Take Action Now

Sign up for Action Alerts

Find a RESULTS chapter near you

Estate Tax Media Conference Call Briefing

Interviewer: Meredith Dodson, RESULTS

April 18, 2006, 11:30 am ET

(Our website also includes an audio recording of this call as an mp3 file)

Operator: Good day, everyone, and welcome to the RESULTS estate tax media conference call. Today’s call is being recorded. At this time, I would like to turn the call over to Ms. Meredith Dodson, director of Domestic campaigns at RESULTS. Please go ahead.

Meredith Dodson: Thank you, Operator. Hello, everyone. This is Meredith Dodson. I’m the director of Domestic campaigns at RESULTS here in Washington, D.C.

For those unfamiliar with RESULTS, we are a grassroots citizens’ lobby, with volunteer chapters in 100 communities all over the United States. I know some of the journalists on this call today are on because one of our local activists contacted you and offered this opportunity. So welcome to all of you. I’m glad you could join us.

I’m just going to run through some quick logistics and make sure people know how to find additional materials after this call. All the lines are starting off in a mute function. And then we will un-mute the call after opening remarks from our guest speakers, for a question-and-answer session. We will have additional materials available, for those interested in covering this issue, after the call. We will be putting out a press release, either late today or tomorrow morning, to pull some of the key remarks made during today’s call.

In addition, we will have a transcript and an audio MP3 file of the call available by 24 hours from now. And those will be available at the website - at our website: www.results.org. In addition, we’ll have links to different pieces of background information and would love to be a resource for folks who are looking for state-specific information or other background you need to cover this issue.

With that, I’m going to go ahead and introduce our first speaker. Robert Carlson is joining us today. He’s the president of the North Dakota Farmers Union. Some of you might have seen a previous media alert — Tom Buis, who is the president of the National Farmers Union — unable to join us today. But Robert is a great expert. I think we’ll fill those shoes quite successfully.

Mr. Carlson was elected president of the North Dakota — North Dakota Farmers Union, which is the largest farm organization in the state of North Dakota, with more than 37,000 members in January of 1997. Prior to his election, Mr. Carlson had served as the vice president of the North Dakota Farmers Union since 1986. And on the national level, Mr. Carlson served as a board of director for the National Farmers Union, which represents 250,000 family farmers all over the United States. He’s a member of the Agriculture Trade Advisory Committee for Grains & Oilseeds, which is a part of USDA’s Foreign Ag Service; and has traveled abroad to China and Japan, to develop niche markets for North Dakota commodities. He was an organizing board member of the Dakota Growers Pasta Cooperative and remains and active member and participant.

Mr. Carlson’s background includes a master’s degree in History from the University of North Dakota, and he’s co-authored several works, including The Legacy of North Dakota’s Country Schools. (He) has a bachelor’s degree in education and is a Vietnam veteran. And he and his wife, Mary, farm south of Glenburn, North Dakota, where they raise bison and small grains and have two grown sons.

Thank you, Mr. Carlson, for joining us today.

Robert Carlson: Well, thank you, Meredith, for that very kind introduction.

As I think we’ve all heard and witnessed, farmers have been used as the poster child for those who would like to eliminate the estate tax. Our organization, the National Farmers Union, opposes eliminating the (estate) tax. And we think that the use of farmers in referencing family farmers as a need to eliminate the (estate) tax is a very false picture.

The present estate tax only affects about 300 farm estates per year. That’s less than one percent of all farm estates. And those are Department of Agriculture numbers.

What is most dangerous about the proposal to end the estate tax, however, is that with its ending — which would only affect, again, less than one percent of farm estates — we would have imposed the capital gains on gains in farm estates, and that would affect many more people. So there would be a net — there would be a net loss; there would be many more losers than gainers among the farm community and family farms and ranchers, if the estate tax were to be eliminated.

We actually support raising the exemption — which right now is at $3.5 million per family for family businesses — raising that to four million per individual, or eight million for a couple. And we think that would be a much more sensible alternative and have in the past supported Senate proposals that would have done just that. We think that’s a much better alternative than eliminating the estate tax, which is, of course, just (of) benefit to the very wealthiest among us. And we believe that ability to pay should be a factor in setting our taxes. And we also, as farmers — and our ancestors came here, including my grandfather — came to this country to have a fresh start, and get away from a European system where land was owned by the very wealthiest estates and then passed down for many generations. So we support increasing the exemption, but we oppose eliminating the estate tax.

