this Committee, and you look as good sitting there as you looked sitting up here. Welcome back. Thank you, Mr. Chairman. Mr. JEFFERSON. Thank you very much. Chairman ARCHER. Mr. Hancock. Mr. HANCOCK. One real quick question. Thank you, Mr. Chair man. On your plan, Senator McConnell-we are talking about saving money for education, and I frankly am a very strong advocate for even a tax-deductible saving education plan to help parents pay for educating their children. The 1986 tax law effectively got rid of the benefit of the uniform gift to minors because the tax law requires the tax on the income from the uniform gift to be a tax at the parents' rate rather than the child's rate. Has there been any consideration, or have you considered anything whereby we might be able to change that Uniform Gift to Minors Act back for educational plans? In fact, we have a tax-free accumulation here, but it is only in a State-sponsored plan, and those State-sponsored plans are invested in fixed dollar return rather than the possibilities of taking a little bit more of a risk for a greater return. Senator MCCONNELL. About the only thing we did in our bill, frankly, due to concerns about revenue loss, was to provide that if the funds were converted converted by the children to be used for noneducational purposes, the funds would pay taxes at the child's rate instead of the parents'. Mr. HANCOCK. But as I said, in your analysis of this, have you considered any change in the uniform gift to minors as part of enabling people to accumulate money for their children's education? Senator MCCONNELL. I have not, but I think that raises a much larger question I assume this Committee is going to address in the context of broader tax reform, and I think your point is extremely well made. We did not consider it in the context of this rather narrowly crafted legislation really designed to promote the use of these 30 some-odd existing State plans. Mr. HANCOCK. I would like to have it on the record. Thank you. Senator MCCONNELL. Thank you, Congressman. Our next witness is a gentleman who is no stranger to this Committee. For a number of years, he was the Ranking Minority Member of the Committee, became President of the World Bank, and now has gone on to other, I am sure, halcyon activities. We are delighted to have you back, Barber, Hon. Barber Conable, and you are no stranger to the rules of the Committee, so you may proceed at will. STATEMENT OF HON. BARBER CONABLE, ALEXANDER, NEW YORK; FORMER PRESIDENT, WORLD BANK, AND FORMER MEMBER OF CONGRESS Mr. CONABLE. Thank you, Mr. Chairman, Member of the Committee. I very much appreciate your holding these hearings. I am here as an individual citizen in support of H.R. 1401, sponsored by Mr. Gibbons and Mr. Houghton. This measure has been around in one form or another since 1990, looking for a suitable vehicle. I understand the legislation you are considering might be a suitable vehicle, and I commend H.R. 1401 to your attention for that purpose. Mr. Chairman, I do have a short written statement, and I would appreciate, if it pleases the Committee, that it be included in the record in its entirety. Chairman ARCHER. Without objection, it will be entered in the record. Mr. CONABLE. Thank you very much. This has to do with the taxation of the employees of international institutions that are sited in the United States. The Bretton Woods agreement that set up the IMF and the World Bank in particular provided immunity from taxation in a general way. The courts have held that inheritance tax, however, is subject to taxation as the Congress may specify, and in 1988, in TAMRA, while the president of the World Bank slept, this Committee added some provisions to raise a very small amount of money where arithmetic appeared to be the motive rather than justice. The result was that the nonresident employees of international institutions that had previously not been subject to a punitive tax, as a result of the inheritance tax provisions, suddenly found themselves denied the full spousal marital deduction, found that their exemption was $60,000 rather than $600,000, and found that they were being taxed on the actuarial value of derivative pension benefits. Let me explain the problem that that caused. If an employee had worked for the World Bank, for instance, for 15 years and was killed in a plane crash or got some exotic tropical disease in Africa, and his widow had derivative pension benefits and was, let us say, 35 years old, those pension benefits could amount to a lot of money. If she died the next day, she would still under TAMRA be taxed the full actuarial value of the pension benefits as of the date of the husband's death, and that could be a very large sum of money. In any event, these foreign employees working for international institutions have G-4 visas which require them to be out of the country in 60 days. It meant that a spouse of such a deceased World Bank, IMF, or U.N. employee would have to borrow the money to pay the inheritance tax on a substantial assumed actuarial value of the derivative pension and the full appreciated value of any real estate they had purchased while working here in this country, and they had to do it on a pretty much crisis basis because they had only 60 days to get out of the country. Now, this particular provision is a modest one; it does not change it all back to the way it was previously, but it does increase the spousal benefit for nonresident employees of international institutions from $60,000 to $600,000, thus giving them some reduction on what otherwise could be an almost confiscatory inheritance tax. I hope the Committee can consider it favorably. It raises very small amounts of money for the Treasury, but it has greatly af fected the ability of the World Bank to recruit in Japan and in Europe, and we are supposed to have employee representation on the Bank staff or on the IMF staff equivalent to the ownership share of that country. For instance, right now, 25 percent of the employees at the World Bank are American and therefore subject to normal American taxation. It should be only 17 percent, because that is the American ownership of the World Bank. It is very difficult to attract highly skilled, trained Japanese and Europeans to come here and work in Washington when they know in advance that they will be faced with this kind of an inheritance tax problem if something happens to them while they are working here. Thank you. [The prepared statement follows:] Testimony of the Honorable Barber Conable Before the House Ways and Means Committee of the House of Representatives, U. S. Congress Estate Tax Marital Credit For Certain Employees of International Organizations My name is Barber Conable. I was a member of the U.S. House of Representatives from 1964 to 1984, during