The first relates to the intellectual dishonesty employed by those who use the phrase "death tax." This term is clever, it is Orwellian, and it is, if you'll pardon the expression, dead wrong.

That means that 99-and-a-half percent of estates will be tax-free. You would have to attend 200 funerals to be at one at which the decedent's estate owed a tax. Indeed, far more people who die receive a large tax benefit. I don't think that's generally understood. Namely, a stepped up basis on appreciated assets.

If people insist on renaming the estate tax, it would be more appropriately labeled the "death present."

The second point I would like to make is that in a country that prides itself on equality of opportunity, it is becoming anything but that, as the gap between the super rich and the middle class widens in dramatic fashion.

Here are a few figures on the Forbes 400. Other people save their Playboy magazines, I save the Forbes 400 magazine.

Twenty years ago, 1987, it took $220 million dollars to make the list. Now it takes $1.3 billion, about a six-for-one increase. The total wealth of the list in 1987 was then $220 billion. Now it's $1.54 trillion, exactly a seven-for-one increase.

Tax law changes have benefited this group, including me, in a huge way. During that same period, the average American went exactly nowhere on the economic front. His income went from a median $26,061 to $48,201, almost exactly the increase of the CPI during the 20 years.

He's been on a treadmill while the super rich have been on a spaceship.

Dynastic wealth, the enemy of a meritocracy, is on the rise. Equality of opportunity has been on the decline. A progressive and meaningful estate tax is needed to curb the movement of a democracy toward a plutocracy.

Finally, I have a suggestion. Estate taxes now raise about $24 billion. It's one of the lowest percentages, incidentally, of total taxes in the history of the tax system.

As mentioned, that $24 billion will come from about 12,000 estates. Indeed, half of that sum will come from only about 1500 estates. The beneficiaries of each of those estates will receive millions, in many cases tens of millions or more. One point you never hear from proponents of estate tax elimination is whom they would get the $24 billion from if they didn't get it from the 12,000 large estates.

They just say, "Free us." They don't say who to further shackle.

Here's a suggestion: Keep the estate tax and its $24 billion, reshape it if you will, but keep the estate tax and its $24 billion. Then take a look at the bottom fifth of America. There are 23 million households in the United States with $20,000 or less of income. Many are paying payroll taxes that now total 15.3 percent. That 15.3 percent alone is more than the rate on dividends or capital gains. Let's give those 23 million households a $1000 annual credit. Every dollar of such a credit would affect real change in the lives of the 50-million-plus people residing in the 23 million households. Yet the cost of this would be less than getting rid of the tax on the 12,000 estates.

50-million people would be helped in a material way. The beneficiaries of the 12,000 estates would still receive what looks like a fortune to almost all Americans.

Leona Helmsley's dog, Trouble, reportedly is inheriting $12 million. If Mrs. Helmsley's estate is in the 45% tax bracket, Trouble could instead receive $22 million if the estate tax is removed.

Alternatively, just from Trouble's share of the Helmsley estate tax, 10,000 families making less than $20,000 annually could receive $1000 each to make their lives a bit better. Even though Trouble probably heard Leona say, quote, "Only the little people pay taxes," end-quote, I don't think he would mind the estate paying $10 million in order for him to get his $12 million.

We need to raise about 20 percent of GDP to fund the programs the American people want from the national government. Further shifting of this requirement away from the super rich is not the way to go.

Over 50 of our firm’s lawyers are involved in estate planning.

And I teach this stuff at a law school.

So, the only convenient time for death and taxes is 2010 — at least for the heirs.

We have complex tax laws because those laws reflect our complex society. However, it’s not the complexity that presents the problem with the current estate tax rules, but rather the uncertainty. And to cope with that uncertainty, we lawyers must often make complex plans even more so.

Thanksgiving is just around the corner. Every year my family has a marathon Monopoly game — over the entire holiday weekend. This year, to make the game more realistic for my grandchildren, I’ve indexed the game for inflation.

If you buy Park Place, it will cost you $5 million.

