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76–475 2012

PLANNING FOR THE DEATH TAX: CAN SMALL 

BUSINESS SURVIVE? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON ECONOMIC GROWTH, TAX AND 

CAPITAL ACCESS 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

HEARING HELD 

MAY 31, 2012 

Small Business Committee Document Number 112–069 

Available via the GPO Website: www.fdsys.gov 


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(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

ROSCOE BARTLETT, Maryland 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

CHUCK FLEISCHMANN, Tennessee 

JEFF LANDRY, Louisiana 

JAIME HERRERA BEUTLER, Washington 

ALLEN WEST, Florida 

RENEE ELLMERS, North Carolina 

JOE WALSH, Illinois 

LOU BARLETTA, Pennsylvania 

RICHARD HANNA, New York 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

MARK CRITZ, Pennsylvania 

JASON ALTMIRE, Pennsylvania 

YVETTE CLARKE, New York 

JUDY CHU, California 

DAVID CICILLINE, Rhode Island 

CEDRIC RICHMOND, Louisiana 

GARY PETERS, Michigan 

BILL OWENS, New York 

BILL KEATING, Massachusetts 

LORI SALLEY, Staff Director 

PAUL SASS, Deputy Staff Director 

BARRY PINELES, General Counsel 

MICHAEL DAY, Minority Staff Director 


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C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Joe Walsh ........................................................................................................ 1 

Hon. Kurt Schrader ................................................................................................. 2 

WITNESSES 

Neil D. Katz, Managing Partner, Katz, Bernstein & Katz, LLP, Syosset, 

NY ......................................................................................................................... 4 

Karen Madonia, Chief Financial Officer, Illco, Inc., Aurora, IL .......................... 6 

Michael G. Flesher, Owner, Taylor Rental Center, Vestal, NY ........................... 8 

Thala Taperman Rolnick, Owner, Thala T. Rolnick, CPA, PLLC, Phoenix, 

AZ .......................................................................................................................... 10

APPENDIX 

Prepared Statements: 

Neil D. Katz, Managing Partner, Katz, Bernstein & Katz, LLP, Syosset, 

NY .................................................................................................................. 25 

Karen Madonia, Chief Financial Officer, Illco, Inc., Aurora, IL ................... 31 

Michael G. Flesher, Owner, Taylor Rental Center, Vestal, NY .................... 36 

Thala Taperman Rolnick, Owner, Thala T. Rolnick, CPA, PLLC, Phoenix, 

AZ ................................................................................................................... 92 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Materials for the Record: 

Associated Builders and Contractors, Inc. Letter for the Record ................. 101 

Statement of the American Farm Bureau Federation .................................. 102 

Written Statement of Scott Ramminger, President of the American 

Wholesale Marketers Association ................................................................ 104 

Prepared Statement of American Trucking Associations .............................. 107 

National Newspaper Associations Letter for the Record .............................. 110 

Testimony of Food Marketing Institute Submitted for the Record .............. 113 

International Sign Association Letter for the Record .................................... 115 

Marine Retailers Association of the Americas Statement for the Record .... 116 

National Federation of Independent Business Statement for the Record ... 118 

Statement of the National Funeral Directors Association ............................ 121 

The Mason Contractors Association of America Statement for the Record . 125 

National Grocers Association Statement for the Record ............................... 129 

National Roofing Contractors Association Letter for the Record ................. 131 

National Telecommunications Cooperative Association Statement for the 

Record ............................................................................................................ 133 

Statement of Jack Fitzgerald, Founder, Americans Standing for Simplification of the Estate Tax ......................................................................... 136 

National Automobile Dealers Association Testimony for the Record ........... 140 

Financial Executives International Statement for the Record ..................... 141 


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(1) 

PLANNING FOR THE DEATH TAX: CAN SMALL 

BUSINESS SURVIVE? 

THURSDAY, MAY 31, 2012 

HOUSE OF REPRESENTATIVES,

COMMITTEE ON SMALL BUSINESS, 

SUBCOMMITTEE ON ECONOMIC GROWTH, 

TAX AND CAPITAL ACCESS, 

Washington, DC. 

The Committee met, pursuant to call, at 10 a.m., in room 2360, 

Rayburn House Office Building. Hon. Joe Walsh (chairman of the 

subcommittee) presiding. 

Present: Representatives Walsh, Chabot, King, Hanna, Schilling, 

Bartlett, Schrader, Clarke. 

Chairman WALSH. Good morning and welcome. The hearing will 

come to order. I apologize to everyone at the outset. I have had a 

nasty head cold for a couple days. So if I sound like I am in a tunnel, I apologize. 

I want to thank our distinguished panel of witnesses who have 

taken the time to be here today. Special thanks to Karen Madonia, 

who hails from the Eighth Congressional District of Illinois. We 

look forward to all of your testimony. I will begin with some brief 

comments. 

Benjamin Franklin is believed to have written, ‘‘In this world, 

nothing can be certain but death and taxes.’’ Now, it seems, nothing is certain but uncertainty. For many years, death and taxes 

have gone together in the United States, but the structure and 

rates of those taxes have varied greatly. For family-owned small 

businesses and farms, estate taxes are a significant concern. 

Is it not enough for them to worry about new and higher taxes, 

compliance with the health care law, additional regulations, accessing capital, and simply staying afloat while they are alive? But 

these small business owners must also try to blunt the impact of 

estate taxes following their demise. 

If Congress fails to act by the end of this year, the current federal estate tax law will revert to significantly higher pre-2001 levels. And that is not including any estate taxes imposed by states. 

Many small companies have non-liquid assets—capital that is 

tied up in real property, machinery and equipment—so their heirs 

do not have cash to pay the estate taxes. Often, businesses must 

be sold—even at ‘‘fire sale’’ prices—so this estate tax can be paid. 

In fact, a Joint Economic Committee study found that, prior to 

2001, the estate tax reduced capital formation by about $847 billion. Capital that must be paid in estate tax is capital that is not 

available to be invested back into the business, to create jobs, or 

to grow the economy. 


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Today, we will hear about the effects of the estate tax on small 

business owners. We very much look forward to this testimony. 

I now yield to our ranking member for his opening remarks. 

Mr. SCHRADER. Thank you, Mr. Chairman. 

For many starting a successful business or a farm, actually, seeing it grow is the American dream. After all, the goal of most of 

these entrepreneurs is to build an estate that they can pass on to 

the next generation, carry on the family dream. But for many who 

have spent their whole lives building an enterprise, continuing that 

legacy tends to be very problematic given the estate tax. 

For many family businesses, the estate tax is a major hurdle to 

overcome—very technical, very complex. Playing around such intricacies is expensive, time consuming, things that most small business folks do not have time or the money for at the end of the day. 

Additionally, it just adds anxiety. You have to constantly update 

your financial plan because of what we do or do not do here in the 

United States Congress. 

And while the Estate Tax Reform was enacted in 2001, and allowed entrepreneurs to focus on growing their ventures, the reforms were only temporary. In 2010, we were able to give some estate tax relief but again, very temporary, just for two years. With 

the existing law expiring, as the chair pointed out at the end of the 

year, reduced exemption limits will take effect subjecting many, 

many more small businesses and farmers to the estate tax. So providing relief for thousands of small firms and farms is critical to 

continuing the recovery. However, we must be cautious how we do 

that because we do have a debt deficit issue that we are also concerned about. 

As our economy continues its recovery, we must do everything 

possible to help small business job creators. We cannot do so at the 

expense of future generations. So today’s hearing will assess the 

implications of the estate tax on small firms and farms and examine what the future of this law holds for them. Some are calling 

for a complete repeal of the estate tax; others suggest that Congress freeze the estate tax provisions in their current form. Nevertheless, one thing is clear; we need a permanent solution. So I look 

forward to hearing from each and every one of you what you think 

that might be. 

Small businesses face enough hurdles to succeed without the estate tax. Protecting the family business so it can flourish is critical 

to creating American jobs and the future of this country. And by 

crafting an estate tax that works for small firms and farms, we can 

empower entrepreneurs to do what they do best, which is create 

jobs. So I look forward to hearing from each and every one. And 

I yield back, Mr. Chair. 