Meredith Dodson: Great. Thank you, Mr. Carlson.

Our next speaker is Adam Hughes. Adam is the director of Federal Fiscal Policy at OMB Watch. Adam joined OMB Watch in November of 2004 as a budget policy analyst to work on budget and tax policy. He now directs the Federal Fiscal Policy Program at OMB Watch. So he oversees all aspects of the group’s work on the federal budget, tax policy, income and wealth trends, and government-performance issues.

Prior to his work at OMB Watch, Adam worked at the Coalition on Human Needs and has worked at Physicians for Social Responsibility. And he has a B.A. in mathematics and philosophy from Boston College, and an M.A. in American government from Georgetown University. And Adam’s a great expert and kind of has an eye on what’s happening here in Washington, D.C. on estate tax policy.

Adam, go ahead.

Adam Hughes: Sure. Thanks, Meredith. It’s great to be here.

I want to follow up on a couple things that Robert said right at the end there, particularly about the idea of our country being a meritocracy. The estate tax is really the embodiment of that — of that philosophy; of the idea that America’s a land of opportunity. Without the estate tax, we will see — as we already do, even with it — a sort of trend towards a continuing accumulation of assets and wealth in a very small number of individuals and families. And those assets and wealth, without the estate tax, will be able to be passed on through the generations with no check or balance.

This goes directly against the idea that what you — what you have in America is an opportunity for anyone — regardless of who your parents were, or, you know, what their standing was — to really have the opportunity to work and have success. And the kind of — the double-whammy on this issue is when the revenues are lost from the estate tax, if it were to be repealed, a lot of the programs and services and functions that the government provides to help (few) people to achieve that success, and to which a lot of the people who would be affected by the estate tax used and benefited from — things like the infrastructure our country to judicial system, enforcement of patents, an ordered market — those sorts of things are going to be severely impacted.

The real question that I want to address here is talking about whether this is something that our country can afford right now. And the answer is absolutely not. The repeal of the estate tax would be a tremendous revenue loss for our government. The outright repeal right now is estimated to cost $1 trillion in the first 10 years. And these are statistics that were compiled by the congressional Joint Committee on Taxation. The yearly cost for this is not — it’s not equal every year. But most estimates put it in the first couple years of full repeal — which would be starting in 2012 — around $72 billion a year.

Just to put that in perspective — right now, the country spends about $38 billion, about half that amount, on the Department of Homeland Security. So a repeal of the estate tax would cost about twice the amount we’re spending on homeland security every single year.

Now, some of the reform proposals that are out there are equally bad. One of those is being put forth by Senator Kyl, who’s a Republican senator from Arizona. His reform proposal, like Robert mentioned earlier — he wants to raise the exemption rates, which we agree with needs to be done. They’re going to be raised, as Robert mentioned, to three and a half million, and seven million per couple in 2009. Now Senator Kyl wants it to be raised to 10 million immediately, and 20 million per couple. But where he really has a bad idea is he wants to lower the rate and — lowers the rate down to the capital gains rate of 15 percent.

Now this proposal would cost 92 percent of full repeal. So it would retain only eight percent of the revenues that you would have under the estate tax. This is not a reform proposal; this is a backdoor repeal.

The reason that there’s another way for this proposal to be truly bad is that sometimes Senator Kyl talks about this as connecting the rate for the estate tax directly to what the estate — what the capital gains rate is. And the effect of that would be, if the capital gains rate is reduced further — say, to 10 percent, five percent, or even zero percent, as many Republicans in Congress want to do — the estate tax would disappear.

Now these costs are not mythical. They are very real costs. We have a very serious fiscal problem in our country right now with the federal budget. Deficits this year are projected to be over $400 billion, just this year alone.

Now, seems to me that we should not be talking about getting rid of more revenue, when we have such large fiscal problems to deal with. We should be talking about retaining revenue, not getting rid of it.

Thanks, Meredith.

Meredith Dodson: You’re welcome, Adam. Thanks for those remarks.

