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THE ESTATE TAX AND THE ALTERNATIVE MINIMUM TAX - INEQUITY FOR AMERICA’S SMALL

BUSINESSES

HEARING

BEFORE THE

SUBCOMMITTEE ON TAX, FINANCE AND EXPORTS

OF THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

WASHINGTON, DC, APRIL 14, 2005

Serial No. 109–11

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

COMMITTEE ON SMALL BUSINESS 

DONALD A. MANZULLO, Illinois, Chairman 

ROSCOE BARTLETT, Maryland, Vice 

Chairman 

SUE KELLY, New York 

STEVE CHABOT, Ohio 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

JEB BRADLEY, New Hampshire 

STEVE KING, Iowa 

THADDEUS MCCOTTER, Michigan 

RIC KELLER, Florida 

TED POE, Texas 

MICHAEL SODREL, Indiana 

JEFF FORTENBERRY, Nebraska 

MICHAEL FITZPATRICK, Pennsylvania 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

NYDIA VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

TOM UDALL, New Mexico 

DANIEL LIPINSKI, Illinois 

ENI FALEOMAVAEGA, American Samoa 

DONNA CHRISTENSEN, Virgin Islands 

DANNY DAVIS, Illinois 

ED CASE, Hawaii 

MADELEINE BORDALLO, Guam 

RAU ́ L GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

LINDA SA ́ NCHEZ, California 

JOHN BARROW, Georgia 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

J. MATTHEW SZYMANSKI, Chief of Staff 

PHIL ESKELAND, Deputy Chief of Staff/Policy Director 

MICHAEL DAY, Minority Staff Director

SUBCOMMITTEE ON TAX, FINANCE AND EXPORTS 

JEB BRADLEY, New Hampshire Chairman 

SUE KELLY, New York 

STEVE CHABOT, Ohio 

THADDEUS MCCOTTER, MICHIGAN

RIC KELLER, Florida 

TED POE, Texas 

JEFF FORTENBERRY, Nebraska 

MICHAEL FITZPATRICK, Pennsylvania 

JUANITA MILLENDER-MCDONALD, 

CALIFORNIA

DANIEL LIPINSKI, Illinois 

ENI F. H. FALEOMAVAEGA, American 

Samoa 

DANNY DAVIS, Illinois 

ED CASE, Hawaii 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois

JOE HARTZ, Professional Staff

(II) 

C O N T E N T S 

WITNESSES

Page 

Vukelic, Mr. Jeff, Executive Vice President, Try-It Distributing ........................ 4

Pitrone, Mr. Thomas C., Principal, The Integrity Group ..................................... 6

Calimafde, Ms. Paula, Esq., Paley Rothman ......................................................... 8

Ross, Ms. Jenell, Dealer/Operator & Vice President, Bob Ross Buick GMC 

Hummer ................................................................................................................ 10

Zittel, Mr. Paul, Amos Zittel and Sons, Inc. .......................................................... 12

Beach, Mr. Bill, Director, Center for Data Analysis, The Heritage Foundation 13

APPENDIX

Prepared statements: 

Vukelic, Mr. Jeff, Executive Vice President, Try-It Distributing ................. 24

Pitrone, Mr. Thomas C., Principal, The Integrity Group .............................. 27

Calimafde, Ms. Paula, Esq., Paley Rothman .................................................. 31

Ross, Ms. Jenell, Dealer/Operator & Vice President, Bob Ross Buick 

GMC Hummer ............................................................................................... 40

Zittel, Mr. Paul, Amos Zittel and Sons, Inc. .................................................. 45

Beach, Mr. Bill, Director, Center for Data Analysis, The Heritage Foundation ............................................................................................................. 49

(III) 

(1)

THE ESTATE TAX AND THE ALTERNATIVE 

MINIMUM TAX - INEQUITY FOR AMERICA’S 

SMALL BUSINESSES 

THURSDAY, APRIL 14, 2005

HOUSE OF REPRESENTATIVES

SUBCOMMITTEE ON TAX, FINANCE, AND EXPORTS

COMMITTEE ON SMALL BUSINESS

Washington, D.C. 

The Subcommittee met, pursuant to call, at 2:09 p.m. in Room 

311, Cannon House Office Building, Hon. Jeb Bradley presiding. 

Present: Representatives Bradley, Millender-McDonald, Chabot, 

McCotter, Keller, Poe, Fortenberry, Fitzpatrick, Lipinski, 

Faleomavaega, Kelly, Bean, Davis, Case, Michaud

Mr. BRADLEY. Good afternoon, everyone. Congresswoman 

Millender-McDonald will be here shortly, but I will call this hearing of the Subcommittee on Tax, Finance, and Exports to order and 

begin with a statement of my own. 

I would like to begin by thanking all of you for participating in 

this hearing this afternoon, especially those of you who have traveled from significant distances to be here to talk about the alternative minimum tax and the estate tax, two taxes in our tax code 

that I think are among the most unfair. 

I look forward to working with all of you, as well as my colleague 

from California, Congresswoman Millender-McDonald, as we address the many issues facing small businesses in our country. 

The estate tax affects all Americans, especially small business 

owners, and I used to be one, the small business owners who have 

consistently identified permanent repeal of the estate tax as one of 

their most pressing concerns. 

Working together with President Bush, Congress, in 2001, enacted bipartisan legislation that provides immediate relief, through 

tax reduction and an expanded exemption, with complete repeal occurring in 2010. Unfortunately, as we all know, the provisions of 

that bill, in 2001, required Congress to pass additional legislation 

to make the repeal and the elimination permanent. Thankfully, the 

House, once again, did that just yesterday afternoon by a vote of 

272 to 162, and I might note, a very bipartisan vote. It is now up 

to our colleagues on the other side of the Capitol to pass similar 

legislation so that we can finally get to a Committee of conference 

and, hopefully, put a bill on the president’s desk for his signature 

soon. 