Chairman WALSH. Thank you, Congressman Schrader. 

If it is okay with you, Congressman King has to dash off to a 

meeting in a second and requested the ability to make an opening 

state. 

Mr. SCHRADER. Sure. 

Chairman WALSH. Congressman King. 

Mr. KING. Thank you, Mr. Chairman. And Mr. Chairman, I very 

much appreciate you holding this hearing today. I think it is imporVerDate Mar 15 2010 04:46 Nov 16, 2012 Jkt 076475 PO 00000 Frm 00006 Fmt 6633 Sfmt 6602 E:\HR\OC\A475.XXX A475

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tant that we have this discussion and I appreciate the witnesses 

a great deal. 

I would like to start this out with a little piece of a narrative. 

And that was just a few years ago I received a phone call in an 

evening from an individual whom I knew to be one of several siblings in a well-to-do family not that far from where I live. And he 

started out with this: ‘‘Congressman, I drew the short straw and 

I am the one that has to call you. Our mother is in the hospital 

and we are making a decision on whether to put her on life support 

and I would like to know whether Congress is going to do something to fix the death tax.’’ 

Ladies and gentlemen, it is cruel and diabolical to put families 

through this and make death also a taxing decision. And it is cruel 

and diabolical to tap into the accumulation of the American dream. 

If we can tax it when they earn the income, we can find ways in 

our states especially to tax it when they spend it, we do not need 

to tax it if they accumulate it. 

And I, as a founder of a construction business back in 1975, 

started out with a negative net worth and built a little bit of capital. Now, I have transitioned that into, well, one of my sons at a 

minimum, who has demonstrated to me that it is not just intergenerational capital that we develop, but we also accumulate intergenerational knowledge. You build a knowledge base within the family. They learned things at age 10 that I did not learn until I was 

40, and that foundation of this—this is how you tie together the 

American dream. The American Dream is tied together. People 

come here to the United States to access the American dream. 

They are raised to access the American dream. The pillars of American exceptionalism are tied together to paint the foundation for 

the American dream. And what does the federal government do but 

go in and grab it at each transfer of the generations. And why do 

you build that? Why do people go to work after say age 50 or 55 

if they are able to take care of themselves for the rest of their life? 

Why do they continue to work and succeed if the government is 

going to take the proceeds of that wealth? 

And so this death tax, this estate tax that we are dealing with 

here today, it is a tax directly on the American dream. It takes the 

capital out, the formation out of the family. For example, a family 

farm. Just think of a family farm that over two or three or four 

generations has accumulated maybe 1,500 acres and set up a green 

light distribution system, storage system, and feed lots and pastures and all those things that go together to make a unit, and 

then that unit is broken up to pay the taxes and the entire family 

business is destroyed because what? Because of the political element in this country and in this Congress called class envy. We 

should cheer the people that are able to achieve and succeed in the 

American dream and understand that we want to encourage more 

of that—more capital formation, more wealth formation, more family businesses where you have the accumulation of intergenerational capital and the accumulation of intergenerational knowledge. 

That is my message today, and I hope I can hear the witnesses’ 

testimony. And I am hopeful that we will be able to move forward 

and one day see the end to this tax on the American dream called 

the estate tax. 


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Chairman WALSH. Thank you, Congressman King. 

If other Subcommittee members have an opening statement prepared, I ask that they be submitted for the record. 

STATEMENTS OF NEIL D. KATZ, MANAGING PARTNER, KATZ, 

BERNSTEIN & KATZ, LLP; KAREN MADONIA, CHIEF FINANCIAL OFFICER, ILLCO, INC., TESTIFYING ON BEHALF OF 

HEATING, AIR-CONDITIONING, AND REFRIGERATION DISTRIBUTORS INTERNATIONAL; MICHAEL G. FLESHER, 

OWNER, TAYLOR RENTAL CENTER; THALA TAPERMAN 

ROLNICK, OWNER, THALA T. ROLNICK, CPA, PLLC. 

Chairman WALSH. To our witnesses, you will each have five minutes to deliver your testimony. Do your best to adhere to that time 

limit. 

We will begin with our first witness, Neil Katz, who is managing 

partner of the law firm of Katz, Bernstein & Katz, in Syosset, New 

York. He specializes in federal and state income tax issues and 

matters affecting corporate partnership, estate, and gift taxation. 

Not only are his clients small business owners, but he is part 

owner of a small business himself. He practices law with his father. 

Welcome, Mr. Katz. You have five minutes to present your testimony. 

STATEMENT OF NEIL D. KATZ 

Mr. KATZ. Good morning, Chairman Walsh, Ranking Member 

Schrader, and members of the Subcommittee. I appreciate the opportunity to address you today, and I thank you for taking time to 

learn about the difficulties faced by closely-held business owners as 

a result of the imposition of the estate tax on the business that 

they have worked tirelessly to create and grow. 

Your hearing memorandum states in its conclusion that there is 

not a great deal of credible evidence about the effect of the estate 

tax on small businesses. While there may not be a significant number of empirical studies on this issue, the business owners who will 

testify today and the millions of small business owners across our 

country who are struggling with this issue are all the credible evidence that you should need. 

Closely held businesses are an integral part of local economies 

throughout the country. Business owners spend their entire lives 

investing time, effort, and capital into making a business a success. 

Many of them would like nothing more than to be able to pass the 

fruits of their labor and capital onto the next generation. However, 

as business owners age, the complexities of owning and running a 

closely held business often become overshadowed by the burden of 

the estate tax looming on the horizon. 

The issues faced by business owners and their families start long 

before death with the necessity of seeking out professionals to assist with planning to attempt to reduce the exposure that the heirs 

will face. This planning does not come without a price. To design 

and implement an estate plan can cost an individual anywhere 

from $5,000 to $50,000 or more. The plan may call for the transfer 

of interest in the business to future generations. Often, this decision is one that the owner may not be prepared emotionally or economically to make at that time. During the planning process, busiVerDate Mar 15 2010 04:46 Nov 16, 2012 Jkt 076475 PO 00000 Frm 00008 Fmt 6633 Sfmt 6602 E:\HR\OC\A475.XXX A475

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ness owners are forced to familiarize themselves with the concept 

of estate tax valuation, and the families need to become prepared 

for the expediency with which estate taxes must generally be paid. 

Estate tax value is a concept that accountants, attorneys, legislators, and the Treasury Department have struggled with for decades. There is no clear definition in the statute, and the only guidance we are given is the hypothetical willing buyer, willing seller 

language of the regulations. Tax experts often differ on the meaning of these rules, and to business owners this is often impossible 

to comprehend. 

The real value of a closely held business is often tied directly to 

the owners. Ask most business owners what their business is worth 

in the market and they will say, ‘‘Without me, the business is 

worth nothing.’’ 

Where estate tax valuation differs from reality, it only makes the 

burden on the business owner and their family even greater. When 

I was younger I started collecting baseball cards and today I still 

have much of that collection in my basement. Whenever I am 

asked why I do not throw out the baseball card collection I say that 

it is because it is worth a lot of money. To that my wife inevitably 

responds, ‘‘It is actually not worth anything unless you sell it.’’ 

To most small business owners, the same principle applies. To 

them, the only value of the business is the check that they get to 

take home each week. However, the estate tax valuation concepts 

force an imposition of a tax as if the business were sold. 

Further complicating matters is the requirement that the estate 

tax be paid within nine months of death. While extensions are 

available, they are often short-term solutions to a long-term problem. Even Internal Revenue Code Section 6166, the most significant estate tax extension, has its problems. Most businesses do not 

have the cash reserves or cash flow available to make the payments that are required in the timeframe, and many businesses do 

not qualify for this relief. 

Planners with us often recommend that a business owner acquire 

life insurance to provide liquidity to pay the ultimate estate tax 

that will be due. This creates an added expense to the business. 

Depending upon the amount of insurance that is required, the premiums can run tens of thousands of dollars annually if the owner 

is even insurable. 

Businesses today are operating on very tight margins. Adding 

the burden of estate tax to the cash flow of the business can make 

continuing the operation of the business impracticable. The new 

owner of the business can often not afford to pay taxes and still 

have money to pay business expenses and make a profit. Most individuals do not see working to solely pay off an estate tax obligation 

as the definition of the American dream. There is no benefit to a 

beneficiary if the assets that they inherit provide them with nothing other than the opportunity to work with no expectation of income. There needs to be some incentive for the owner. 