Now I’m going to introduce our final speaker for his opening remarks. We have Sheldon Cohen, Esq., on the phone with us today. The Honorable Sheldon Cohen, Esq., is a certified public accountant and tax attorney who provides the firm of Farr, Miller & Washington, LLC, with legal and tax guidance, and assist with business development. He is the former ommissioner of the Internal Revenue Service and former partner of the law firm Morgan, Lewis & Bockius LLP. And his accomplishments span the course of over 50 years of experience as a Washington, D.C., tax attorney. He’s a frequent lecturer at various tax institutions and universities across the country, including a recent keynote speech at a United Nations conference on tax administration in developing countries.

His remarks — his articles on tax subjects have appeared in publications such as The American Bar Journal, The Tax Advisor, The Journal of Accounting, and the Pennsylvania Law Review. He is listed as one of the (best) lawyers in America, Who’s Who in American Law; and is a member of the American College of Tax Law and the American Law Institute.

Mr. Cohen graduated with honors from the George Washington University, both as an undergrad and has his law degree with highest honors, graduating first in his class from GW National Law Center in 1952.

Mr. Cohen, thanks so much for joining us today.

Sheldon Cohen: Right. Thank you, Meredith. I’ll try to keep this just as simple as I can. I don’t think these people want to hear a lot about complicated tax laws.

But a lot of the confusion in proposed repeal is setting up straw men and then knocking them down. Much of the argument says, well, this is double-taxation; you get taxed on the income, and then you get taxed on it again. Ninety percent — over 90 percent of the value of estates has never been taxed. That is, it’s generally appreciation that’s occurred.

Also, I think most of us forget that the so-called death tax, which is really an estate tax, occurs at the end of life. So it’s been deferred for 50, 60, 70 years of work. So if you discounted it by the fact that it’s paid at the end of life, instead of installments during the period of time which accumulated — the wealth is accumulated, you’d get a much lower number.

Progressive taxation — that is, the higher your income, the higher the rate of tax — has been with us since the very beginning. Teddy Roosevelt was in favor of this kind of taxation. This is not particular party or group. We each have our own points of view, depending on where we sit. But progressive tax has been with us right from the beginning. The question is always, “How much progression?” And that’s a legitimate argument.

The real impact on small business is almost nil. As Mr. Carlson indicated, the impact on small family farms is virtually nil. The impact on small family businesses is virtually nil because the tax law now has exemptions for family farms and for family business that are slightly larger than the general exemption. And they also allow for longer payout, so that — in my practice — I’ve been practicing law for a little over 50 years — I have never seen a family business that was sold because of the estate tax. They are sold because the kids don’t want to manage the business, the kids are off just being doctors or lawyers and don’t want to go back into the farm, or don’t want to go back into the family manufacturing business. That occurs all the time. But it isn’t because of the estate tax that the business is sold.

Nobody’s talked about — and the (charity, or very charity) of mentioning this — what an important element here — is that the estate tax, as well as the income tax, are an encouragement for charity. That is, since we have deductions in beneficial gifts to charity, we’re (all) encouraged to give to worthy causes. Nobody knows for sure how much is going to be lost when, as, and if these — either the income tax were to be pushed down in rates, or the — or the estate tax were to disappear. But if that were to be the case, there are estimates that go to 13-plus billion up to 20 billion. I’m not an economist; I don’t want to project those numbers.

I do know that it does affect people’s behavior. People give a little more to charity because there is tax benefit. We saw that the president and the vice president both took advantage of large charitable deductions at the end of last year. That was just announced this last week, when they filed their returns.

So it’s an important element. And I think it’s been missing from the discussion. And it will be missing, because the charities can’t say it out loud. They can’t say it because their donors might get offended.

Meredith Dodson: Great. Thank you, Mr. Cohen, for that overview, and bringing your expertise to this issue.

Before we open it up for questions, want to go back to Adam. (Is there) anything you want to add about kind of timing on this issue, and also —

Adam Hughes: Sure.

Meredith Dodson:— what, (for instance) recent polling data is showing?

Adam Hughes: Sure. Yes. This — we’ve organized this call because majority leader of the Senate, Senator Frist, has said that he will bring a repeal vote before the Senate in May sometime. We’re probably expecting this to be no sooner than the week of May 15. But it will certainly be voted on before the Memorial Day recess. And the proposal I mentioned earlier, Senator Kyl’s proposal — we are also expecting that to come up shortly after, assuming that the repeal vote fails.

