Copyright 1999 Federal Document Clearing House, Inc.
Federal Document Clearing House Congressional Testimony
June 16, 1999
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 2189 words
HEADLINE:
TESTIMONY June 16, 1999 SKYLAR THOMPSON HOUSE WAYS AND MEANS
RETIREMENT AND HEALTH RELATED TAX PROPOSALS
BODY:
Statement of Skylar Thompson Submitted to the House Ways and Means Committee
in support of Estate Tax Repeal June 16, 1999 Mr. Chairman and
members of the committee, my name is Skylar Thompson and I am President and
Chief Operating Officer of Market Basket Food Stores in Nederland, Texas. I'd
like to give you a little background about our family-owned business. My father,
Bruce Thompson, began his career in the retail food business in July 1949. He
spent 12 years working for large food chains as department manager, assistant
store manager and store manager. In February 1962, my father decided to strike
out on his own and opened his first food store. As a young boy, I began my
career in the business in 197-, working part time until graduation from college
in 198 1. Over the years, I have worked in a variety of positions with the
company, gradually working my way up to becoming president and chief operating
officer in November 1992. After 37 years, through a lot of hard work, long hours
and dedicated support from our employees, we have gradually grown and expanded
our company and now operate 32 grocery stores in the Texas and Louisiana market-
places. As a family business, we are committed to serving the needs of the
communities where our stores are located and associates live and work. One of
the biggest threats to our future viability and growth as a family- owned
business is the ominous cloud hanging over our heads -- the federal estate tax.
In the grocery industry we now compete with multi-billion dollar mega-chains
with significant financial resources. To stay competitive, we must continue to
reinvest in our businesses; remodeling older stores and building new ones,
adding services and new technology to better serve our customers. If we were to
experience the unfortunate death of my father or mother, the company would face
substantial estate tax liability. Having to pay the federal government almost 55
percent of one of our estates would place a substantial drain on our capital
base. It would potentially force us to liquidate assets, jeopardizing the future
growth of our company and the continued employment of our loyal associates. I am
here today on behalf of the National Grocers Association (N.G.A.) to ask for
repeal of this unfair and anti-family tax. The National Grocers Association is
the national trade association representing retail and wholesale grocers that
comprise the independently owned and operated sector of the food distribution
industry. At one time this industry segment accounted for half of all food store
sales in the United States. In recent years, however, a number of successful
family-run companies have opted to sell because of the economic disincentives
caused by the estate tax. Summary of Position N.G.A.'s retail and wholesale
grocers are the backbone of their communities, whether they operate a single
store or a larger community multi-store operation. Repeal of the estate
tax is N.G.A.'s number one legislative priority. The death
tax deserves to die. It does substantial harm to family
business owners, their companies, their employees, their communities and to the
economy as a whole. On behalf of the nation's independent retail grocers and
wholesalers, N.G.A. strongly urges the Ways and Means Committee and the entire
Congress to act now to support elimination of the estate tax. Privately-owned
retail grocers are facing unprecedented competition from multi-billion dollar
mega- chains and supercenter competitors. In order to compete, all businesses
need capital to reinvest in their companies. Keeping up with new technology,
remodeling and expanding their stores, adding new consumer services, building or
buying new stores: all of these business decisions are predicated on having the
necessary capital. The federal estate tax of up to 55 percent on the value of
their business upon the death of an owner places them at a significant
competitive disadvantage. Instead of using this capital to grow the company, it
is ean-narked to pay taxes. This anti-family, anti-business tax policy forces
many families to face the prospect of selling, going out of business, and
denying the next generation of entrepreneurs the opportunity to take the risks
and reap the rewards that this industry offers. A week doesn't go by that we
don't hear or read about a successful family-owned grocer selling the business.
Successful family-owned businesses are making the decision to sell now and pay
the capital gains tax, rather than the punitive, confiscatory estate tax.
Legislative Proposals Representatives Jennifer Dunn (R-WA) and John Tanner
(D-TN) have introduced the Estate and Gift Tax Rate Reduction Act, H.R.8, which
would phase out the estate tax by reducing tax rates by 5 percentage points each
year until the rates are zero. Representative Chris Cox (R-CA) has introduced
the Family Heritage Preservation Act, H.R.86, that calls for immediate
repeal of the death tax. Numerous other
estate tax elimination proposals have been introduced as well.
I want to thank the 22 members of the Ways and Means Committee who have
sponsored legislation to eliminate the estate tax and for recognizing its
importance to every family-owned business -- whether retail and wholesale
grocers, farmers, restaurant owners, or others. The important point for the Ways
and Means Committee is to act now in support of estate tax
repeal legislation. Privately-owned and operated businesses cannot
compete competitively when the federal government makes small business its
indentured servant. N.G.A. urges the Ways and Means Committee members to act now
to preserve the future of privately-owned and operated businesses before it is
too late. Studies Confirm the Need for Estate Tax Repeal The
case for eliminating the estate tax has been studied to death.