As a final point, more than anything, what the small business 

owner needs is some clarity and certainty in the law. The constant 

changes in the estate tax law over the past 12 years, coupled with 

the uncertainty of the future rules is unworkable. Congress needs 


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to once and for all establish rules that business owners can be assured will survive. 

Since the enactment of ETR in 2001, we have been operating in 

an impossible environment. The chaos of 2010, which again stands 

before us on January 1, 2013, cannot be repeated. Business owners 

and all taxpayers need and deserve certainty. 

Thank you again for the opportunity to speak today. I am happy 

to answer any questions the members may have. 

Chairman WALSH. Thank you for your testimony, Mr. Katz. 

Our next witness is Karen Madonia. Ms. Madonia is chief financial officer of Illco, Inc., a family-owned distributor of refrigeration, 

heating, air-conditioning PVF, plumbing, and hydronic supplies in 

Aurora, Illinois. She currently serves as co-chair of the Government 

Affairs Committee of the Heating, Air Conditioning, and Refrigeration Distributors International. She is testifying today on their behalf. 

Welcome. You have five minutes to present your testimony. 

STATEMENT OF KAREN MADONIA 

Ms. MADONIA. Chairman Walsh, Ranking Member Schrader, and 

members of the Subcommittee on Economic Growth, Tax, and Capital Access. My name is Karen Madonia and I am the chief financial officer and next generation of Illco, Inc., a Chicago-area distributor of heating, ventilation, air conditioning, and refrigeration 

equipment, parts and supplies. Thank you for giving me the opportunity to talk about the estate tax and its effect on the many small 

family businesses which make up the United States’ economy. This 

is an issue that is very close to my heart as my family is in the 

midst of our own generational transfer. 

As background, Illco was a very small company when my father 

purchased it back in 1973. At that time, my dad was only 32 years 

old, with a wife, three daughters, and a mortgage, but he knew he 

wanted something more than just a job. He wanted to use his passion to create something permanent, to be in control of his own destiny. With help from my grandfather, my dad decided to take a risk 

and go into business for himself. 

In those early years, he worked every job at the company, and 

my mom filled in wherever needed. My dad worked seven days a 

week, 10 to 12 hours a day, but his passion for the industry, his 

commitment to his employees, and his drive to grow his company 

empowered him to push forward. And 40 years later, he has a business that employs over 90 people in three states and generates almost $40 million in revenue. 

My sisters and I grew up understanding that if we wanted to be 

successful, we had to work hard and stay focused on our goals, and 

we carry that ethic with us every day as we work alongside our 

dad. 

While I take great pride in my dad’s story, I realize that it is not 

necessarily unique. There are thousands of families that have similar histories—families who have decided to risk everything to pursue the American dream. Like my dad, they want to create something that lasts, that can be passed down to their kids and 

grandkids. I am speaking today about my own family’s experience, 

but I know that all family business owners have the same issue— 


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how do I pass this business on to future generations without losing 

some or all of it to the IRS in the form of estate taxes? 

Each spring I come to Washington with our trade association, 

HARDI, to talk to our representatives and senators about the 

issues that are important to my company and our industry. Every 

year, estate tax is my top priority and I appreciate this Committee’s interest in this issue. Far too often, small business owners feel 

that there is a lack of understanding about this tax and its impact 

on job creators. The reality is that we are not talking about passing 

on bank accounts with million dollar balances. These are businesses where most of the net worth is tied up in inventory, equipment, and real estate. In the case of Illco, we carry an inventory 

valued at $10,000,000, and accounts receivable of about $5,000,000. 

Our inventory has to be high. We provide vital heating, air-conditioning, and refrigeration parts and supplies to hospitals, schools, 

nursing homes, and grocery stores. When the refrigeration system 

in a grocery store goes down, it needs to be repaired within hours 

or the food is lost. When the air-conditioning system in a hospital 

does not work, patients cannot be properly cared for until air is circulating again. The products that we sell must be on-hand in order 

to facilitate quick repairs and replacements, which means that we 

have to carry a heavy inventory. 

We also own five buildings and operate a fleet of 26 trucks. After 

paying our taxes and making our annual profit sharing contribution, the income that is left is put right back into the company so 

we can continue to carry an extensive inventory, extend payment 

terms to our customers, and maintain our fleet and our buildings. 

If something happened to my dad, we would literally have to sell 

parts of the company in order to pay the estate tax. That would 

likely mean shutting down branches, laying off workers, or liquidating inventory. Even worse, it could mean having to sell the entire company just to be able to pay a tax bill that only occurred because an owner died. 

Over the last few years, my dad has spent countless hours and 

entirely too much money trying to navigate the estate planning 

waters. Instead of focusing on growing his business, he has had to 

strategize about how to pass his company onto his kids without 

having to dismantle it. And if that is not enough of a challenge, he 

has had to do it within an ever-changing tax landscape. We have 

gone from an exemption of $2 million and a tax rate of 45 percent 

in 2008, to an exemption of $3.5 million and a tax rate of 45 percent in 2009, to a full estate tax repeal in 2010, to an exemption 

of $5 million and a tax rate of 35 percent in 2011 and 2012. In 

2013, the exemption is scheduled to fall back to a million dollars 

with a tax rate of 55 percent. How can anyone formulate an estate 

plan if the rules are changing every year? 

In the business world, we need to think beyond the current year 

if we want our companies to thrive. We are typically looking 5 to 

10 years out in our strategic plans, trying to move all the pieces 

on the board to better our chances for growth and prosperity. That 

is very difficult to do even in the best circumstances, but it is nearly impossible when Washington keeps changing the rules. 

The estate tax places an immense burden on small business owners by taxing them for creating and growing a business that outVerDate Mar 15 2010 04:46 Nov 16, 2012 Jkt 076475 PO 00000 Frm 00011 Fmt 6633 Sfmt 6602 E:\HR\OC\A475.XXX A475

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lasts them. In my opinion, it is a fundamentally flawed tax that 

discourages entrepreneurship, and it should be totally repealed. 

Absent that, I would ask that Congress consider maintaining the 

current personal exemption and gift and estate tax rates, and 

equally important, establish a more permanent solution to the estate tax issue. 

Small business owners take tremendous risk at great personal 

sacrifice and they truly are the backbone of the American economy. 

They should be appreciated and encouraged. Allowing the estate 

tax exemption to fall back to a million dollars and the rate to climb 

to 55 percent would absolutely devastate a great number of families who are currently working on generational transfers. 

I respectfully urge you to carefully consider all the ramifications 

of estate tax policy and establish a long-term solution that will 

allow for generational transfers of family businesses. And I thank 

you for allowing me to put a more personal perspective on the issue 

for you. 

Chairman WALSH. Thank you, Ms. Madonia. 

I now yield to Mr. Hanna, who will introduce our next witness. 

Mr. HANNA. Hello, Mr. Flesher. How are you today? 

Our next witness is Mike Flesher. Mr. Flesher is president of the 

American Rental Association. Mike Flesher was born and raised in 

the southern tier of New York. I have the privilege of representing 

many communities there. He operates two Taylor Rental Center 

franchises in upstate New York, truly family-owned businesses. 

They provide taxes and opportunity and jobs in those communities. 

Last week, I had the opportunity to visit his business in Vestal, 

New York, to discuss the impact of taxes and his ability to hire and 

grow and plan. 

Welcome, Mr. Flesher. You have five minutes. 

STATEMENT OF MICHAEL G. FLESHER 

Mr. FLESHER. Thank you, Chairman Walsh and Ranking Member 

Schrader. And thank you, Representative Hanna, for that generous 

introduction. 

Mr. Chairman and members of the Subcommittee, I am Mike 

Flesher, president of Taylor Rental in Vestal, New York, and president of the American Rental Association. I am here today to testify 

on the effects of the federal estate tax on small businesses. 