One of the things I think is emerging this year that’s very interesting about this issue is that the public doesn’t support repeal anymore. A recent poll that was done in February found that once they understand what the estate tax is, about three out of four Americans support either leaving the tax exactly as it is or reforming it; some of the kind of responsible reforms that maybe Robert talked about earlier — or there’s been other proposals out there that various groups supporting the estate tax have (for) reform.

The estate tax also ranks in this poll — this poll found (that) estate tax ranked dead last in tax issues that Americans want to see addressed. Now this list is a long range from raising income taxes on those earning over 400,000 a year to, you know, extending the child tax credit, to changing the (regressivity) of payroll taxes — pretty much anything that you can possibly think of that has to do with tax issues on a federal level. People want to see Congress work on that before they want to see anything done on the estate tax.

So — and this is — this is a change that from previous years, around public opinion on the estate tax. And I think it’s something that’s indicative of people understanding exactly what the estate tax is now. And when you polled four years ago, and asked people if they’d have to pay the estate tax, more than half of people said they would. But when you look at the numbers, less than one percent now do.

So once people are starting to learn more about the estate tax and are learning about the important challenges that we face as a country, and the revenue that can be used to meet those challenges, that you’re really seeing a true picture of what the American people want.

Meredith Dodson: Thank you, Adam.

And I want to highlight for journalists on this call that yesterday, RESULTS interviewed William Gates, Sr., expert on the estate tax and an outspoken critic of attempts to repeal the estate tax. And Mr. Gates, in this interview — which is available as both an audio file and a transcript form on our website, at www.results.org in the Press Room section — Mr. Gates talked about how wealthy individuals very much benefit from government investments, and his view that paying the estate tax is kind of returning the government for the billions of dollars, for instance, invested in research to support successful technology advantages, et cetera, that have led to some people needing to pay an estate tax. So I think it’s a great point to underscore that as well.

With that, I’m going to ask the operator to go ahead and switch us into a question-and-answer mode and give instructions on how to do that.

Operator: Thank you. Today’s question-and-answer session will be conducted electronically. At this time if you do have a question, you may signal by pressing star one on your touch-tone phone. If you are using a speakerphone today, we ask that you make sure your mute function is turned off to allow your signal to reach our equipment. So once again, star one if you do have a question. And we’ll pause for just a moment to allow everyone a chance to signal.

Meredith Dodson: And while we do that, Adam, I meant to ask you this. Can you give folks a website where they can find the new polling data that you just mentioned?

Adam Hughes: Sure. There’s — this polling, by the way, was done by Penn, Schoen & Berland Associates, here in Washington. They’re a very large polling firm that does a lot of polls. The summary findings, as well as the questions and answers, can be found on a website, which is Coalition for America’s Priorities. And it’s just as it sounds, except for the word “for” is the number four, not F-O-R. So it’s www.coalition4americaspriorities.com.

Meredith Dodson: (Good). Operator, do we have anyone in the — looking for question?

Operator: Yes, ma’am. We’ll go first to Paul Owens with the Orlando Sentinel.

Paul Owens: Hi. Thanks, and thanks for doing the call. I have a question for Adam. And that is the outright repeals cost over the first decade. The numbers that I’ve seen in the past have put that cost at 740 billion. You mentioned a cost of one trillion. Obviously, they’re both huge numbers, and unwelcome at a time of deficits. But I’m wondering where the larger number comes from; whether perhaps it includes the additional interest on the national debt.

Adam Hughes: That’s actually exactly right. The 740 million number that you mentioned I believe is what we were using last year. The number that we’re using this year now is 776 billion in revenue loss. And then the additional interest on that over the first 10 years would be 213 billion. And, you know, it’s very important to include the interest in revenue projections.

And the main reason this is is because the fastest-growing section of the government spending is paying interest on the debt. It’s growing faster than defense; it’s growing faster than entitlement spending on health care. There’s nothing growing faster than interest on the debt. And last year it grew at about 13 percent. And next year it’s projected to grow — well, this current year it’s projected to grow at about 17 percent.

This is a mandatory amount of spending. We have to pay off the interest on the debt. And because it is growing so quickly and taking up such a larger section of the government spending, it’s going to squeeze out other types of spending priorities. And there’s nothing we can do about that if we keep adding to the debt by doing things like repealing the estate tax.

But you’re exactly right. It does include — that figure did include interest on the debt.