The card that formerly said "Pay Tax Collector $200" will now say: "Pay $20,000 if you land at 7:00 or 8:00 o’clock; pay $15,000 if you land at 9:00 o’clock; and pay nothing at all if you land at 10:00 o’clock. But if you land at 11:00 o’clock or later, pay $40,000."

That’s analogous to the changing estate tax exemption over the next couple of years, complete repeal of the tax in 2010, but a return of a $1 million exemption in 2011 and beyond.

My version of the rules will surely make our Monopoly game more interesting. But our nation’s estate tax rules shouldn’t be a roll of the dice!

[For Conrad Teitell’s written statement for the record, see page 11.]

Good morning, my name is Dean Rhoads. I am a rancher from Tuscarora, Nevada, which is 60 miles northeast of Elko, Nevada. I have been involved in livestock industry activities my whole career as a rancher.

My father-in-law came to Elko County in the 1930s when he was 15 years old. He worked as a cowboy and a ranch hand, saved his money, and eventually bought his first property over 60 years ago.

My father-in-law became a good friend of Bing Crosby when he owned ranches in Elko County, including one adjacent to my father-in-law’s ranch that we purchased in 1966. My wife and family lived there for 18 years.

We operate on a combination of private and public land, which is common for Western ranches of our type and size. The capacity of our ranch is approximately 10,000 Animal Unit Months or AUMs, which is how ranches in our part of the West are measured and valued.

I believe, if we had a willing buyer, our ranch would be valued at about $2.5 million in today’s market, assuming it was not broken up or sold for water.

When my father-in-law died in 1995, there was no more land left to sell if we wanted to survive in the ranching business. Based on the ranch’s value, the tax we now owed, with interest added, was over $340,000.

Therefore we have been paying $18,000 in estate taxes, plus interest, every year; which we are continuing to pay. We have had to borrow money to make these payments. We pay this money back through the revenues produced by our ranching business.

Let me illustrate the uncertainties of planning. Under current law, if my wife and I were killed in a common accident in December of 2009, our family ranch would be valued at around $7 million, counting all the land and all the animals. Because my wife and I have tried to do some estate planning to divide our ranch assets between us, my daughters should have a $3.5 million exemption on my estate and a $3.5 million exemption on their mother’s estate. They would not have to sell any land or cattle to pay the federal government, assuming the ranch does not continue to increase in value and also assuming that the ranch was not broken up for its water rights.

But, if they were faced with dealing with our estates in January of 2011, they would owe nearly $2.5 million within 9 months of our death. That would be in addition to the over $640,000 we have already paid in estate taxes to the federal government.

So, how do we plan without some certainty? Let me tell you, that potential tax bill represents a whole lot of pregnant cows at $1300 a pair.

Everyone in my family wants to continue our ranching business. Ranching is a tough way to make a living, but we can do it and make a profit over time.

It is difficult, but we can deal with the variables of weather, drought, labor shortage, market conditions, and day-by-day business expenses such as the increasing price of fuel. But, if you continue to add the specter of the burden of this unfair tax -- if we have to pay this much a third time as a family for one ranch -- I do not have much optimism for our future.

In closing, I urge the Committee to pass legislation reforming the estate tax by either eliminating or reducing the burden this tax places on families, ranches, farms, and small businesses in Nevada and throughout the United States.

Whether the solution is to eliminate the estate tax altogether or to increase the marital exclusion and lower the tax rate I leave up to the wisdom of Congress. But whatever you decide, I hope you will take action to help my family and others like us.

Thank you for the opportunity to testify before you today.

In addition to our plant in Sheffield, Iowa, we operate six distribution centers in Arcola, Illinois; Aurora, Nebraska; Defiance, Ohio; Jonesboro, Arkansas; Cameron, Missouri; and Watertown, South Dakota. We sell products all over the United States and to 50 foreign countries.