Taylor Rental is a small, family-owned business, with two locations in Vestal and Ithaca, New York. Taylor Rental is a typical 

rental business. We employ 16 full-time and four part-time employees and up to 15 seasonal employees. ARA has approximately 4,000 

members in the United States, and the overwhelming majority of 

them are businesses just like mine. We rent equipment and tools 

to contractors and homeowners, and we rent party and event 

equipment to individuals and corporate clients. 

ARA supports a permanent extension of current estate tax law, 

which allows a $5 million per person exemption indexed for inflation, and a 35 percent rate on the remaining assets in the estate. 

Current law also provides for a stepped up basis on assets in the 

estate. It is critical for Congress to pass a permanent extension so 

that small businesses have the certainty we need to plan for the 

future. We are concerned about the federal estate tax reverting to 


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the $1 million per person exemption and 55 percent rate that existed in 2000. 

My testimony shows the number of rental business locations and 

the economic impact of the rental industry for each state represented by a member of the Small Business Committee illustrating how ubiquitous the equipment rental industry is throughout the United States. According to IHS Global Insight, the equipment rental industry in the U.S. will generate $31.2 billion this 

year and $49.8 billion by 2016. The industry is currently growing 

four times faster than the U.S. GDP. Much of this growth is from 

the expansion of small businesses within the industry. 

What does it take to generate billions of dollars in rental revenue? It takes capital, and a lot of it. Collectively, ARA members 

have billions of dollars invested in the equipment our customers 

want and need. An 80- by 160-foot tent that gives a young couple 

the dream wedding they always wanted costs me $60,000. Taylor 

Rental has hundreds of tents that range from $1,000 to $60,000 

each. Other equipment, like small Bobcat loaders cost $34,000, and 

aerial work platforms can cost $50,000 to $100,000. Larger equipment, like track excavators, can cost well over $150,000 per unit. 

Equipment rental companies make ongoing capital investments 

to survive and grow because customers demand the latest and best 

equipment. When you rent a car you do not usually get a 1990 

Buick; you get a new car with low mileage. The same is true in the 

equipment rental industry. My customers do not equipment. They 

want new equipment, and I must invest in that equipment to satisfy my customers. U.S. equipment rental companies are investing 

$10 billion in new equipment this year and almost $20 billion annually by 2015. 

Along with the billions invested in equipment, we own real estate 

and buildings that house our rental stores and equipment. Many 

small equipment rental businesses have substantial, but illiquid 

assets. 

This is precisely why ARA is concerned about the possibility that 

the current estate tax law will expire on December 31, 2012, and 

revert to 2000 levels. If the estate tax reverts to 2000 levels, my 

estate would be severely impacted. Sixteen good people, who have 

given our company many years of good service, may no longer have 

a job. The businesses that sold products and services to our company could lose a good customer, but foremost, the economic security of my family will be uncertain. 

Mr. Chairman, there is a lot of rhetoric about how the estate tax 

really only affects rich people. I do not consider myself or my family rich. For the past 43 years I have gone to work every day to 

earn a living. I have invested my resources in a company that has 

grown and been successful despite some tough times recently. My 

estate is my company. I do not have assets that can easily be liquidated to pay estate taxes. My company will have to be sold. 

Reverting to a policy that was outdated 12 years ago would, in 

my opinion, be a disaster for many small business owners like me, 

and the number one goal that I have worked for will be in jeopardy—to provide financial security for my family. In addition, the 

current situation makes business planning almost impossible. We 

need certainty on the estate tax, and we need it now. 


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Let me be clear. ARA would eliminate the federal estate tax. It 

is a tax on capital, pure and simple. However, the need for certainty on this issue has led us to a position of supporting a permanent extension of current law. We believe the current $5 million exemption with a 35 percent rate and stepped up basis is a policy 

that will help sustain small businesses for years to come. 

Thank you, Mr. Chairman. That concludes my statement. I will 

be happy to answer any questions you may have. 

Chairman WALSH. Thank you, Mr. Flesher. I now yield to Ranking Member Schrader, who will introduce our final witness. 

Mr. SCHRADER. Thank you very much, Mr. Chairman. 

It is my pleasure to introduce Thala Rolnick, certified public accountant, with offices in Arizona. Her practice concentrates on tax 

planning and compliance for high net worth individuals, partnerships, and closely-held businesses. Ms. Rolnick also chairs the IRS 

Liaison Committee and serves as a member of the Board of Directors for Valley Estate Planners. Thank you for being here. 

STATEMENT OF THALA TAPERMAN ROLNICK 

Ms. ROLNICK. Thank you. Chairman Walsh and Ranking Member 

Schrader, thank you for inviting me. As has been said, I have been 

practicing in Phoenix, Arizona, dealing with estate issues for the 

last 16 years. 

The estate tax has been with us since the early Egyptians in 700 

B.C. first initiated it. The first U.S. estate tax dates back to 1797. 

Those in favor say it is an effective tool to raise needed revenue 

and to prevent the concentration of wealth and power in a few families. Others believe it discourages capital accumulation and curbs 

national economic growth. 

The question with us today is ‘‘can a small business survive the 

estate tax?’’ And the answer is ‘‘it depends.’’ The estate tax has 

been a moving target since 2002, when the amount that could pass 

estate tax free first increased from $600,000 per person to the current $5,120,000 per person. At the end of this year, it will drop 

back to $1 million unless Congress acts. The exclusion amount enacted will determine how many businesses are actually affected. In 2010, when the exclusion amount was $3.5 million, according 

to IRS statistics, 4,425 small business owners’ estates paid some 

sort of estate tax. This is approximately .02 percent of all business 

owners, yet the total estate tax collected was over $69 billion. At 

a $5 million exclusion, even fewer businesses will be subject to the 

tax. If Congress allows the exclusion to revert back to $1 million, 

based on 2002 numbers, almost 26,000 small businesses will be 

subject to the tax every year and now it becomes a small business 

issue. 

When the current estate law was passed in 2010, it attempted 

to reduce the need for some of the more complex estate planning 

techniques. It tried to make the exclusion amount more of a family 

amount by allowing for portability. 

While the idea was admirable, the legislation is flawed in many 

ways. First, it only applies to the estate tax and not to the Generation Skipping Tax. So if I want to leave assets to my grandchildren, 

they will be taxed. Second, to be eligible, the estate must file an 

estate tax return Form 706. This is very complex and takes a lot 


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of time and energy. The statute of limitations then remains open 

on this for the life of the surviving spouse. That could be 5, 10, or 

even 15 years, long after any documentation for how the values 

were determined are gone. If the surviving spouse remarries, the 

inherited additional exclusion may be lost. Finally, if the inherited 

assets increase in value, the surviving spouse’s estate may be subject to estate tax that would not have been subject to estate tax 

had those assets been placed in an irrevocable trust at the time of 

the first death. 

The current code provides favorable provisions for small businesses. Section 2032A provides that land used in a business or a 

farm can be valued at its current use rather than its highest value. 

If the land stops being used in this way or sold within 10 years, 

the additional estate tax is assessed. Section 6166 allows the estate 

to pay a portion of their estate tax attributable to a farm or closelyheld business over a 15 year period if the value is greater than 35 

percent of the estate. Section 2057 is currently obsolete but if the 

estate tax reverts back to $1 million it will become active again. 

It provides an additional exemption to small business owners but 

the calculation cannot be done prior to death and therefore, cannot 

be relied on during estate planning stages. 

In addition to the items identified, a number of important estate 

issues will also expire and I have those listed in my written testimony. Most business owners are very resourceful and find ways to 

resolve business issues, but when they do not know what to plan 

for, planning becomes impossible. There can be no planning until 

we have some permanence. 

Therefore, I recommend enactment of a permanent estate and 

gift tax with an exclusion someplace between 3.5 million and 5 million adjusted for inflation along with step up in basis. 

Permanently rejoin the gift and estate tax. 

Make portability permanent, but also correct the existing statute 

to allow a surviving spouse to accumulate up to a full second exclusion. Allow portability for Generation Skipping Tax. Change the 

statute of limitations for these returns to three years. Recommend 

the IRS develop a simple Form 706. 

Preserve reasonable valuation discounts for operating businesses 

where the death of an owner truly reduces the value of the business. 

Pass a simpler, easier provision to provide small businesses with 

an additional exclusion. My recommendation is in my written testimony. 