Paul Owens: If I — if you wouldn’t mind a follow-up — I’m wondering what the number would be on Mr. Carlson’s proposal of raising the exemption for individuals to four million and couples, eight million; assuming you didn’t lower the tax rates, like people like Jon Kyl have suggested.

Adam Hughes: Sure. I’ll give you two estimates. If you — Senator Grassley, who’s the chairman of the Finance Committee in the Senate, (had) remarked earlier this year that he thinks that something around a four million to five million exemption, and dropping the rate to 15 percent, would pass the Senate. That proposal would cost between 81 and 84 percent of full repeal. And what we’re talking about there is around 770 billion added to the debt over the first 10 years.

The proposal that was mentioned earlier about raising it by keeping the rates higher — that would be better. That would cost probably around half of the cost of full repeal. And that’s what a lot of folks were talking about. I don’t know if I label this as responsible reform. But the political reality on Capitol Hill is the reforms that people are talking about are looking at trying to retain about half of the revenue after 2001.

Paul Owens: Great, thanks.

Adam Hughes: Yes.

Operator: We’ll go next to Paula Heeschen, Pocono Record.

Paula Heeschen: Hi. I was interested in one of the last remarks before we went to the questions, about how people actually ought to be grateful for the tax, because it funds, in part, investments and research technology advantages, and so on. But basically, most people act out of self-interest and want more immediate gratification than that. So I guess what I’m looking for is — I don’t think that’s a very powerful argument for an editorial. I’m wondering what we can recommend to the average Joe to motivate people to put more pressure on retaining the tax.

Adam Hughes: Well, I’ll let — I’ll let Mr. Cohen jump in, too. But — this is Adam — I just wanted to mention on that — you know, there was a lot of editorials and work done last year around the budget reconciliation bill and the budget cuts that Congress put into effect. And, you know, there was a considerable amount of outrage, and outrage that OMB Watch worked to generate. A lot of that focused on the cuts to student loan programs, cuts to the Medicaid programs. Now, the justification for these cuts has been that we have deficits, and we can’t keep spending all this money, and we need to do something about those.

Now, if you’re going to repeal the estate tax, you’re going to see more of those cuts. You’re going to see more cuts to student loans; you’re going to see cuts to food stamps, you’re going to see cuts to rural health community centers, you’re going to see a whole host of cuts that Congress is enacting now, even more than they’re trying to do now.

So I think the kind of immediate-gratification argument that people can maybe relate to a little bit more is that, to the extent that people do understand the kind of government supports and services that they have in their community, that they depend on and they like, they’re going to see those threatened, and seriously threatened, if the estate tax is repealed.

Paula Heeschen:Thanks, [inaudible] —

Sheldon Cohen: I’ll give you my —

Meredith Dodson: Yes, please go ahead.

Sheldon Cohen:- Sheldon Cohen — I’ll give you my two cents.

I was commissioner 40 years ago. I became commissioner in 1965. We had the first balanced budget in many years at that time. It was a balanced budget the year 1968-‘69. The last — the only other balanced budgets we’ve had were the couple we had under the Clinton administration. During that time, we’ve run all these tremendous deficits.

When you run these deficits, you create all kinds of — the economists can tell you all of the various problems that creates. But you also put tremendous pressure — I mean, I used to sit with the OMB director, trying to figure out where we could cut, what we could cut. I mean, you don’t spend time trying to figure out how you can work better; you just try to figure out what can be cut. And you hear that all the time.

Now, what gets cut is not the Defense Department, not Homeland Security, not a variety of things that have been increasing tremendously; and not without cause. (They have) reasons for that increase. But what gets cut is NIH or other medical types of research, education — all the various things that will make America great in the future.

So the question is, do you want to tax a few rich people — and this is basically — applies to a fraction of one percent now — or do you want to — or do you want to give up these various services that make the country better?

Meredith Dodson: And — this is Meredith Dodson — I want to go ahead and quote the interview. And again, I mention that the transcript is available on our website — and interview we did yesterday with William Gates, Sr., on this issue.