I firmly believe that one of the keys to our company’s success is our ability to hire and retain top notch employees. Over 30 percent of our workers have been with us for more than 10 years. We provide exceptional benefits, including health insurance coverage at no cost for our workers, and only $60.00 per month for their families. In addition, we offer a 401K Program, Dental Health Plan, and a Profit Sharing Program that was started in 1973.

As the largest employer in Franklin County, Iowa, we’ve watched the community grow around us. Today, we have a health clinic, a dentist office, a chiropractor, a drug store, a bank, a grocery store, a restaurant, and a golf course. The growth of the town can be seen by new homes that are being built and a church that has overgrown its capacity and is making plans for a new one.

We believe in giving back to the community, which is why my company is a major donor to the Sheffield Care Center for Senior Citizens. We helped build a local swimming pool and a playground. We also gave a million dollars to help fund a child day care center that cares for over 100 children in Hampton, Iowa. Sukup Manufacturing Company contributes 10% of its taxable income for charitable contributions for local charities and contributions to the Sukup Family Foundation, which also contributes to area charities.

The family foundation does not build up a large balance but uses the money for charitable gifts. The foundation balance is over $1 million dollars with over $500,000 have been contributed from the foundation in 2006.

I’m not bragging when I tell you that businesses like Sukup Manufacturing are the backbone of our economy. By the same token, when a business like ours is sold off or shuttered, the loss to the economy is great. If Sukup closed today, 350 people would lose their jobs. But, that’s just the beginning. Without jobs, there’s no reason for a child care center. As people move on to other places, the restaurants and stores close down, the dentist moves to a bigger city with more customers. The loss would be felt in Iowa, in Arkansas, in South Dakota.

Now, to be clear, we’re a growing company. So, why would we close down or sell off? I’m here today to tell you that one of the greatest threats to our family-owned business is the estate tax. If my wife Mary and I died today, we estimate that our estate tax liability would be somewhere between $15 and $20 million dollars. The only way for my sons to pay that tax would be to sell off the business.

Folks will tell you that you can "avoid" the tax. Well, maybe that’s true in some cases, but it also involves extremely high financial planning costs including expensive life insurance policies that businesses pay year in and year out. Money that we put into life insurance policies and other financial planning tools to avoid the tax is money that we could have been putting into the business – hiring more employees and expanding into other states.

Furthermore, it’s nearly impossible to plan for a tax that changes every year. Under current law, the exemption for the tax is $2 million with a top rate of 45 percent. In 2010, the tax is repealed. But, in 2011 the top tax rate goes back up to 55 percent and the exemption drops back down to $1 million. The uncertainty of the tax means that we have to plan for the worst case scenario, costing us even more money.

Even if my sons are able to somehow keep the business after we pass on – my grandchildren will have to pay the same tax again when they take over the company. There’s no limit to how many times our company will be taxed.

We are truly a family owned business. I’m fortunate to have two sons working with me who are graduate engineers, two grandchildren that have returned to the company fulltime, and two grandchildren who are still attending Iowa State University. One of my grandsons is disabled and has been working at the company running the robot welder. I can’t tell you how much it means to me to be able to provide him a job that allows him to make a real contribution to the company and to society.

I built this company, my sons helped me build it and my grandchildren want to carry it on. Isn’t that the kind of entrepreneurship that our government should encourage? This tax discourages entrepreneurs, it destroys family businesses and it’s unfair. I hope that you will all work together to permanently end this unfair burden on family-owned businesses like mine.

Americans have always supported a strong and independent charitable sector. Policy makers have long recognized the vital role tax incentives play in encouraging Americans, particularly wealthy taxpayers, to give back to the community. According to the Internal Revenue Service, in 2006 almost two-thirds of charitable bequests came from estates valued at over $10 million, and three quarters of bequests came from those valued at over $5 million. In this context, it is clear that a repeal of the estate tax would be very disruptive. The Congressional Budget Office has estimated that if the federal estate tax had not existed in 2000, charitable donations would have been reduced by a stunning $13 to $25 billion that year. This massive potential loss in donations is more than the total amount that all corporations gave to charity in 2000. The CBO study, like a number of earlier studies, found that the estate tax leads affluent individuals to donate more than they otherwise would, because such donations – whether made during life or as bequests at death – sharply reduce estate tax liability.