Pay for these provisions by restoring progressivity to the estate 

tax at levels above the exclusion amount. 

Reform the Grantor Retained Annuity Trust (GRAT) provisions 

to disallow excess discounts where the trust holds primarily liquid 

assets. 

Thank you for your time, and I would be glad to answer any 

questions. 

Chairman WALSH. Thank you, Ms. Rolnick. I appreciate your testimony. 

I will begin with a couple questions and then I want to hear from 

the rest of the Committee. 


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This issue of the estate tax is probably an issue that I hear of 

and about when I am back home probably as much, if not more, 

than any other issue. I spend a lot of time, as many members of 

Congress do, speaking to small business owners and this is always 

top of mind with them. 

Why is that? Well, because they feel it. There is a real negative 

impact. Mr. Flesher, you said it. I am going to borrow that line 

from you. ‘‘My estate is my company.’’ Bingo. I hear that constantly. So this is a tax that directly impacts small business owners. 

The other reason though why I think this tax is such a big tax 

with people back home is just philosophically it makes people 

scratch their heads. Look, we are taxed when we make money. We 

are taxed when we grow businesses. We are taxed when we buy 

things. We are taxed when we invest. When we die? Just the 

thought that when we die, Ms. Madonia, when your dad works his 

tail off for 30 to 40 years to grow a business, why? Why does the 

government get to put their hands on any of that money. 

I think it is the broader philosophical question that annoys a lot 

of people, even people who are not impacted by this tax. I hear that 

constantly. The amount of money that the government raises with 

this tax is not a large amount, but the headaches that we put people through to do it is just amazing to me. 

Can anybody answer that question? Just philosophically, what is 

the rational for this tax? And like everything in Washington, we 

get right down into the Xs and the Os. Well, we can improve it. 

We need to extend it by five years, drop the exemption down to 

here, maybe—I do not even want to play that game. I will not with 

my questioning. Why do we even have this tax? Can anybody make 

the case on principle that it is a good thing for the government to 

take money from you when you die? Does anybody want to take a 

stab at that? Mr. Katz, you know you are itching to answer. 

Mr. KATZ. I am not sure that I can necessarily answer it philosophically but I think that I can at least give some insight as to 

the historical perspective of it. I think when the estate tax was 

first enacted there was a tremendous sense of needing it for redistribution of wealth; for avoiding some of the accumulation, the 

mass accumulation of wealth by some of the larger land-owning 

and wealth-owning families in the country. And I think to some extent the estate tax has survived all of these years, not based upon 

its economic impact upon the tax coffers, if you will, but it has survived based upon the theory that there needs to be some way to 

move wealth from those that continue to accumulate it to those 

other. 

Chairman WALSH. Why? Why? 

Mr. KATZ. I think to some extent it is the same reason why there 

is larger income tax rates on people who earn more money. It is 

the same theory that, you know, goes back years and years of trying to move money down to fund social projects, to be able to have 

funds available to help those who have not, for whatever reason, 

been able to help themselves. And I think to some extent the estate 

tax has the same impact as the progressive income tax. 

Chairman WALSH. Well, I think you are right. And I think the 

reason this resonates with people is because of when it occurs. I 


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mean, that is basically the basis for most taxes in this country. But 

this really hits a number of intersections because you are talking 

about something so personal, so intimate. A family’s death, a business owner’s death, and at that moment here comes the hand of 

government in to grab something. 

Ms. Rolnick, is there any just overarching justification? Anything 

you want to add? 

Ms. ROLNICK. I basically agree with Mr. Katz. Basically, it was 

set up to go ahead and prevent certain families from accumulating 

the most amount of wealth and the most amount of power. And 

therefore, going ahead and allowing two classes of people—those 

with and those without. 

Chairman WALSH. So the world now has changed because now 

we are at a point where Ms. Madonia said—and how poignant is 

this—if something happened to my dad we would have to sell the 

business. How in God’s name have we gotten to that point in this 

country? Maybe with the best of intentions we have this thing 

called the death tax where you have to look a member of Congress 

in the face and say if something happens to your dad you are going 

to have to sell your business. How is that a good thing? How is that 

a good thing? 

And so is the answer, Mr. Flesher and Ms. Madonia—I will let 

you two chime in here—is the answer to tinker with it so that 

maybe your dad, maybe your family does not have to pay that consequence—tinker with it, improve it? Or has the world changed 

that now so impacts small business owners that we should just get 

rid of it? Mr. Flesher. 

Mr. FLESHER. Well, I support a full repeal. I have paid income 

tax over the life of my equipment and I have paid state sales tax 

to the state every time I run a piece of equipment. We have been 

taxed over and over again on the life of that equipment and my entire business. I do not believe we should be taxed again. 

We support the current bill because we think that is a possibility. And we think that would help the majority of our members 

in ARA. 

Chairman WALSH. Ms. Madonia, what is your thought or recommendation there? 

Ms. MADONIA. I guess I would just share a story. I have a nephew. Our family business is my parents, my sisters. We have a next 

generation of eight grandkids, and one of those grandkids said at 

one point—we talk a lot about this in our family—and one of them 

said to my dad, ‘‘Why would I want to do this? Why would I want 

to start my own business? Why would I want to work really hard 

like you have if it is just going to be taken away from me when 

I am done? Why not just be another guy? Why not just work for 

somebody else? 

And that is really sad. This is the United States of America. It 

is the land of opportunity. It is where people can have a dream and 

turn it into reality. And to discourage that in any way, and I think 

the estate tax is a major discouragement to that, I just think it is 

fundamentally wrong. 

Chairman WALSH. Well, and you are right in that studies would 

buttress your argument. The estate tax has a major negative impact on entrepreneurial activity. And again, that just makes sense. 


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If you are going to, again, work your tail off year after year to grow 

a business and then as you all said, you need to begin to play this 

game, Mr. Katz, where every year you have got to spend money to 

figure out how, when the ultimate happens, you can, as much as 

possible, pass money down to your kids and your family, you have 

to spend resources to try to do that. That is mindboggling to me. 

I will end there and turn to Ranking Member Schrader for his 

questions. 

Mr. SCHRADER. Thank you, Mr. Chairman. 

One alternative I will point out is you sell your business that you 

built over time. That is what I ended up doing. A small businessman. I had a small veterinary practice and either I was not home 

enough or did not view my kids enough with a faith in veterinary 

medicine. They were not interested in following so I ended up selling mine. And it was my retirement as many of you have talked 

about, either through an estate planning technique or, as in my 

case, resell it. But that is another thought for the younger generation so he is not totally discouraged with being an entrepreneur at 

the end of the day. 

Great testimony. And one of the takeaways I have from this, Mr. 

Chair, is it is a little similar to what we had in the last Congress 

when we talked about the estate tax. While many, if not everyone 

at the dais would probably want to repeal the estate tax if at all 

possible, we are facing deficit issues trying to balance our own 

checkbook here, believe it or not, the United States government. It 

is encouraging to hear that the values that were enacted in 2010, 

albeit temporary, were of value to your different constituencies. 

Could Mr. Flesher, Ms. Madonia, Mr. Katz talk about, real quick, 

about the $5 million, $10 million, the stepped up basis, and the 35 

percent? In terms of the number of businesses like yours you think, 

you know, you said majority, Mr. Flesher, is at 60 percent, 50 percent? Just guessing. I understand. 

Mr. FLESHER. We think in our case the $5 million would cover 

a very high percentage of our members. Maybe 90 to 95 percent. 

The majority of our members are in the $500 to $3 million range. 

But, of course, being indexed, that would help those businesses continue to grow. 

If it reverted back, that is a hard, you know, we have revenue 

numbers but we do not know their value. So it is hard to say what 

that number would be. 

Mr. SCHRADER. How about Ms. Madonia, if we kept at least the 

current area? 

Ms. MADONIA. Well, I think part of the equation also has to be 

that that $5 million is not just the value of your business; that is 

the value—that is your value. So now you are talking about somebody’s profit sharing and 401(k) that they have accumulated over 

the course of time. You are talking about their house. All of that 

has to fall in that $5 million. So again, I think it is a fundamentally flawed tax that should be repealed all together. Is $5 million 

more workable than $3.5 million or a million? Absolutely. But it is 

still not as much as you think it is when you have got a small business and then you have got your retirement savings and your 

house and any other assets you have accumulated. 

