Estate tax penalizes family businesses

Thursday, February 20, 2003
By KARIN AND DON ROOT
BUSINESS OWNERS

The Seattle Post-Intelligencer recently carried a column by Bill Gates Sr. and Chuck Collins about why this country needs an inheritance tax or, as we prefer to call it, a death tax ("Resurrecting the federal estate tax," Jan. 26). Proponents of the tax like the cachet of having the elder Gates as their pitchman for "taxing the rich."

We have great respect for the accomplishments of Gates and his son. The Gates family and Microsoft demonstrate how mega-wealth can be used responsibly to advance our civilization. But on this issue, Gates and Collins fail to recognize how the estate tax hurts thousands of small and medium-sized but highly beneficial and productive businesses.

We're not concerned about protecting successful people from being taxed. Even Collins and Gates concede that with planning and good lawyers, the very rich can effectively search out loopholes to minimize tax liabilities. Our concern is to avoid penalizing people who devote their lives to building a business and want to pass it on to the next generation.

We've worked hard and have been very fortunate. Over 40-plus years, with a lot of help from dedicated workers, we've built GM Nameplate into a unique and successful business that has grown in value beyond our wildest dreams. GM Nameplate employs 800 people but maintains the values of a family business.

Our hope is that we can leave the business to our four sons who are actively involved in it so they can continue making it even stronger. The estate tax is a major stumbling block to that hope. GM Nameplate has significant value, but those dollars are invested in the business -- paying salaries, purchasing new equipment and innovating. Particularly in this very difficult business climate, there is nowhere near enough cash to meet a potential tax obligation. If Gates or Collins doubt this, we would be pleased to open our books to them. Maybe they can tell us how to keep the business intact and pay the 55 percent tax without saddling the company with debt.

The 55 percent tax burden leaves us three unacceptable choices:

* When we are gone, our children could sell the business to pay the taxes. A larger, probably out-of-region corporation focused on building size through acquisition would likely purchase it and export the jobs of our workers offshore where they can get cheap labor.

* We could buy a multimillion-dollar life insurance policy that will provide the cash to pay the tax. But that insurance would cost millions -- money our business needs right now to struggle through this down economy.

* We could liquidate the assets of the business for whatever we could get and force our workers to find new jobs.

With this tax, family businesses and the people who work for them lose; large acquisition-hungry corporations or insurance companies win. If our sons found a buyer and got a fair price, there would be plenty of money left for them to lead comfortable lives. But the employees won't have a safety net with their future in the hands of a multinational corporation with no loyalty to the existing work force or local community.

Gates and Collins write about the evil significant wealth accumulating in the hands of a few individuals. But individuals who actively own and run businesses are not the problem. The problem is the accumulation of wealth, power and production capacity in the tentacles of enormous multinational corporations that use the estate tax as one more tool to swallow family owned and controlled businesses.

Many such companies are household names because of untethered greed: Tyco, Enron, MCI Worldcom, Cendant. They freely roam the world, live by their own rules and have no sense of community or loyalty to employees outside the executive suite.

They export jobs wherever they can to save a few dollars on labor. By running a well-funded campaign to protect this tax, Gates and Collins are actually doing the bidding of these corporate cannibals.

It is easy for estate tax proponents to pander, urging support for the tax as one way to hold the rich accountable. But forcing the sale of businesses to satisfy the taxes transforms families from working, productive members of society to the leisure class, spending what's left after the tax has been paid.

That's not what we want for our sons.

We want for our sons exactly what Gates wanted for his: to be working and productive members of society. Eliminating the estate tax will help us and thousands of other owners of small- and medium-sized companies keep businesses in the family, preserving and creating jobs here at home.

We urge people to take a closer look at this issue. Don't be captured by those who won't consider the consequences of this massive tax burden.

Karin and Don Root own GM Nameplate, a Seattle manufacturer of electronic input devices, injection and compression molded products and digitally printed, large format graphics.

Please e-mail us with your comments, death tax horror stories and suggestions on-line at feedback@deathtax.com.

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