Death tax end needed for business

Posted March 18, 2009, at 8:12 p.m.

The American free market typically rewards success and encourages growth, unless you happen to be a family-business owner.

My family has distributed food-service products and paper and plastic disposable products in Maine for more than 100 years. If President Obama’s death tax — aka federal estate tax — plan becomes law, we may not be around for another 100 days. The death tax will wipe out not only my family’s business, but also the livelihoods of my employees and their families.

Let me explain how family businesses are uniquely at risk from the death tax.

My grandfather — a Russian immigrant — and his four brothers got the entrepreneurial bug back in 1908. They decided to go into the soft drink bottling and distribution business. Then known as Washington County Bottling Works, my grandfather bottled soda and delivered it via horse-drawn wagon to customers. The company even created a few soda drinks of its own, such as the 13 “University Club” flavors. Over time, they became involved in the growing paper business and then, with the advent of mass refrigeration, food-service distribution.

My grandfather taught me that success in business is about hard work, thrift, creativity and diligent reinvestment. Those are the values that I live by, and they are the values that I intend to pass down to my children. I hope to pass the company to them as well.

Today, Dennis Paper and Food Service is the fastest growing distributor in Maine — a success that I credit to my grandfather’s values. Unfortunately, our very success has made us liable for a large death tax when I pass away. Because we are a family-owned business, we have very limited cash reserves. As a result, my children will likely be forced to sell off substantial assets — if not the entire business — in order to pay the tax.

The slow destruction of family-owned business is a national trend affecting hundreds, if not thousands, of family-owned businesses and their employees. One survey found that 93 percent of heirs cited “needed to raise funds to pay estate taxes” when asked why family businesses fail. The death tax’s impact on family-owned businesses has a corresponding impact on job creation.

A recent study by the American Family Business Foundation finds that the death tax lowers overall employment by 1.5 million. In Maine alone, repeal of the tax would create over 7,000 jobs.

Why?

The death tax confiscates capital, which is the source of business development and new jobs. Family-owned businesses such as Dennis Paper and Food Service are particularly sensitive to any loss of capital. When I die, my children will be forced to hand over nearly half of my assessed net worth to the government. That is money that they would otherwise use to maintain the business and expand it — creating new jobs.

Even with careful tax planning, many family businesses cannot afford to pay the tax and keep the business viable. Many discover this long before the owner dies, and so the business is sold while the owner is still alive. Those businesses that manage to survive after the tax is paid are substantially weakened, and often forced to cut jobs.

I have already received multiple offers from out-of-state corporations that want to buy my business. These corporations know that my children will face a large death tax and are encouraging me to save them the trouble by liquidating the business. I love this company and have no plans to sell it — assuming I can find a better way to pay the tax.

My family and I are hoping that President Obama will rethink his tax policy. So far, it seems our hope is misplaced. His recently released 2009 budget proposes making the tax permanent at the rate of 45 percent.

If President Obama continues to pursue this foolish policy, we will depend on Sens. Olympia Snowe and Susan Collins to lead the fight to stop him. Both senators have voted for repeal legislation each time it has come to the Senate floor. I trust they will lead the fight for repeal yet again.

Family business owners across Maine and the rest of the nation are depending on them.

Ron Dennis is the owner of Dennis Paper and Food Service in Bangor.

SEE COMMENTS →

ADVERTISEMENT | Grow your business
ADVERTISEMENT | Grow your business

Similar Articles

More in Opinion