Mr. SCHRADER. Sure. Mr. Katz. 


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Mr. KATZ. Being from the metropolitan New York area, I think 

things are slightly different and slightly skewed in my view. People 

who live in my area, you take the businesses that they have and 

add the value of those businesses to the value of their homes and 

the value of the other assets that we need to accumulate in order 

to be able to afford to live in the area that we live in. Although 

$5 million is certainly helpful, there is still going to be a large 

number of people that are going to be subject to the continued estate tax, which is why I think that moving more towards some of 

the discussion that Ms. Rolnick talked about earlier in her testimony relating to some special exemptions for small businesses to 

try to remove the value of some or all of the small business out of 

the computation of the estate tax would be helpful. If we had a $5 

million exemption to cover home and personal savings and 401(k)s 

and all of those types of things and then on top of that—— 

Mr. SCHRADER. It is my understanding actually that the 401(k)s 

and the homes are already deductible from the estate tax. 

Mr. KATZ. No. 

Mr. SCHRADER. They are included? 

Mr. KATZ. They are absolutely included. 

Mr. SCHRADER. That is good to know. 

Mr. KATZ. So if we had that exemption to cover those assets and 

then an additional exemption to cover part or all of the value of 

a closely held business, I think to that extent we would be able to 

solve some of the problems. 

Mr. Flesher talked about his estate being his business. If you 

have multiple exemptions or an exemption just for that business, 

he is not going to have the problems that he is facing right now. 

Mr. SCHRADER. So to follow up then, Ms. Rolnick gave some 

great recommendations which I really appreciate at the end of her 

testimony in written form and alluded to them in her oral discussion. Have you guys had a chance to read those at all? I, for one, 

Mr. Chairman, would be interested in your comments. We can 

make sure you have access to her testimony because it covers a lot 

of the things that Mr. Katz, Ms. Madonia, and Mr. Flesher are 

talking about. It might be things we would want to recommend to 

our Finance Committee folks, our Ways and Means folks, to look 

at as we get down to crunch time, at some point, hopefully before 

Armageddon sets in and we actually do some things with our tax 

code that are absolutely critical, even beyond the estate tax itself. 

So with that I guess I will yield back, Mr. Chair. 

Chairman WALSH. Thank you, Mr. Schrader. 

I now turn to Mr. Hanna from New York. 

Mr. HANNA. Mr. Katz, you and I both live in New York. I know 

the answer to this but I want to hear you say it. What is the lifetime exemption for New York? 

Mr. KATZ. The lifetime exemption, it is a combination lifetime 

and death time exemption, is $1 million. 

Mr. HANNA. Right. What is the marginal rate on that for a deceased in a family? 

Mr. KATZ. The highest estate tax rate in New York is 16 percent. 

Mr. HANNA. So the possibility exists that in New York, for Mr. Flesher, where it looks like 35 percent at $5 million is really a minimum of 16 once you reach a threshold of $1 million and so his efVerDate Mar 15 2010 04:46 Nov 16, 2012 Jkt 076475 PO 00000 Frm 00019 Fmt 6633 Sfmt 6602 E:\HR\OC\A475.XXX A475

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fective rate will be 16 percent on that additional 4 million, plus 51 

percent on everything over that 5. You may want to reconsider, Mr. 

Flesher, whether you like the 5 or not. Were you aware of that, Mr. 

Flesher? 

Mr. FLESHER. I was, but I did not consider it in part of this testimony here. 

Mr. HANNA. Right. Right. The interesting thing is New York 

State has lost a lot of its population over the last few years. It is 

certainly not growing as fast as other states. And one of the reasons is that there are other places that are more inherently tax 

friendly. So the people have accumulated wealth have a disincentive to stay in New York, and I imagine it is generally that way. 

Any state in the country that has a higher, rather than lower inheritance tax. 

The limit seems to be the problem. 

Certainly, people who have a billion dollars or multiple billion 

dollars, you may want to think differently about that. I know, like, 

for example, Bill Gates’ father is very much in favor of an inheritance tax, but what we are talking about here is small businesses 

and how to preserve them and their wealth accumulating, job hiring machinery. There is also a cost to society in general to the 

money that Ms. Rolnick was talking about the government collects. 

Because if you dismantle a business that has been 40 years in the 

making, how have you really helped your community or your country? 

So I wonder about the $5 million limit, if it is enough and if it 

is really the question. Perhaps a larger question is do we want to 

tax it at all? Apparently, some people do not. I am open to discussion about that, but I do think that even $5 million is a low limit. 

And to fix it at that limit and you talk about irrevocable life insurance trusts, these are huge expenses. I personally have friends who 

spend hundreds of thousands of dollars trying to figure out how to 

protect their estate through multiple gyrations and put themselves 

at risk, give away property before they are ready to do it because, 

you know, they are still alive and they would really like to stay in 

control but our government does not allow them to do that efficiently. 

Is there anything you would like to say about that, Mr. Katz, 

being from New York? 

Mr. KATZ. Well, I think one of the other issues that in the way 

Congress hurts states like New York was when they modified the 

estate tax law to eliminate the state death tax credit and changed 

it to a state death tax deduction. Prior to the change in the law, 

whatever you had paid to a state like New York would come 100 

percent off the top of the estate tax bill that you would pay to the 

federal government. By changing those rules and making it now 

just a deduction, you are only getting the effective rate benefit of 

that costing people that live in states like New York and other 

states that do have their own independent estate tax, significantly 

more money. 

Mr. HANNA. Effectively paying a tax on a tax? 

Mr. KATZ. Effectively. 

Mr. HANNA. Thank you very much. I yield back. 


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Chairman WALSH. Thank you, Mr. Hanna. I now turn to Ms. 

Clarke from New York. 

Ms. CLARKE. Thank you, Mr. Chairman. And I thank the ranking 

member. I thank all of you for your testimony here today. I find 

it a very good and very important conversation. The testimony here 

today will help inform many of us as we look at how we address 

this issue going forward. 

Economic certainty is something that we all desire, particularly 

for small business where we recognize the value that you have in 

all of our communities across the nation. And I want to just say 

that what is so unique about our nation is that it provides this opportunity for entrepreneurship like no other nation. And it is the 

American dream. It is the reason why the United States, I believe, 

is one of the greatest—is the greatest nation on the planet. 

But having said that I have a question, and I think it may even 

go to the philosophical to a certain degree. Do you—and this is directed to the entire panel—do you think that the unique opportunity provided by our nation has a value beyond compounded 

wealth accumulation? Or do you believe that those who have benefitted the most from this unique nature of the United States owe 

something back to the country that provided them the opportunity 

to enrich themselves? 

I heard Ms. Rolnick’s requirements in her proposal, but from everyone else, and I am sorry, Mr. Katz, I came in during your testimony, I heard that nothing should be paid. So I just wanted to get 

some further insights from you. Because of the unique nature of 

our nation, the way that we can basically build ourselves from the 

ground up—sweat equity builds and accumulates wealth over time. 

Is there something that we feel obligated to in terms of the nation? 

And how does that reconcile itself with this demand for the estate 

tax? 

Ms. MADONIA. I will start. I guess I would argue that small business owners are already giving back because we are employing people. We are buying equipment from companies that are employing 

people. I mean, by the very nature of being a business owner you 

are giving back. I mean, you are paying your taxes all along the 

way as you are earning money. We have got 90 employees that are 

part of our family. You know, we take care of those employees. We 

provide their health insurance. We, you know, contribute to their 

retirement accounts. We are already giving back. 

Ms. CLARKE. So it is your opinion that your employees also help 

you to be a thriving business? 

Ms. MADONIA. Absolutely. 

Ms. CLARKE. So it is a symbiotic relationship and they, too, are 

paying taxes. Right? 

Ms. MADONIA. Absolutely. 

Ms. CLARKE. Okay. 

