"REP. HETHERINGTON: (125^th)

Thank you, Mr. Speaker. If I may proceed to comment? Mr. Speaker, the estate tax is estimated to provide $ 197 million in revenue during the current fiscal year.

If we adopted a phase-out such as proposed in this Amendment, we would spread that cost out over several years. That is not in the big picture an enormous amount of revenue as we look at tax measures.

When we look at how poor policy the estate tax is, we realize that we could do away with it easily, easily from the surplus we have and certainly easily over several years. The estate tax as represented in the underlying Bill really has two parts.

It eliminates the so called cliff effect and it increases the rate from 5. 85% to a marginal rate of 20%. Now the cliff effect, let's think about that for a minute. The cliff effect is a pernicious provision of the current law that says that estates having a value of less than $ 2 million are not to be taxed.

But once they go one dollar over $ 2 million the tax goes back to the first dollar. So the estate bears 5. 85% on dollar one through dollar two million. I'm curious as to how this provision became part of the law and I've heard it suggested that it might have been a drafting error.

And I guess that is hard to believe, although in the same estate tax we put a provision taxing foreign real property which was blatantly unconstitutional, so much so that even our Attorney General complained that it was unconstitutional. So I guess if you can make a mistake about that, maybe you can make a mistake about the cliff effect.

In any event, to get rid of the cliff effect we have to increase the rate to a maximum of 20%. And if you look at the fiscal note, the revenue consequences are neutral. Eliminating the cliff effect costs about $ 31 million, and that is made up by increasing the marginal rate.

Now it seems to me that the people of Connecticut are being now made to pay for a mistake we made. When we imposed the cliff effect, this unique and pernicious provision, we now are asking them to bear a greater burden in order to get rid of it. And I just think that is wrong.

The estate tax is a particularly misguided tax because look at what it falls on. It falls not only on people's accumulated cash or investments, cash investments, monetary investments, but it falls on the farm, the business, the home.

You know it is not unusual in Connecticut now for someone who has had a family home for 30 or 40 years. They paid the mortgage all of those years. They finally got it paid off. And a property that they bought for $ 60,000 40 years ago is now worth $ 2,100,000.

So all of the sudden they've got a very valuable asset that is subject to tax, and when they put in perhaps a modest IRA, they are rich, at least in the eyes of the Revenue Service. So that makes us think about who really will pay this tax.

And, you know, the people that will really pay the big rate on this are not the very, very wealthy, the sophisticated, those who have the best planning, those who make use of all the tax advantages.

The people who are really hit are the ordinary folks in Connecticut who work all of their lives, pay off a mortgage, wind up at the end of their lives with a valuable asset in their home and all of the sudden the state bears a big tax that takes away from the proceeds to go to the family.

And look at the effective date of this. The effective date of this is January 1, 2007. January 1, 2007. Here we are almost to June, this is going to look back to January 1, 2007.

What about those estates for people who died in January or February? Those returns are already finished. Those estates are essentially concluded when they are simple estates.

And now we have to go back and say, wait a minute, you thought you were all finished. You're not all finished. The State of Connecticut wants an amended return on this and you are going to owe some more money. So this goes back to January 1^st and you can see how unfair that is.

Finally, we've said this before when we've talked about this and it is true. This is going to give people an incentive to go elsewhere, to live elsewhere, to move out of this state.

Now many of us, I know, have a hard time believing that, but when you look at the decline in the average annual earnings, you realize that somebody is leaving the State and many of the most wealthy citizens are leaving the state.

You don't see a row of Jaguars lumbering down 95 with a pile of designer goods on each one as they head down to Florida. You don't see that happening, of course not.

But what is happening is that people that can afford it, who can make the sophisticated moves, enjoy all of the opportunities to be in Connecticut without the consequences of dying here. And that simply is a fact.

We need to keep those people in Connecticut. We need to keep those people in Connecticut because we want to tax their income for one thing and take advantage of their charitable larches and keep them supporting community projects and investing in Connecticut.

And the estate tax, in summary, is a relatively minor revenue source that falls most harshly on the ordinary citizens now has a particularly mean feature in that Connecticut citizens have to pay to eliminate the cliff effect that we saddled upon them two years ago. So if we do nothing else at least let's eliminate this estate tax. Thank you, Mr. Speaker."