One of the questions we asked was basically, why should Americans care about this if it affects such a small percentage of people? And one of the points he made is, “I suppose one thing might be anybody should be excited about the possibility that somebody else is going to help cover the federal deficit, and it’s not going to come of out of their own pocket. I should think that is a very good reason for people to be excited about it. But there’s more than that.” And then later on, he says, “My point of view the most sensible kind of taxation (is) at the end of a wealthy person’s life to recover something. And we are not — you know, we are not talking about confiscating estates. We are talking about some percentage of the estate, with plenty left for children, some part of it being used to recompense society for the contribution it has made for the opportunity to be financially successful.”

So that was his perspective, to answer your question, Paula.

Paula Heeschen: Thank you.

Robert Carlson: Well, this is Robert Carlson. And for farms and small businesses, the end of the estate tax would actually mean the imposition of the capital gains tax to the gain on the value of the estate. And so if you had a business or a farm acquired by a grandfather, let’s say, originally, and here it is 70 years later, and you’re inheriting it from your parents, you’ll be taxed — you’ll be subject to capital gains if the estate has gained in value considerably. So there will be people — the end of this tax is going to mean the imposition of a capital gains tax on people who are not now paying a capital gains tax because the basis of the property is increased at the time of death to reflect its present value under current law. That would end with the repeal of the estate tax.

Paula Heeschen: OK. Thank you.

Meredith Dodson: Another question, Operator?

Operator: Yes, and as a reminder, if you do have a question today, please press star one on your touch-tone phone.

And we’ll go next to Betty Booker at Richmond Times-Dispatch.

Betty Booker: I’m interested in the effect of the repeal on states’ budgets, and thus localities, and thus the ordinary people who live in the communities. I think that goes back to this trickle-down effect. (The) states are already very, very concerned about the effect of just one aspect to these cuts coming out of Washington. And that is the effect of the Medicare Drug Bill on Medicaid cost to states, which has big ramifications. What would the repeal of estate tax have on states’ budgets — if any?

Sheldon Cohen: (Well) — this is Sheldon Cohen — there’s now a tie-in — or there has been a tie-in, until recently — between the federal estate tax and the state estate tax. That’s been — that’s been disassembled. And so most — many of the states are now enacting their own estate taxes, or inheritance taxes of some sort, to make up for the revenue that they formerly received from their portion of the federal tax. That’s already occurring, and it’s occurring every day in jurisdictions across the country.

Adam Hughes: Yes. I think — the answer that — Sheldon’s exactly right — the answer to the question would depend on what state. But as he said, a lot of states have been — the phrase that we use in Washington is decoupling their state estate tax from the federal estate tax. And the reason they’re doing that is because if the federal estate tax is repealed, and their state estate tax and the revenue they receive from that is tied directly to the federal law, then they lose the state law automatically. And so some states, like Sheldon said, have taken the steps to decouple and institute their own state estate tax, so that regardless of what happens on the federal level, the state can retain some of its state revenue.

This is similar in other areas of federal policy, too — for instance, raising the minimum wage. Some states have gone ahead and have not waited for the federal government to raise the minimum wage, because they felt they needed to do it sooner. And you see a kind of similar impact on the state tax policy.

So specifically, if you’re asking for Virginia, I’m not actually sure whether Virginia has a state estate tax. But regardless of what happens to the state policy on taxes, if the federal tax is repealed, all states will lose a portion of revenue, whether it comes in, you know, grants and aid from the federal government, or through things like the Community Development Block Grant, or farm subsidies, or whatever it is. Because all the revenue from the estate tax goes directly into the general Treasury fund.

So you can’t exactly predict (where) the money is going to be lost from. But things like you mentioned, like the Medicare bill, and its impact on Medicaid — there’s going to be an impact on that, because it’s such a huge amount of revenue.

Betty Booker: And can I have a follow-up here?

Meredith Dodson: Yes, please go ahead.

Betty Booker: With the actual — the estate tax itself is one ramification of this. But the much larger one is the source of federal revenue that comes in from the estate tax, so that all of the domestic programs that you mentioned that could be cut — the actual overall lack of money coming in that can come to the states is — and to — and to federal programs — is vastly reduced. Correct?

Adam Hughes: Oh, absolutely. And, you know, it’s not just estate tax. You know, that’s our focus today. And I think that’s the most slanted towards extremely wealthy Americans. But it’s capital gains taxes and dividend cuts, it’s the income tax reductions, it’s things that, you know, OMB Watch and other progressive groups have been supportive of, like extension of the child tax credit, reducing the marriage penalty — all these other tax policies. It’s the alternative minimum tax. I mean, what we’re seeing is basically a wholesale reduction in revenues. Revenues right now are at their lowest level since Mr. Cohen was at the IRS — were down around 17, 16 and a half percent, as a percentage of the economy.