Mr. FLESHER. I agree with that. That was a great comment. I 

think, you know, we are putting back and giving back every single 

day economically. But I am very proud of my country. I served in 

the military and we do have to do our part. There is no question 

about that. But there is a limit to it. And when you are taxed over 

and over again and then you get what is left, you want to hang 

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ple. I mean, we have paid taxes over and over again and we do not 

want to not pay any taxes. We do not want to not do our part. We 

want to be part of the United States, the country that we are so 

proud of. But we do not want to be taken advantage of either. 

Mr. KATZ. From a philosophical point of view I guess I need to 

run it right down the middle for a few seconds because clearly 

there is an obligation on behalf of all of us who have managed to 

accumulate, to try and help those who are less fortunate than us. 

I certainly understand the business owner’s perspective of they 

have worked hard. Ms. Madonia’s father worked seven days a 

week, 12 hours a day, you know, to accumulate wealth and should 

have the opportunity to be able to maintain as much of that as possible. 

I think there are probably economists that are a lot smarter than 

myself who would be able to go through and tell you what the economic aspects of all of this are, but what I can tell you is that from 

what I see, as much as anything, it is the administration of the 

rules and the uncertainty of the rules that have created so much 

problem for people. Business owners do budgeting, do planning. 

They do it every day. 

If a business owner were to know exactly what their opportunities were and know that if something happened in 2012 it would 

be a certain rule and if something happened in 2013 it would be 

a certain rule, what happened in 2010 was chaotic. Changing rules 

in December, in the middle of December going back to January of 

that year, we cannot operate like that. You cannot ask business 

owners to be able to plan and budget for rent and health insurance 

and all the other things but at the same time not know what the 

tax is going to be at the end. 

So whatever Congress ultimately decides, whether it is 3.5, 

whether it is 5, just pick something. Just pick something and let 

that be the rule. And let everybody who is sitting at this table and 

all the people around the country who are operating businesses and 

all the accountants and lawyers who are advising people, know 

what the rules are and know how the rules are going to be applied. 

Ms. CLARKE. I thank you for your testimony. I think this gets to 

the heart of the challenge that we face as legislators, understanding and relating to all that you give. And then looking at 

what we can do in terms of fairness. I think at the end of the day 

we want to be fair. We know that you are the economic engines of 

our communities. 

I come from an entrepreneurial family as well. You know, I also 

understand the obligation that we have one to another and would 

want to try to maintain those obligations as best we can given 

where we are economically as a nation. So thank you for your testimony. 

Chairman WALSH. Thank you, Ms. Clarke. And I would only add 

that Ms. Madonia, I want to keep saying this, so I apologize, ‘‘If 

something happens to your dad you would have to sell your company.’’ Ninety employees. So I do not know how having to let 90 

employees go is anybody’s definition of giving back. 

Let us turn to Mr. Bartlett of Maryland. 

Mr. BARTLETT. I am honored, sir, that you let me sit in on your 

Subcommittee. I think protocol says that I go last. 


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Chairman WALSH. Okay. Thank you. Rookie chairman. 

Let us turn—hey, Bobby, you are up. Let us turn to Mr. Schilling 

of Illinois. 

Mr. SCHILLING. Thank you, Chairman. I would like to thank each 

and every one of you for being here today. I am also, like a few of 

them, a small business owner. And one of the things that I find 

very frustrating is the fact that the federal government can come 

in and take 55 percent of your estate. I used to do death tax planning, and you know what? We have got to stop calling it estate tax. 

Call it what it is. It is a death tax. The last person dies, a survivor 

dies, you have to go in there. And so many times I would go out 

and I would see the families have to go in and spend $10,000, 

$20,000, $30,000, $50,000 a year to make sure that they could keep 

their business or their farm. 

I guess the first question that I would like to have, and any of 

the folks on the panel could answer this for me, is do you believe 

that the death tax hurts or helps businesses in the United States 

of America? Let us go with Mr. Flesher. 

Mr. FLESHER. It absolutely hurts them. I mean, you talk about 

the planning process and having certainty. Even with that certainty we still have to plan and we have to adjust. We do not know 

how long we are going to live. And our estates still change every 

year. So it is like a double whammy. I mean, it is tough to plan 

for that future anyway. But with the uncertainty of having this tax 

over your head it is impossible. You cannot do it. 

Mr. SCHILLING. Yes. 

Ms. MADONIA. I was just going to add that it takes a lot of time 

and resources away from your business, too, in those years where 

you are trying to figure it all out, trying to figure out how to pass 

it on. I mean, my dad has spent a significant amount of time over 

the last few years just trying to figure this whole thing out and 

find a way to pass on his company. That effort could have been 

spent focusing more on the business. Those resources could have 

been used to expand the business, hire more people, buy more 

equipment, open another branch. So it does, you know, it is not just 

money; it is time, too, that is taken away. 

Mr. SCHILLING. Right. And Mr. Katz is probably upon on this. If 

life insurance is not properly owned that also gets included into the 

federal estate. So some people think that they are properly planning and in actuality they are actually adding to the 55 percent or 

whatever that number is. 

One of the other questions I have, and I think one of the things 

we see is the heirs are sometimes forced to break apart the family 

business in order. And is that basically what you are saying? If 

something happens to your father, basically it is—— 

Ms. MADONIA. Yes. There is not a big bank account somewhere 

with enough money in it to pay the estate tax, so we would have 

to come up with it somewhere. We would have to, I do not know, 

you would have to get out of certain lines of business. Maybe liquidating some of the inventory that we have. You would have to close 

down a branch. Somehow you have to come up with that money 

and it is not just sitting there. It is all invested back into the business. 


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Mr. SCHILLING. So your brothers and sisters, would you be willing to say that they would do better with that up to 55 percent of 

that money? Or would the federal government do better with that? 

Ms. MADONIA. I think we could handle it a little bit better. Yes. 

Mr. SCHILLING. These are tricky questions, I know. 

Ms. ROLNICK. I would like to make a comment, if possible. 

Mr. SCHILLING. Yes, ma’am. 

Ms. ROLNICK. We keep talking about how it is going to affect all 

these small businesses, and it does affect some small businesses. 

But according to the statistics, as I said, when there was a 3.5 million exemption, only 4,425 small businesses were subject to the estate tax, while there were over 22 million small businesses filing 

income tax returns. So although it does affect some, and I appreciate how it affects them, but it is not every single small business. 

And most small businesses have been made so fearful that even the 

corner barbershop is afraid that he is going to lose his business to 

the estate tax and he is not even going to be subject to it. 

Mr. SCHILLING. Very good. I appreciate that comment. 

I have got one minute left here. If maybe we go to Mr. Flesher 

on this one. If the death tax was fully repealed, would you use the 

capital to hire more workers, purchase more equipment, or otherwise invest in your business? 

Mr. FLESHER. Well, we would continue to invest in our business 

and grow our business. You know, not only our families, but we 

have long-term employees. I have got employees that have been 

with me 26 years, 24 years, 20 years, 18 years. It is not just one 

or two. So, and these employees are fully vested in this business 

and may have an opportunity to take over that business or part of 

that business as well. So the ongoing investment in the business 

would be a definite. 

Mr. SCHILLING. You know, it is one of those things if you want 

less of something you tax it more. And unfortunately, none of us 

in this room are going to get out of this world alive. But I thank 

you all for coming. Thanks. I yield back, Chairman. 

Chairman WALSH. Thank you, Mr. Schilling. 

I now turn to Mr. Chabot from the great state of Ohio. 

Mr. CHABOT. Thank you, Mr. Chairman. 

Well, the first thing that comes to mind, the democratic witness 

for the death tax here just made a statement basically saying that 

there are not that many businesses that after all have to deal with 

this. We are talking about 3,000 plus. But it is my understanding 

it really affects a lot more than that in a lot of different ways. 

Would any of the other witnesses like to respond to that argument 

that we hear periodically that it really does not matter that much 

because there are only a few businesses that it really applies to so 

it does not affect anybody else. Could anybody else respond to that? 

Ms. MADONIA. Well, to those of us that would be affected, it is 

a big deal. So the fact that there are 3,000 family businesses that 

are affected, you know, maybe to the average American is like, 

well, that is just 3,000 people. To us it is our business and it is 

those 90 families that are employed by us and it is our customers 

and our vendors. It is a much bigger piece of the pie than just saying, well, it is just this one family. 


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Mr. CHABOT. Mr. Flesher, I see you nodding. Would you like to 

respond? 