If the estate tax were retained in a smaller form, the CBO study indicates that the drop in charitable giving would be much smaller. An exemption of the first $2 million to $3 million of an individual's estate (and twice that amount for couples) would have reduced charitable giving by just $1 billion to $6 billion in 2000. Again, this is compared to a drop of up to $25 billion if the tax were entirely eliminated. Tax incentives are a basic part of the nation's charitable infrastructure, and the estate tax has for decades been one of the most important of these incentives. Retaining a smaller, reformed estate tax would be a sensible way to preserve charitable donations and protect federal and state budgets, while responding to the criticism the current estate tax has engendered.

The arithmetic. An individual who dies on December 31, 2008 leaving a $5 million taxable estate to his or her children will pay an estate tax of $1.35 million. If the same individual survived one more day — until January 1, 2009, when the exemption from the estate tax is scheduled to increase from $2 million to $3.5 million — the tax on the same estate will be $675,000. But if the individual had survived for another year — until January 1, 2010, when the estate tax is scheduled to be eliminated — the estate would not pay any tax. Finally, if the estate tax exemption returns to $1 million in 2011 and beyond the estate would pay a tax of approximately $2 million.

The estate planning process. In helping clients plan their estates, we first discuss their wishes and their needs, capabilities and other information about the desired beneficiaries; and, of course, the client’s assets. That’s the easy part.

Then the talk turns to the federal estate tax exemption. The amount that a client can leave to his or her beneficiaries without incurring estate tax is a cornerstone of many estate plans. We explain that the amount has increased over the years, that it was only $600,000 ten years ago, but has gradually increased to its current level of $2 million. We also describe the future scheduled changes in the estate tax: an increase in the exemption to $3.5 million in 2009; repeal of the estate tax in 2010, and then the estate tax’s rebirth in 2011 and thereafter with an exemption of $1 million. 

We explain the conventional wisdom among estate planning lawyers is that the changes to the estate tax scheduled to occur in 2010 and 2011 are unlikely to occur, but that we must assume that they will in our planning.

The proceeds of a life insurance policy are includable in the estate of the policy’s owner. Thus when a client is selecting an asset to give to children during his or her life, life insurance is a desirable asset. It is generally not very valuable during the client’s life, but will be highly valued at the client’s death. A common estate planning technique involves placing a life insurance policy on the life of a taxpayer into an Irrevocable Life Insurance Trust. That trust enables a taxpayer to take advantage of his or her ability to make annual tax-free gifts of up to $12,000 to each member of his or her family each year by making gifts to the trust for their benefit, and thereby provide funds to pay the premiums on the policy owned by the Insurance Trust. That trust’s insurance proceeds will pass to the family members at the taxpayer’s death without being exposed to the estate tax in the taxpayer’s estate.

Under the current $2 million estate tax exemption, a married couple with $5 million of assets can assure that the first $4 million of their assets pass to their children without exposure to the estate tax by having properly drafted Wills that take advantage of both of their $2 million exemptions from the federal estate tax. The remaining $1 million will be subject to the federal estate tax, resulting in a tax of $450,000, and a total inheritance of $4.55 million for the children. This couple might decide to purchase a $450,000 life insurance policy that will be payable upon the death of the survivor of them and place that life insurance in a Life Insurance Trust for their family. This way, if both spouses die at a time when the estate tax exemption is still $2 million for each individual, the $450,000 of life insurance proceeds would replace the $450,000 of estate tax due, resulting in the children receiving $5 million.

This planning, which has been very common, is often a victim of uncertainty. A married couple with $5 million and properly drafted Wills would not need a Life Insurance Trust in order to maximize the inheritance of their children in 2009. The individual exemption of $3.5 million that year will mean that a married couple can protect up to $7 million using simple Wills. A Life Insurance Trust would also prove unnecessary for this couple if they both die in 2010, when the estate tax is scheduled to be repealed. However, in 2011 and thereafter, when the estate tax exemption is scheduled to return to $1 million, a married couple will only be able to protect the first $2 million of their estates using their exemptions. If this comes to pass, a much larger life insurance policy might have been advisable.