When we have our spending, in the kind of domestic programs you talked about, up at about 20 percent, that’s why you’re seeing these huge deficits. That’s unsustainable.

So we cannot keep saying we’re going to spend on the priorities of things that we want for our communities, and at the same time cut taxes across the board on a variety of different things; I think the estate tax [cut] being the most unnecessary. So you’re exactly right.

Sheldon Cohen: States — the states currently have been receiving somewhere between 15 and 20 percent of what the federal government gets on the — that’s direct, from their own coffers, from the — from the credit that goes back to them.

Meredith Dodson: And — this is Meredith Dodson — I want to ask Adam to just direct folks where — if they’re a journalist looking for kind of numbers, to talk about the impact of the estate tax right now on their states — who’s paying it, et cetera — (and the costs) of repeal — Adam, can you direct folks to that information?

Adam Hughes: Sure. There’s a couple reports that we put out. One is on a state-by-state analysis of the impact of repeal on charitable giving. And that’s available on our website. I can give out the link as soon as I pull it up.

The other thing that — as I mentioned, it’s difficult to say, Well, Virginia’s going to lose X amount of dollars when the estate tax is repealed. Because once all the money comes into the government, into the Treasury, then Congress says, We’re going to give out this much to this state, and this much to this state. The estate tax is not something like the payroll tax or the social security tax. It doesn’t go directly into a fund that spends only on that. So it’s not really — it’s not really possible to make an accurate estimate to say Virginia’s going to lose, you know, 20 billion, and New York is going to lose this much.

The only other state-by-state analysis that we’ve done shows how much — how many estates across the country — how they’re divided up by state. So if the estate tax is repealed, this many families in California will receive a tax break, and this many families in Minnesota will receive a tax break.

Both of these reports that I just mentioned, the charitable-giving impact and the, you know, breakdown of who’s going to be getting the tax breaks with repeal, are available on our website, which is www.ombwatch.org/estatetax.

Betty Booker: Great, thanks.

Adam Hughes: And I can — I can — I think it’ll be easier to e-mail out those individually, if folks are interested. My e-mail address, if you want to get in touch with me, is ahughes — H-U-G-H-E-S — @ombwatch.org. They’re just PDF files, and they’re very long, complex. So if you’d like to look them over, I’m happy to send them to you.

Meredith Dodson: And — this is Meredith — and again, we’ll be putting out a press release with links to a lot of background information, as well as the transcript and audio file of this call. And we’ll be sure to put those links also as a part of the press release materials, which all of you will be getting.

Another question, Operator?

Operator: Yes. We’ll go next to Lee Farris, United for a Fair Economy.

Lee Farris: Yes. I wondered if you could clarify what the current exemption level on the estate tax is —

Adam Hughes: Sure.

Lee Farris: — right now, in 2006.

Adam Hughes: Sure. 2006 — the current exemption level is $2 million for an individual and $4 million for a couple. It’ll remain at that exemption level in 2007 and 2008. In 2009, it’ll rise to three and a half million for an individual and seven million for a couple. And then in 2010, it will be fully repealed for one year only. If Congress does not act before then, in 2011, it will be re-instituted at its 2000 levels, which were a $1 million exemption and $2 million for couples, and 55 percent as the rate. And right now — right now, the rate is 46 percent. And in 2009, the rate will be 45 percent.

And just to — just to mention, too — it’s important to clarify that that rate is (a) marginal rate. And (that’s) meaning what — in the tax code, that’s what the rate says. But for the average estate, most folks pay about 19 percent. And the reason that is (is) because you have to counter — you have to factor in the exemption level.

So if you look at a proposal like Senator Kyl’s, and saying, Oh, well, we have to make it the capital gains rate, the amount of tax that people actually pay — if it were the capital gains rate of 15 percent — would be about five percent, which notably is less than most sales taxes in most states.

Meredith Dodson: Thank you. Another question, Operator?

Operator: Yes. We’ll go next to Kurt Ritterpusch at BNA Daily Tax Report.