Mr. FLESHER. Well, you know, speaking for our association, we 

are a very capital-intensive business. So every one of our businesses not only has their properties but the expense of running 

that business. We do not just have an office set up and run a computer; we have to buy equipment and replace equipment every 

year. Every year, just to stay even, we have to reinvest 10 to 15 

or even 20 percent just to maintain our inventory. And then when 

you consider during better economic periods we are going to try to 

create more growth, we have to invest heavily year after year. So 

almost every one of our businesses is definitely affected by this law. 

Mr. CHABOT. Mr. Katz, did you want to say something? 

Mr. KATZ. Although only 3,000 or 4,000 businesses are affected 

on an annual basis, that does not mean that all of the other businesses are not out there dealing with this. In our law firm we do 

a tremendous amount of planning—succession planning and planning for closely held businesses. And even to those people that are 

not necessarily affected on an annual basis, they are involved. They 

are involved in planning. They are involved in spending money on 

attorneys, thankfully. They are involved in spending money on insurance premiums to be able to deal with liquidity issues. It does 

take up a lot of time and effort and energy. And it can create some 

incredible stress. Having to sit in front of somebody, like Ms. 

Madonia’s father and say to him the only way for you to really deal 

with this is for you to transfer interest in your business to the next 

generation now, to start to take advantage of some of the rules that 

are out there. And to have him look at you and say, ‘‘Well, that is 

all fine and nice but I rely on this business to live. This is my income. If you start moving interests around, how am I supposed to 

survive?’’ I do not want to, and with all due respect, I do not want 

to ask my daughter for money when I need it. 

So while there may only be 3,000 or 4,000 small business owners 

who die during the year who are impacted by this estate tax, it is 

impacting a lot of people. There are a lot of people planning and 

dealing with this every single day. There are conferences for lawyers who do estate planning, thousands and thousands of lawyers 

learning about this. If there are thousands of lawyers learning 

about this, there are hundreds of thousands of people that are dealing with this every day. 

Mr. CHABOT. Thank you. Is it fair to say that particularly in a 

tough economy like we have now and have had for a number of 

years now, at a time when businesses are trying to stay in business 

and be competitive and focus on what it is that they do to create 

money and wealth and jobs for their employees, that a lot of these 

business owners, their time would be more efficiently spent concentrating on their business and how to make it better, and therefore, 

we more successful and hire more people than to perhaps have to 

focus so much time on how to keep the government from taking 

this form them at some point in the life of this business? Would 

anyone want to address that? Or you can just say, ‘‘Yep, that was 

a good point, Congressman.’’ 

Mr. KATZ. That was an excellent point, Congressman. 

Mr. CHABOT. Thank you very much. 


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Mr. KATZ. I certainly think that that goes without saying. 

Mr. CHABOT. I have only got a couple seconds left, so I thank all 

the panel members here for their input in this. I know I have been 

speaking about this for a long, long time, and I would argue that 

you all know a whole lot better how to spend your money than the 

federal government does. And we ought to let you keep it and get 

this economy moving and hire more people. Thank you. 

Chairman WALSH. Thank you. I now turn to Mr. Bartlett of 

Maryland. 

Mr. BARTLETT. Thank you. You know, if an enemy had the ability 

to an etherway to permeate our minds and induce us to do something really hurtful to ourselves he might find it difficult and do 

better than the death tax. 

Chairman Walsh and Ranking Member Schrader, thank you for 

allowing me to participate in this hearing. As we have heard, the 

state tax has disastrous consequences and is the most unfair tax 

that the government imposes. At a time when we in government 

should be removing obstacles to small business growth, the estate 

tax provides a roadblock to small business survival. 

But there are solutions, and I am particularly pleased to recognize Mr. Jack Fitzgerald, who is here today. Jack is a prominent 

Maryland businessman and friend of mine who studied the estate 

tax problem from the business point of view. He founded Americans Standing for the Simplification of the Estate Tax (ASSET) in 

2010 in order to change the collection method for the estate tax. 

He believes that as long as the IRS requires the estate tax to be 

paid there is a simpler, more compassionate way to collect the tax 

that would reduce the impact of the tax and avoid the loss of the 

family-owned businesses at a time when they are already dealing 

with the loss of a loved one. 

I would like to congratulate him for putting together a grassroots 

group, which includes private businesses, family farms, and individuals. I think that the ASSET solution as a bridge to phasing out 

the estate tax is well worth studying, and I am pleased that the 

Committee has agreed to include it in the record of this hearing. 

In his testimony submitted for the record, Mr. Fitzgerald notes 

that he has paid nearly $700,000 a year in after-tax dollars for life 

insurance to cover the possible estate tax liability arising out of his 

automobile dealerships. Mr. Fitzgerald and others have maintained 

that many small businesses over purchase life insurance in order 

to prepare for the estate tax. In your experience, is this a common 

occurrence in the small business sector? 

Mr. KATZ. I cannot say that I have a lot of clients who have 

spent that much on insurance every year but, yes, it is a common 

occurrence for people to look to find a way to create liquidity to be 

able to deal with estate tax obligations. And one of the most significant ways to do so is to acquire life insurance, properly owned life 

insurance, and to hold that life insurance to deal with the estate 

tax obligations. 

Now, not everybody is insurable and not everybody has that opportunity to buy insurance. Not everybody has the cash flow necessary to pay the insurance premiums each and every year. So 

while insurance is a solution, it is not the only solution to the problem. 


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Mr. BARTLETT. The case for tax reform is dramatically illustrated 

by reviewing the data cited by the Congressional Joint Economic 

Committee in May of 2006. And what they found generally was 

that the cost of compliance was just about equal to the revenues 

the federal government collected from this. Could there be a dumber tax than this where the cost of compliance equals the amount 

of money which the government collects from this? Can you please 

share with the subcommittee your assessment of the conclusions by 

the Joint Economic Committee? 

Ms. ROLNICK. I personally do not understand where that number 

came from. I mean, I know that there are things that have to be 

done. There are things like trusts which should be done, whether 

there is an estate issue or not, which I have documented in my 

written testimony. There are documents that need to be done if 

they are doing partnerships. We have trust returns. But I know 

what estate tax returns cost and I have yet to file an estate tax 

return that costs more than the amount of tax collected. 

Mr. BARTLETT. Well, I was quoting from their Cost and Consequences to the Federal Estate Tax page 17. And you might check 

that if you question their study. 

The Subcommittee has received testimony for the record from 

Mr. Jack Fitzgerald, founder of the ASSET Coalition, which advocates reform of the current estate tax on behalf of small business 

owners. In his testimony, Mr. Fitzgerald asserts that private capital is locked up in unproductive trusts to escape estate tax liability, meaning that many of the best business minds in our nation 

are forced to sit idly by and cannot create new wealth with their 

assets because they must lock them away for their heirs to inherit. 

In your experience, is this a common experience in the small business sector? 

Ms. ROLNICK. Again, when the first person dies, we usually fund 

a B Trust. We call it a B Trust. And assets are put into that trust 

up to an exemption amount. There is a problem, as I see, when you 

have to fund that trust with a closely held business stock because 

you do not get the dividends passed out or the income passed out 

to the surviving spouse who may be looking for a way to supplement their income that they have lost when their spouse died. But 

there is no provision in the code that prevents that trust from owning another business, starting another business, or investing that 

in some way to help business growth. 

Mr. BARTLETT. Thank you very much for letting me sit in on your 

Subcommittee. Thank you. 

Chairman WALSH. Thank you, Mr. Bartlett. Thank you all for 

participating today. The state tax is a critically important issue for 

small businesses. As evidence of that, the Subcommittee received 

numerous requests from associations representing small businesses, including the National Federation of Independent Business, 

the Food Marketing Institute, the American Trucking Association, 

the American Wholesalers Markets Association, the International 

Sign Association, and the Marine Retailers Association, that their 

statements about the negative impact of the estate tax be included 

in today’s record. 


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I ask unanimous consent that members have five legislative days 

to submit statements and supporting materials for the record. 

Without objection, so ordered. 

The hearing is now adjourned. 

[Whereupon, at 11:17 a.m., the Subcommittee was adjourned.] 


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