Of particular import is the decreased use of the $12,000 annual-per-donee-gift-tax exclusion for taxpayers who are on the border of having taxable estates. Annual exclusion gifts can be made each year to the same individuals, or to certain types of trusts for their benefit.

The failure to make the annual exclusion gift in a particular year has a significant opportunity cost associated with it. For example, a single taxpayer can give $12,000, and a married couple $24,000, to a child each year. If the married couple fails to make this $24,000 combined annual exclusion gift to just one child in just one year, the opportunity cost of this failure could be as much as $12,000 in federal estate tax, assuming an estate tax rate of 50%.

Future planning may be impossible. The understandable decision to defer planning for the estate tax (waiting to see what happens) assumes that the taxpayer will have the capacity to plan in the future. A client who postpones making important changes in his or her will in order to avoid the expense of having to redo it after the estate tax law is revised will not have an opportunity to make those changes if he or she loses mental capacity before Congress finally acts.

Uncertainty regarding future estate tax laws is creating two classes of families who will be punished for their failure to act while waiting for Congress to act. First, the families of taxpayers who became mentally incapacitated and, as a result of their incapacity, are unable to implement estate planning techniques that would minimize the impact of the estate tax on their inheritance. Second, the families of taxpayers who wanted to see the future of the estate tax law before engaging in a gifting program and, as a result, missed opportunities to make gifts that would have minimized the exposure of their assets to the estate tax.

IRAs to charity at death. Many individuals give all or part of their IRAs and other pension plans to charity at death. Those gifts qualify for the unlimited estate tax charitable deduction.

Retirement plans payable to individual beneficiaries (instead of charity) at death. The changing estate tax exemption (and estate tax repeal for 2010) must be taken into account in planning and drafting. There can be a double tax (even triple tax if the generation-skipping tax is involved) if a retirement plan is given to a beneficiary other than a charity. In addition to the estate tax (and the generation-skipping tax in some cases), the beneficiary must pay income tax on so-called income in respect of a decedent. However, if the IRA or other pension plan is given to charity, the estate tax (and the generation-skipping tax if otherwise applicable) and the income-in-respect-of-a-decedent tax are avoided. This benefits charities and those that they serve.

Before 2006 an individual who used funds from his or her IRA to make lifetime charitable gifts was taxed on the funds payable to charity. For nonitemizers, there was no offsetting charitable deduction. And for generous higher-income donors, the income tax charitable deduction was often limited or unavailable because of the adjusted gross income ceilings on deductibility—even taking the five-year carryover into account.

For 2007 (and last year) an individual age 70½ or older can make direct charitable gifts from an IRA (including required minimum distributions) of up to $100,000 per year to public charities (other than donor advised funds and supporting organizations), operating private foundations and "conduit" foundations and not have to report the IRA distributions on his or her federal income tax return.

The Public Good IRA Rollover Act of 2007 (S. 819) with lead co-sponsors Senator Byron L. Dorgan (D-ND) and Senator Olympia J. Snowe (R-ME) has bipartisan co-sponsorship on the Finance Committee and in the Senate. An identical House bill (H.R. 1419) has bipartisan co-sponsorship in the House and the Ways and Means Committee.

Those bills would expand the current IRA/charitable rollover provisions in a number of ways, the most significant for many charities and their supporters would allow a tax-free rollover for a life-income plan (e.g., gift annuity, charitable remainder unitrust) for individuals age 59½ or over. The tax-free direct charitable rollover (as under current law) would be available for individuals age 70½ or over.

An Associate Justice of the Supreme Court was beside a river bank when a Traveler approached and said:

When Congress enacted the current estate tax law in 2001, the matter of the uncertainty in planning that would result was apparently not brought before it.