fundamental tax reform. And it would be nice if, when we do that, we do away with the death tax completely.

With that being said, what is being proposed here today, as we have all pointed out, is something that in many cases in places such as Kansas and South Dakota--and our colleague, the Senator from Wyoming, Senator Barrasso, is now here, who represents a rural State, a State where you have a lot of folks with big expanses of land. There are many people in agriculture who are land rich and cash poor.

The Senator from Kansas pointed out that when you have an operation that exceeds that $1 million threshold that is being proposed in the Democratic tax plan and then everything above that in terms of the value of your assets is taxed at that top marginal rate of 55 percent, then you are in many cases having to sell pieces of your operation in order to pay the IRS--or, worse yet, going to the bank to borrow money, in which case you may not be able to repay it.

But this creates all kinds of problems for people who are involved in the day-to-day production of agriculture when it comes to keeping that operation in the family.

I appreciate the observations of the Senator from Kansas and his insights based upon his experience and the people he represents. I too look forward to the day when we are debating fundamental tax reform. But until that comes, we shouldn't be raising taxes. We shouldn't be raising taxes in this type of an economy where we have as many people unemployed as we do, we have sluggish economic growth. And we certainly shouldn't be punishing family farmers and ranchers and small business people with what is a punitive death tax proposal coming out of the Democrats in the plan we are about to vote on at 4:00.

I yield to my colleague from Wyoming who is here, again, representing a State much like mine and much like the Senator from Kansas, who has a lot of people who would be impacted by this Draconian tax.

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