Copyright 2000 The Seattle Times Company
The
Seattle Times
May 30, 2000, Tuesday Final Edition
SECTION: EDITORIAL; Pg. B6
LENGTH: 679 words
HEADLINE:
Sustain family business with death-tax repeal
BODY:
THE Bridge family
of Seattle recently announced the sale of Ben Bridge Jeweler to Berkshire
Hathaway Inc., an Omaha, Neb., conglomerate that owns GEICO Insurance and 6,000
Dairy Queens. Ben Bridge co-chairman Herb Bridge, who led the Seattle retailer's
growth from one jewelry store to 63, said the federal death tax was "a very
strong factor" in the family's decision to sell out.
George and Jane Russell
of Tacoma sold the Frank Russell Co. in 1998 to the Northwestern Mutual Life of
Milwaukee, Wis. Like Bridge, George Russell had taken a small family company and
built it into a powerhouse - in this case, of institutional investment. The
Russells, too, sold largely because of the death tax.
In both cases, the
question was whether to sell now, to a buyer family elders could choose, or to
force a fire sale on the heirs. The families chose to sell now. They have
retained the job of managing their companies. But long-term control is somewhere
else, out of state, vested in officials whose interest is global and whose eyes
are on the stock market. Local ownership has been lost.
This tragedy is a
common one. The federal tax on assets at death, also called the estate tax, was
passed in the build-up to World War I and raised to confiscatory levels during
World War II. It takes 55 percent of amounts in excess of $3
million. That tax is higher than in Sweden. It means that the heirs of a
medium-to-large company have to come up with more than half the value of
everything they own, in cash.
Modern companies simply don't come equipped
with 55 percent of their assets in cash, or the ability to survive a 55 percent
capital levy. Unprepared, heirs are usually forced to sell.
Owners can
prepare by loading up on life insurance. But they had better buy it while
they're young and healthy. They'd better buy a lot. And they had better not be
too successful: the smarter they work, the more they plow back into the family
business, the more jobs they create, the more they create a bomb that goes off
at their death.
To the entrepreneurial family, the death tax is a killer. To
the government, it's a sideshow, almost a nuisance. It raises just 1 percent of
federal revenues, and in net terms less than that. The IRS spends 65 cents for
every dollar it collects from the tax, much of it fighting with heirs over the
value of estates. Business owners spend at least 30 cents for each of those
dollars in various tax-planning schemes. The death tax is thus paid twice: once
to the Treasury and once to lawyers.
On the advice of economists, Australia
and Canada have repealed this tax. Last year, Congress passed a 10-year
phase-out in a bill co-sponsored by Rep. Jennifer Dunn, R-Wash., and John
Tanner, D-Tenn. Because it was part of a tax-cut package Bill Clinton considered
too large, he vetoed it. The House has now marked up repeal legislation by Rep.
Bill Archer, R-Tex., and has slated it for a floor vote the week of June 5.
Repeal has been a difficult issue for Democrats to support, because repeal
seems to favor business owners. More accurately, repeal favors family owners;
the current tax favors corporate owners. Key Democrats have gotten the word.
Supporters of repeal include Washington Democrats Sen. Patty Murray, Rep. Brian
Baird and Rep. Adam Smith.
The estate tax is a critical issue to The Seattle
Times Company, whose voting stock is 49.5-percent owned by newspaper chain
Knight-Ridder, and 50.5 percent owned by the heirs of founder Alden J. Blethen.
That 1 percent makes all the difference. It makes us the largest remaining
private, independently run newspaper company in the United States. There should
be dozens more companies like ours, but there are not. To avoid the death tax,
other owners have sold out to gigantic and anonymous newspaper chains.
The
stories of George and Jane Russell and of Herb Bridge and his family resonate on
this page. We don't want it to happen to this editorial voice, and we don't want
it to happen to any more family companies in America.
Let's repeal the death
tax this year.
LOAD-DATE: May 31, 2000