Kurt Ritterpusch: I was hoping somebody could explain the concept of the step-up in basis, and how that might change under some of these reform proposals.

Adam Hughes: Sure, I’m happy to do it, unless one of the other guys want to say anything.

Robert Carlson: Either way, go ahead.

Adam Hughes: The way step-up in basis works now is, any assets, whether they’re farm assets, land, property, artwork, stocks — when you inherit them from someone who has died, you don’t — you don’t inherit it at the level that the person purchased the price for.

So for example, let’s say we — someone — I bought a stock for $50. And when I die, I pass it on to my children. But by the time I die, it’s accumulated in value to $500. Now, without a step-up in basis, they would have a $450 profit to pay on that piece of stock when they inherited it. But the way that it works when you inherit wealth — and the way that it works with the estate tax — is the people who inherit it get a step-up in basis. So their new basis, the amount at which they will have to either pay capital gains or will receive tax benefits from losses, as they keep the investment — it moves from $50 up to $500. And the reason that’s important is because if you get rid of the estate tax, the tax that’s levied between the transfer of wealth, the step-up in basis disappears.

So, as Robert was mentioning earlier, if a farm is passed on without a step-up in basis, as they inherit that, they’re going to have to pay, in the stock example, capital gains taxes, or 15 percent right now, on the $450 profit that they got — whoever my heir would be — on the stock.

So for a lot of people — you know, we’re talking about a tiny number of people, particularly farmers who — even have to file estate tax returns — but for most of those returns, they would pay more tax under a system without the estate tax — paying capital gains; and without the step-up in basis — than they would if they actually had to file an estate tax return.

So actually, it’s very complicated, it’s very technical. But the kind of (using of this) — family farms and businesses as the poster children for repeal — a lot of these people are going to be paying more tax after it’s repealed. It’s not something that’s out there that’s mainstream, that people understand. But it’s — it’s a very important point. The step-up in basis is crucial, when we’re talking about passing on inherited wealth.

Sheldon Cohen: By the way —

Adam Hughes: And it’s inherent within the current estate tax system.

Sheldon Cohen: By the way, just as a — historical reference, Bob Dole, when he was in control of the Finance Committee back in the ‘70s, tried to repeal step-up in basis. Got it repealed; it was — his repeal was repealed within a year. Because the complications that were just described to you were so horrendous — they had actually not gone into effect — but they would be so horrendous that it was repealed before it ever became effective.

Adam Hughes: That’s an outstanding point; I forgot to mention that. And the reason it’s so complicated is because if you do that — and as something is passed through a couple of generations — if you don’t have the step-up in basis, you would have to go back to the time that the — whenever the asset was originally purchased, and figure out how much it cost. And that could be a period of, you know, three or four years. Or if you have something that’s passed for a couple of generations, like a family farm, you’d have to go back 50, 75, 100 years, figure out what the value was, and then take capital gains on that value.

And as Sheldon mentioned, you know, this was tried by Congress. And they realized that it was unworkable, even before the law went into effect. And they repealed it.

Meredith Dodson: Thank you. And I know that we told folks this call would be 45 minutes long. And that is pretty much the time we’re at.

So what I’d like to do is go ahead and thank all of our speakers on the call today. Appreciate your expertise in overviewing what can be often complicated but very important information on the estate tax. And I think a lot of you touched on — and I just want to underscore, RESULTS — our mission is to create the political will to end hunger and poverty. And it’s very clear to us organizationally that there’s a link between these tax breaks — that primarily benefit the wealthy, that widen the wealth gap — and the kind of cuts to Medicaid, to student loans, to programs like Head Start and WIC — that we’ve already seen enacted, and are being pushed forward in this coming year’s fiscal-year budget resolution.

So this is a — the issue of the estate tax is a very important one. And appreciate everyone’s time being on the call today.

Again, a transcript and audio file, as well as a press release, will be available on our website, at www.results.org. And if you need any additional information — you’re trying to hunt down some state-specific numbers, et cetera — feel free to contact Adam. He already gave his contact information. Or you can get in touch with me directly. Again, my name is Meredith Dodson. My e-mail is my last name, dodson@results.org. And the RESULTS office phone number is (202) 783-7100, x116.

So thank you, everyone, for your time. And please let us know if we can be of assistance.

Operator: That does conclude today’s conference call. Thank you for your participation. You may disconnect at this time.

END