Statement of Former Senator Alan K. Simpson, Washington, DC

Chairman Thomas, Ranking Member Rangel, and all the other distinguished Members of the House Ways and Means Committee. I am very pleased to have this opportunity to submit testimony today on the issue of the federal estate tax.

First let me express my strong support for the President's efforts to substantially reduce taxes for all Americans. President Bush, Vice-President Cheney, and the entire Administration have successfully and commendably changed the course of the debate in this country from whether we should cut taxes to how we should best do it. This is the most talented group of men and women to serve in the highest levels of an Administration in my lifetime. They are also extremely savvy and fully understand the legislative process. Lawrence Lindsey, the President's chief economic advisor, recently discussed the tax package with the Republican leadership saying: "You guys make the sausage, I just brought the meat and spice." To me, this indicates that the President, the Vice-President, and other key officials who crafted the Administration's plan would not summarily reject constructive dialogue on how best to achieve their legislative goals. Even from my perch here in the private sector, I too would like to engage in such a dialogue. However, at the end of the day, when the discussions and the debate are over, this country deserves the strongest possible bipartisan tax reduction plan, and I for one fully intend to be a very vocal supporter of that package.

In the spirit of early, constructive dialogue I would also respectfully recommend to this Committee and to my friends in the White House, that as an alternative to a phase out of the estate tax over an 8 to 10 year period, they might take a serious look at providing immediate and dramatic estate tax relief by greatly increasing the exemption over which an estate would be liable thereby immediately eliminating nearly 90% of those estates that, under current law, would have to pay an estate tax. For the small number of estates left that would still have to pay, I would further recommend a reduction in the rates. I am not attempting to advise you what the exemption should be, but it should be large enough to protect the family ranchers and farmers that I have known from ever having to worry about this liability. In fact, to ensure that result, due to their unique status I think it would be worthwhile to craft a special exemption from estate taxes for family ranches and farms. There are several reasons why I believe that this method of reform is the best route to take, and I will briefly list them in this testimony.

I support the efforts of Americans for Sensible Estate Tax Solutions (ASsETS) a coalition including charities, academics, tax experts, farm and ranch groups, and estate planners. ASsETS does have members who have an economic interest in this matter. There is nothing wrong with that, but my participation in this effort is primarily motivated by what I believe a phased-out repeal of the tax would do to charitable giving in this country. My wife, Ann, and I have spent a substantial part of our lives serving on the boards of institutions such as Fords' Theater, the Folger Shakespeare Library, the Buffalo Bill Historical Center, the Kennedy Center, the Terra Museum, the University of Wyoming Art Museum, and the Smithsonian Institution. I have seen first hand how the estate tax promotes charitable giving. In fact the U.S. Treasury has estimated that a total repeal of the estate tax would result is a decrease of up to $6 billion annually in charitable giving. Charles Collier, Senior Philanthropic Advisor at Harvard University, has said that "wealthy donors will clearly leave more money to their heirs than they will to charities if this repeal goes through." Multibillionaire, George Soros calls the estate tax "one of the main incentives for charitable giving." From a practical perspective, it's easy to see that without any estate tax, even on the very wealthiest, potential heirs may likely say: "Dad, don't leave the Picasso to some museum. Sell it or give it to me, instead." And it's not just the Picasso, it's also real money to universities, hospitals, and other non-profit health and educational groups throughout the country.

My second concern is that there is a great benefit in being able to obtain tax advice which has certainty. Under the President's tax proposal, estate tax rates would gradually be phased-out over 8 years - but the limited exemptions in current law would be kept. Today, a person can exempt $675,000 from estate tax liability. That will go up to $1 million in 2006. Under the President's bill, if your estate exceeds the current exemptions, your family would still have to pay estate taxes. To believe that an estate phase-out won't be changed by a future Congress is really betting the farm! As I don my Republican hat, I would like the Members of this distinguished Committee, particularly the majority, to assume the possibility - however frightening you think it may be - that 1) control of Congress shifts and 2) a future Congress needs revenues in order to fund some disaster relief.

Knowing what we all know about politics, one of the most likely, logical revenue raisers would be to further delay or even cancel the phase-out. So if we are to leave the final decision to future Congresses, the estate planner cannot render the kind of tax advice that Americans deserve. Death is quite bad enough. It's even worse in combination with financial uncertainty!

The ASsETS Coalition is promoting immediate, drastic reform of the estate tax. We leave it to Congress to decide the exemption, but consider this: In 1998 the last year for which we have national records, less than 48,000 estates paid any estate tax. That represents 2% of the number of deaths that year. If you set the exemption at $2.5 million rather than the current law, you would have eliminated nearly 40,000 of those estate taxpayers. If you set the exemption at $5 million, you would have knocked out nearly 4,700 more estates. That would leave about 3,000 estates in the entire country owing any estate tax at all for that year. Using these 1998 numbers for my state of Wyoming, of 4,000 deaths in 1998, a $2.5 million exemption would have eliminated all but 6 estates. A $5 million exemption would have totally eliminated all but 2 estates. But under the proposal to gradually phase-out the rates, 40 Wyoming families would have still had to pay an estate tax!

I think most Wyoming folks would rather have a guaranteed higher exemption now and pay nothing, rather than have some "Congressional promise" to gradually reduce rates and still have to cough up based on current exemptions.

Contrary to some of the hot and heavy rhetoric out there, I am not an advocate for the estate tax. It is burdensome, unfair, and ought to be changed. I specifically do not want the estate tax to be a threat to Wyoming's, or to the rest of the country's family farmers or ranchers and their ability to pass those properties down to the next generation. In fact, I would even favor a form of legislative "carve out" to ensure their protection. As stated, it is not a question of whether to change the estate tax, but how. I prefer a dramatic, immediate reform which would exempt 99% of Americans from paying anything at all. I would also prefer immediately lowering the top rates for the eight to ten thousand estates that would still be subject to the tax.

One other aspect of total repeal which should be considered is its impact on hard pressed state budgets. Many states have estate tax revenues which are dependent on the Federal version. The February 20, 2001, Dallas Morning News cited that Texas stands to lose $300 million a year. My state of Wyoming derives $9.7 million in these kind of estate taxes each year. A total repeal would put a hole the size of a .45 caliber slug in my state's budget!

In summary, I very much want the President to succeed with a $1.6 trillion tax cut. According to the February 18 Washington Post, Lawrence Lindsay stated that the President wants to see his approach adopted, but is leaving the structure up to the Congress. In order to keep the package at $1.6 trillion, a less costly, long-term phase-out of the estate tax was chosen. My position, respectfully submitted to you, is to keep the package's total price tag, but to provide dramatic benefits immediately, provide additional protection for family farms and ranches, eliminate all but the super wealthiest from paying any estate tax at all, then reduce the rates for the remaining estates which do have to pay. That's it. Such an approach will cost less, will maintain incentives for charitable giving, will protect farms and ranches, will protect state revenues, and will provide clarity and certainty in tax planning.

I would earnestly trust that such an approach would merit your full consideration. Thank you so much. My best personal regards to all of you.