Statement of Senator Dianne Feinstein
on her Vote to Oppose the Permanent Repeal of the Estate Tax
June 12, 2002

"I want to first say that I am philosophically opposed to the estate tax, and have long expressed my belief that it is an unfair tax that we should ultimately do away with. In addition to threatening owners of small businesses and family farms, the estate tax acts to stifle investment in businesses, and is a disincentive for those who want to save so that they can pass assets on to their children and grandchildren. However, to vote in favor of repeal today, under our current circumstances, runs counter to another of my deep philosophical beliefs: fiscal responsibility.

Last year I voted to support the President's tax cut package, which provides $1.3 trillion in tax cuts over the next decade. My support for that bill was partially determined by the estate tax relief provisions included within it. When I voted in favor of that bill, we were projected to benefit from some $5.6 trillion in budget surpluses over the coming decade, enabling us to provide significant relief to American taxpayers while also protecting the Social Security trust fund and programs in health, education, and numerous other areas.

Needless to say, that outlook has changed dramatically in the past twelve months. The economic slowdown, combined with major new expenses associated with providing for homeland security and fighting the war on terror, have put a major strain on the federal budget, requiring Congress to exercise a degree of fiscal responsibility not seen during the late 1990's.

Despite the threat of a budget deficit of over $125 billion this year, and projected deficits stretching through the end of the decade, House Republicans have made clear their intent to push through a permanent extension of all of the tax cuts included in the President's bill last year. The first of those extensions, and the one that we are considering today, is a permanent repeal of the estate tax.

Yet there could not be a worse time to consider full repeal of the estate tax than right now. The latest estimates project full repeal of the estate tax will cost the federal government over $740 billion between 2011 and 2020. Although it is my hope that we will be able to permanently extend the repeal at an appropriate time before it is set to expire in 2010, we are in no position today to do that and cope with major outlays for defense and homeland security, as well as threats to funding for Social Security and Medicare.

Earlier today, I voted in support of Sen. Dorgan's amendment as a good compromise on this issue, and because it goes a long way toward addressing one of my major concern with estate tax: that it puts family-owned businesses and farms at risk of sale or closure simply because heirs are forced to sell in order to pay the estate tax bill.

In addition to permanently extending an increased unified credit of $4 million per individual and $8 million per couple, Senator Dorgan's amendment provides relief to small business and family farm owners who suffer the most under current law by providing an unlimited exemption from the federal estate tax to small business owners and farmers. This would ensure that this tax no longer threatens anyone wishing to pass on a family-owned business to his or her heirs.

Under current law, the unified credit is set to increase to $3.5 million by 2009, but the Qualified Family Owned Business Interest exemption will expire in 2004, removing what few safeguards are in place to protect those whose assets are tied up in family-owned farms or businesses.

I am particularly concerned about protecting these businesses because of the relatively high value of California farm land. The value of an orange grove in Ventura, CA may be as high as $15,000 per acre due to local development pressures, compared with a price of $1,500-2,000 per acre for corn-growing land in a mid-western state.

As a result, even a medium-sized California farm of 400 to 500 acres may be liable for a hefty estate tax bill, especially when the value of farm buildings and other capital investments are factored in.

The estate tax may make it impossible for a family farm to be passed down from generation to generation. No one should be forced to sell the family farm just to pay the estate tax.

Small business owners are equally at risk, and those who own and operate capital-intensive businesses must bear an exceptional burden. While the issue of small business liability under the estate tax has often been represented as affecting a tiny minority of Americans, in fact there may be many small business owners who sell or transfer their businesses in expectation of their heirs having to pay the tax.

Additionally, the sale of family-owned businesses, particularly to larger conglomerates, threatens the jobs of thousands of Americans who are employed by those businesses. Even those businesses that can cover their tax liability may have to take on a large debt burden that threatens their competitiveness and delays efforts to expand or grow the business.

The Dorgan amendment would have resolved this problem by uncapping the Qualified Family Owned Business Interest exemption entirely, but it also would have raised the individual exemption to $4 million in 2010. By providing this much-needed relief, the amendment would have limited estate tax liability to a tiny fraction of wealthy Americans who have large holdings of marketable assets.

Regrettably, the Dorgan Amendment did not pass, and we are faced with an unfortunate choice between full repeal and the limited relief passed as a part of the President tax package last year.

I very much look forward to a time when the Senate can vote for full repeal of the estate tax with a clear conscience, knowing that a vote to repeal the estate tax is not a vote against fiscal responsibility. To vote for full repeal today would be to turn a blind eye to such responsibility, and to move forward guided only by the kind of irrational optimism that was so readily propounded only a year or two ago.

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