Congress is currently considering
repealing the federal estate and inheritance tax, a tax which not only
impacts the wealthy as some claim, but which also harms numerous small
businesses and farmers each year. Many businesses have to sell off
part, or even all, of their assets just to pay the inheritance tax bill
imposed by our federal government. In fact, according to a survey
of small business owners, 98 percent of their heirs cited “needed
to raise funds to pay estate taxes” when asked why family businesses
fail.[1]
Furthermore, high inheritance
taxes cost our economy billions of dollars in economic growth, and numerous
jobs. According to a study cited by the Joint Economic Committee,
64 percent of family business owners said the estate tax “makes
survival of business more difficult” (this figure increases to 87
percent when looking only at businesses owned by African-Americans) and
33 percent said they would have to sell or liquidate business assets to
pay the estate tax, resulting in an average loss of 30 jobs per business.
In contrast, 60 percent of family businesses said they would be able to
hire more people if the estate tax were eliminated.[2]
Even more striking is the
positive impact that getting rid of the estate tax would have on
our economy. It is estimated that if the estate tax were repealed,
within seven years the Gross Domestic Product would increase by $33.5
billion, disposable personal income would increase by $24.4 billion, and
the American economy would add 240,000 new jobs.[3] Yet because of the income
tax revenue loss resulting from the estate tax, Stanford University economist
Douglas Bernheim declared: “Although it is very difficult to estimate
these effects precisely, in recent years true estate tax revenues may
well have been negative.”[4]
In addition, the compliance
costs are astronomical. In 1998, federal revenues from the estate
tax totaled $23.1 billion – only about 1.4 percent of all federal
revenues. According to Alicia Munnell, a former member of President
Clinton’s Council of Economic Advisors, and economist Henry Aaron,
the cost of complying with estate tax laws in 1998 was another $23 billion![5]
In other words, for every dollar of tax revenue raised by the estate tax,
businesses must spend another dollar just trying to comply with or legally
avoid the estate tax.
But what does this mean in
real terms to a family business owner? One can find numerous family
owned businesses throughout the country that have been, or will be, harmed
by the estate tax. One such business is Clampitt Paper.
Max Clampitt exemplified the
American dream. At the age of 16 he was hired as a truck driver
for a paper company. Later he moved to a customer service and sales
position. Then in 1941, he founded his own company, Clampitt Paper.
Through many years of hard work and dedication his business grew from
a small firm with three employees (including Max Clampitt and his wife)
into a thriving enterprise with over $100 million in annual sales and
more than 300 employees.
Unfortunately, as Max Clampitt
grew older, his American dream turned into a bureaucratic nightmare.
While Mr. Clampitt was always careful to pay his taxes and obey the law,
it was not enough for the U.S. government. His son, Donald Clampitt,
explains how the estate tax is affecting his family and his business:
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* * * * * * * * * *
I would like to tell my story
about a family business and estate taxes.
I have been very fortunate
to grow up in a family with a father who started a wholesale paper business.
My father spent untold hours developing a business that would provide
for his family. Being the youngest son, I always assumed I would
find a job somewhere else, but in 1979, my senior year in college, my
mother had a stroke. My father and brother approached me about coming
back to Dallas and working for the family firm, and I immediately agreed
to return.
About ten years ago,
my father brought in some consultants from CIGNA to discuss estate planning
– a foreign subject to us at the time. They suggested we create
an insurance fund to cover potential estate taxes. But the solution
brought problems of its own, the most important being the expense of paying
the insurance premiums on a five or ten-million dollar policy on a 79
year-old man. It turned out those premiums were enough to impact
the cash flow of our medium-sized firm. In the back of my mind I
knew that estate taxes would be a problem, but I kept hoping to find a
way to lower or eliminate the potential taxes.
Now my father has passed away.
Not only is there pressure to continue the family business, there is a
significant debt to the United States government.
This makes no sense to me.
It seems that whatever debts to Uncle Sam we have incurred have been paid
back ten-fold in taxes annually since 1941 and will continue to be paid
yearly into the 21st Century. Clampitt Paper would be
worth far more to the U.S. government as an ongoing taxpayer than it will
as a one-time estate payer, especially if we are forced to sell out to
a larger institution or even a foreign competitor.
Recently, we hired a valuation
company to determine the financial worth of our own firm. And lo
and behold, the market value of any privately held company is exactly
what the market is willing to pay. If Wall Street is a gauge, I
am not sure a wholesale paper distribution business would be at the top
of anyone’s “buy” list. People are cashing out
of this line of business like crazy. I’m not sure this is
a good development for the industry or the national economy. Companies
don’t always get better as they get bigger. Many times they
lose their sense of purpose that made them great to begin with.
Family businesses helped make American great, so let’s develop legislation
that fosters entrepreneurship rather than the alternative of selling out
because of taxes or the lure of the quick buck.
Like most company founders,
the majority of my father’s estate is his stock in Clampitt Paper.
What entitles the government to 55% of the value? Who came up with
that percentage? Were we under socialism at the time, or just plain
broke? I’m sure our story with estate taxes is repeated in
countless other cases. I challenge everyone on Capitol Hill to explain
to me why we owe this money. And when I want to pass Clampitt Paper
on to my own children, will they again have to pay 55% of the value?
About the Authors
Don Clampitt is owner of Clampitt Paper. Jerry W. Terry is Deputy Press
Secretary and Policy Analyst for National Taxpayers Union Foundation. | 
Issue Briefs