which time I served on the House Ways and Means Committee. In 1986, I was appointed President of the World Bank, and served in that capacity until September 1991. I remain keenly interested in matters before this Committee which affect the World Bank, other multilateral institutions and their employees, and, in this context, I appear before you today in my individual capacity to discuss certain aspects of U.S. estate tax law which have placed a disproportionate and unfair burden on certain employees of international organizations and their families. Under its Articles of Agreement, the World Bank is mandated to recruit staff on as wide a geographical basis as possible," subject to "the highest standards of efficiency and technical competence." Consequently, a large number of World Bank employees are citizens of other countries who have come to the United States in order to work for the Bank at its headquarters in Washington while maintaining their citizenship in, and contacts with, their home countries. In 1988, TAMRA changed the rules governing estate taxes in a way which has had a significant adverse impact on employees of the World Bank, the IMF and other international organizations who are present in the United States for purposes of international organization employment. TAMRA affected surviving spouses who are not U.S. citizens by denying them use of the unlimited marital deduction, which is otherwise available to U.S. spouses, and imposing estate tax on the full value of jointly held property passing to non-U.S. surviving spouses. Often, the principal source of financial support for a surviving spouse of a World Bank employee will be the spousal benefit paid by the Bank's pension plan. Under the TAMRA amendments, the full actuarial value of the spousal pension benefit, payable over the lifetime of the spouse, may be subject to immediate estate tax even though cash may not be available to pay the tax and the value of the pension may be completely consumed during the remaining lifetime of the surviving spouse. Prior to TAMRA, the U.S. had never imposed estate tax on spousal pension benefits. Moreover, except to the extent that it can be established that the spouse contributed toward the purchase of the family residence, the full appreciated value of the family residence, also a noncash asset, may be subject to estate taxes. Even for modest and illiquid estates, the tax burden imposed on non-U.S. international organization employees may be substantial and much higher than where both spouses are U.S. citizens. In the case of estates of non-residents, the rate of taxation was increased to nearly the same rate which applies to resident estates. However, for purposes of the unified credit, the exemption equivalent of $60,000 applying to estates of non-residents, compared to the $600,000 exemption equivalent for resident estates, remained unchanged. This change represented a significant tax increase on non-resident estates. H.R. 1401 contains a provision introduced by Representatives Houghton and Gibbons which would significantly lessen the impact on all but the largest estates of international organization employees who are present in the U.S. on G-4 visas. This would be achieved by adoption of a marital transfer credit against the estate tax for estates of international organization employees and their spouses in an amount up to the equivalent of a $600,000 deduction. I urge the Committee to support this piece of legislation to diminish the unwarranted burden imposed upon international organization employees by TAMRA. Indeed, enacting this provision would be consistent with the United States' obligation, as host to the World Bank and other international organizations, not to place undue burdens on the organizations and their employees. Chairman ARCHER. Thank you for your testimony. I appreciate your taking the time to explain this issue to the Committee. Are there any Members who wish to inquire? Mr. Houghton. Mr. HOUGHTON. Maybe I should yield first to Mr. Gibbons, if that would be all right. Chairman ARCHER. Go ahead. Mr. GIBBONS. Thank you, Mr. Houghton. I am glad that you and I are cosponsoring this, and I am glad that you are the lead sponsor, because maybe now that it has a good lead sponsor, we will pass it. This is a serious piece of mischief that we did back in the eighties to some very fine people who did not deserve the kind of treatment we gave them, those employees who must come here because of the situs of their international job. These are international civil servants, and we have penalized them by the tax provisions that we have put on them. I want to tell you, Barber, that I recognize every day that I sit in the Barber Conable seat here on the Ways and Means Committee I feel honored to be in the position that you occupied so distinctively Mr. CONABLE. Gently, Sam, gently. Mr. GIBBONS [continuing]. And with such great honor for so many years. I would ask that God give me the wisdom that he gave you to occupy this seat. But Barber, I hope we can get it passed. I know that what you are doing is in the best interest of these institutions, and in just plain, simple fairness under our tax laws. I am glad that Amo and I are working together on this, and maybe we can get the Chairman recruited on this one, too. Mr. CONABLE. Thank you, Mr. Gibbons. I must say it seems like a modest matter, but recruitment is a very serious problem in international institutions at this point to get the skilled people you need, and quite frankly, the World Bank, to choose only one institution, one that I know something about, contributes a great deal to the Washington economic environment. It has a staff of over 6,000 people, three-quarters of them nonAmerican, and they are very much concerned about the confiscatory nature of the current inheritance tax provisions. We are not asking that they be put in the same position as American decedents, but only that the penalty on them for having come to work at an international institution be reduced. Chairman ARCHER. Mr. Houghton. Mr. HOUGHTON. If I could speak, Mr. Chairman, I would like to follow up on Mr. Gibbons statement. Barber, it is wonderful to have you here; you represent a lot, but one of the things that you do represent is a sensitivity to people's conditions, and I totally agree with you on this. Obviously, my name is associated here. But when we are going to consider ourselves an international nation, a host nation, we must look at the implications of that for the people. Whether it is in expenses, or whether it is in salaries, or whether it is in the beneficiary benefits such as we are talking about here, it makes a great deal of sense. I am looking at the present law, which was written prior to 1988. This was costed out in 1993 as costing $12 million over a |