An MRAA Statement on Planning for the Death Tax: Can Small Businesses Survive?
Thursday, June 07, 2012
Posted by: MRAA Admin
This is a Statement for the Record of Mr. Matthew A. Gruhn, President, Marine Retailers Association of the Americas, Before the House Committee on Small Business on Planning for the Death Tax: Can Small Businesses
Survive? Subcommittee on Economic Growth, Tax, and Capital
The Marine Retailers Association of the Americas
greatly appreciates the opportunity to submit a statement for the record to the
Subcommittee on Economic Growth, Tax, and Capital Access on the May 31, 2012,
hearing "Planning for the Death Tax: Can Small Businesses Survive?” We also
thank the Subcommittee for its leadership in conducting this important hearing.
MRAA is the trade association of small businesses in
North America that sell and service new and pre-owned recreational boats,
provide access to our nation’s waterways through marinas and boat yards, and
sell boat accessory products.
Our members believe strongly that the tax is a burden
on small businesses that inhibits economic growth and recovery and job creation
by jeopardizing family inheritance and the continuation of family-owned and
operated businesses after the death of the business owner. The value of the estate is the physical assets
of the business. It is different than personal assets because the business
assets are used for capital formation, growth, and job creation. The business
oftentimes must sell these assets or a major part of the assets, thus reducing
jobs, to pay the tax.
To give you an idea of the scope of the problem, the
average boat dealership and marina has been in the same family for two
generations and is valued at less than $5 million. Our members employ between 3
and 20 employees, on average, and expect to create a significant number of new
jobs as the economic recovery takes hold. Planning for the estate tax,
especially at a time of legislative uncertainty, is not cheap and costs several
thousands of dollars. The cost of insurance is an additional financial burden
that is hard to absorb in today’s climate of squeezed profit margins and
cost-cutting for survival. If our principal business owner should die, the
average boat dealer and marina operator would have to borrow the money to pay
the estate tax or sell all or part of the business, clearly abandoning any plan
to grow, expand or even maintain the business. We believe the estate tax is a
significant financial burden to small business and an inhibitor to future
growth. Each year, it becomes harder and harder to stay in business due to
taxes and uncertainty in taxes and regulations.
MRAA supports full and permanent repeal of this tax,
which has been a burden since it was first enacted in the late 1800s to pay the
cost of the Spanish-American War. However, we also understand that form of
repeal may not be possible today. Consequently, MRAA also supports a permanent
extension of the current law as a step toward permanent repeal.
Since Congress passed the Economic Growth and Tax
Relief Act Reconciliation Act of 2001, the estate tax has faced partial repeal
and uncertainty. The law increased the threshold exemption and reduced the
marginal tax rate, but was scheduled to revert back to the pre-2001 levels of a
$1 million exemption and a 55% tax rate in 2011. Congress created, in 2010, a
$5 million exemption indexed for inflation and a maximum tax rate of 35% that
is to last for two years. The 2010 law
also allowed for the spousal transfer that allows the unused portion of a
deceased spouse’s exemption to be used by the surviving spouse.
We are again faced with a potential return to the
pre-2001 levels causing new problems for estate planning for small businesses.
Our members must now face planning for an outcome in case the current law is
not extended, thus increasing the cost of doing business at an unfortunate time
— when the businesses in our industry are just beginning to see an economic
recovery. These efforts and costs could be better used to grow the business and
increase job formation.
Thank you again for the opportunity to present
testimony for the record on the estate tax.
MRAA remains in full support of Congressional efforts to provide tax
relief and guidance to our members on the estate tax. We support full and
permanent repeal of the estate tax, but ask that Congress maintain the current
$5 million exemption, the 35% tax rate, at a minimum, and continuation of the