Recently, the Joint Economic Committee (JEC) released its study, The Economics
of the Estate Tax, concluding that the estate tax generates costs to the
taxpayer, the economy and the environment that far exceed any potential
benefits. Specifically, the report found the following: The estate tax is a
leading cause of dissolution for thousands of family- run businesses. Estate tax
planning further diverts resources available for investment and employment. The
estate tax is extremely punitive, with marginal tax rates ranging from 3 7
percent to nearly 8- percent in some instances. The existence of the estate tax
this century has reduced the stock of capital in the economy by approximately
$497 billion, or 3.2 percent. The estate tax violates the basic principles of a
good tax system: it is complicated, unfair, and inefficient. The distortionary
incentives in the estate tax result in the inefficient allocation of resources,
discouraging saving and investment, and lowering the after-tax return on
investments. The estate tax raises very little, if any, net revenue for the
federal government. The distortionary effects of the estate tax result in losses
under the income tax that are roughly the same size as estate tax revenue. The
enormous compliance costs associated with the estate tax are of the same general
magnitude as the tax's revenue yield, or about $23 billion in 1998. "The Case
For Burying the Estate Tax" by Tax Action Analysis, The Tax Policy Ann of the
Institute for Policy Innovation, reaffirmed the JEC study, and found that:
"Estate taxes strike families when they are at their most vulnerable: along with
the family member, families can lose what the family member built. High marginal
tax rates often force heirs to sell family farms or businesses just to pay the
estate tax bill. Eliminating the estate tax altogether would eliminate all these
complexities and injustices with no revenue loss to the Treasury. In fact, after
ten years, eliminating the estate tax would produce sizeable economic gains,
actually increasing federal revenues above the current baseline. Eliminating the
federal estate tax in 1999 would cause the economy to grow faster than in the
current baseline, mainly due to a more rapid expansion of the U.S. stock of
capital. By the year 2-1-: -Annual gross domestic product would be $11 Z 3
billion, or -. 9 percent, above the baseline. -The stock of U.S. capital would
be higher by almost $1.5 trillion, or 4.1 percent, above the baseline. -The
economy would have created almost 236, --- more jobs than in the baseline.
-Between 1999 and 2008, the economy would have produced over $700 billion more
in GDP than otherwise. The damage that estate taxes do to capital formation
further magnifies the loss to society. Doing away with estate taxes would
produce positive economic growth effects large enough to offset most of the
static revenue loss. Between 1999 and 2008, elimination of the estate tax would
cost the Treasury $191.5 billion. But the over $700 billion in additional GDP
would yield $148.7 billion in higher income, payroll, excise and other federal
taxes. In other words, higher growth would offset 78 percent of the static
revenue loss over the first ten years. By 2006, the dynamic revenue gain from
eliminating the estate tax would be enough to offset the annual static revenue
loss completely. More importantly, N.G.A.'s own 1995 study of its family-owned
members confirms the real life need for elimination of the federal estate tax.
In the event of the owner's death, 56 percent of the survey respondents said
they would have to borrow money, using at least a portion of the business as
collateral, and 27 percent said they would have to sell all or part of the
business to pay federal estate taxes. Grocers reported that this would result in
the elimination of jobs. These findings were similar to those that were
conducted as part of a broader industry-wide study conducted by the Center for
the Study of Taxation. Here is what other real family-owned grocers have to say
about the effects of the estate tax: From a New Jersey retailer: "Estate tax has
a negative impact on what should be positive business decisions. Many business
owners feel that they cannot expand because they have to pay this tax. Also
Americans should been couraged to save and invest to plan for their future. With
estate tax, the more assets one has with death, the more they have to pay the
federal government." An Alabama grocer stated: "As the only son and heir to our
family owned business, our family lives under the constant fear that we will be
forced to sell or liquidate our business upon the death of my parents in order
to pay the estate tax. Inasmuch as my father, who is eighty-five years of age,
and my mother, who is not far behind, have worked hard to develop a business
that could be passed on not only to their immediate family, but as a legacy for
their four granddaughters. How would we be able to explain to them that all the
hard work and dedication that has been put into the business for the past
twenty-seven years was only to pay off the Federal Government because their
grandparents passed away. A Washington retailer writes: I am a small
businessman, a grocer, running 2 small grocery stores in Naselle and Ocean Park
Washington. My wife and I have been operating this business since 1967. Having
recently done extensive & expensive financial planning, I know first hand
how badly we (our country) need to consider repealing our Death Tax. Without
going into great detail, I will tell you this: Hire a financial planner, hire a
lawyer, set up trusts and limited partnerships and buy a huge insurance policy
and you Rja survive a tax burden that is so huge you would have to close your
business and sell your assets in order to pay it. The cost for all of this
planning for my small business is approximately $20,000a year. This seams an
extreme amount of money. Money that could be going to capital improvements,
extra labor dollars, etc., etc. An Oregon retailer states: "My grocery business
was founded by my parents 64 years ago. I am these condgeneration in the family
business. My son hopes to carry the business to the fourth generation. This is
highly questionable with death taxes at 55%. If it has to be sold to satisfy the
government for the unfair and excessive tax, then another small independent
business is gone, along with the jobs my stores offer to this community.
Conclusion Numerous studies exist that reinforce the need for elimination of the
estate tax. Now is the time for Congress to act. Privately- owned and operated
retail grocers, as well as other community businesses, face unprecedented
competition and need capital in order to compete with multi-billion dollar
mega-chains and supercenters, such as Wal*Mart. The federal estate tax robs
privately-owned entrepreneurs of the necessary capital needed to maintain their
competitive position in the marketplace with multi- billion dollar public
companies. Failure to act now places the competitive diversity of our free
enterprise system in serious jeopardy. On behalf of N.G.A.'s members and
family-owned companies across the country, we encourage the Ways and Means
Committee to support repeal of the estate tax now.
LOAD-DATE: June 18, 1999 