2

Simply put, the estate tax threatens the livelihoods of many families that run small businesses across our country. Small businesses have much of their assets tied up in equipment, in inventory, and other critical assets that are necessary to run a company. 

They do not have the available liquid capital to pay the estate tax 

many times, and so are forced to sell either the entire business or 

integral parts of the businesses in order to cover the tax liabilities 

of the estate tax. In my point of view, this is not acceptable, it 

hurts our economy, and that is why we must continue to fight for 

a permanent repeal of the death tax. 

Similarly, the alternative minimum tax is an incredibly complex 

provision—I am going to pay it tomorrow—in the tax code that requires taxpayers to calculate their taxes twice and then pay the 

larger amount. Initially, a method to ensure that the wealthiest 

Americans paid their fair share because of the combined effects of 

inflation and individual rate cuts, the AMT has reached into the 

checking and savings accounts of the middle class. The alternative 

minimum tax unfairly penalizes businesses that invest heavily in 

capital assets by significantly increasing the cost of capital and discourages investment in productivity-enhancing assets by negating 

many of the capital-formation incentives provided under the regular tax system. 

What we face with the alternative minimum tax is a sleeping 

giant that is starting to wake up and gobble the hard-earned funds 

of millions of American taxpayers, in particular, middle-income taxpayers. Today, it is 3 million taxpayers, but in a few short years, 

if we do not pass legislation to keep the exemptions from returning 

to previous levels, it will be 11 million taxpayers. And if we do not 

have a longer-term solution for the AMT by the end of the decade, 

it could be as many as 30 million taxpayers. One in three Americans potentially will fall under this tax that was originally designed to catch 150 of the most wealthy Americans that did not, 

at that time, pay their fair share of taxes. 

So what we have today, with the AMT, is a situation where middle-income Americans will be paying more than the wealthier 

Americans because they lose their personal exemptions, they lose 

their exemptions for state and local taxes, and they lose the exemptions for itemized deductions. Most of the benefits of the tax cuts 

in 2001 and 2003 will no longer exist for these taxpayers and for 

anybody that has had to go through the AMT. The compliance costs 

of having to fill out taxes twice in a dual universe—the normal way 

and then the AMT way—is much higher. 

So I am really looking forward to hear testimony today, but before I get to our panel, I would like to recognize my colleague from 

California, Congresswoman Millender-McDonald, because I know 

that you have an opening statement. Thank you, and I am sorry 

to have start before you got here.

Ms. MILLENDER-MCDONALD. That is all right. I had another one, 

so I just to just rush over from Rayburn over here. 

Mr. Chairman, thank you so much for convening this hearing to 

discuss a very important issue for small business owners, and that 

is the U.S. Tax Code. As tomorrow’s tax return deadline approaches, this topic is surely fresh in the minds of many small 

3

firms, which we are very much aware of, the engines that drive our 

economy. How many face a barrage of challenges on their road to 

success, from inequities in federal contracting to burdensome federal regulations and lack of access to affordable health care? It has 

become increasingly clear that our nation’s small businesses deserve a break. 

We are holding today’s hearing because small businesses continue to be hit by inequities in the tax code. Over the past five 

years, a series of tax cuts, with a total cost of over $2 trillion, have 

been enacted, but the inequities for small businesses still persist. 

The reality is that over half of small firms only received an average 

$500 under these cuts despite an enormous cost. Many of the tax 

cuts in these bills, including the dividend tax cut, provided virtually no benefits to small businesses or entrepreneurs. 

While many of the tax reforms were instituted as a way to improve the economy, the job record through 2004 was considerably 

weak, and the GDP growth rate has hovered over 3 percent since 

last year. Part of the reason we have not seen job growth is the 

lack of the tax relief aimed at stimulating the small business sector, the proven job creators. 

The two issues before us today are ones that significantly impact 

small businesses. When considering reform, we must take into account the needs of entrepreneurs and focus on solutions that will 

stimulate the small business sector. While there is no doubt that 

the alternative minimum tax and the estate tax reform will provide 

necessary relief for small businesses, it is clear that we face some 

tough choices. 

With regard to the estate tax, there are clear solutions to this 

issue that have bipartisan support, and we need to act sooner rather than later. No one supports an estate tax that forces the sale 

of a family-owned business. 

Based on the panelists today, I think we can all agree many 

American business owners dream of one day passing their business 

on to another family member. The way the current law is structured, however, it has made estate planning nearly impossible. By 

reforming the estate tax to meet the needs of small firms, we can 

ensure that family-owned farms and businesses will be passed on 

from generation to generation, and I think we owe it to small businesses to work together for a permanent solution. 

We will talk about AMT. The mere mention of it brings fear to 

those who have even had to pay or even calculate it. It is clear that 

Congress’s failure to provide for adequate AMT relief has meant 

that thousands of small business owners are subject to this tax. 

The failure to address these issues has contributed to the growing 

complexity of the tax code. Small should businesses should not be 

spending thousands of dollars on tax preparation. Small firms simply do not have the resources or capital to comply, and it is wasted 

money that business owners could allocate elsewhere. 

According to an Office of Advocacy report, for small businesses 

with less than 20 employees, the cost of tax compliance is nearly 

double that of their larger counterparts. 

So today’s hearing is an opportunity to assess the real impact of 

the current tax code on our nation’s small businesses. When we examine our tax priorities, the needs of small businesses must be at 

4

the forefront. We are operating in an era of budget deficits, so in 

terms of tax relief, it comes down to priorities. 

I look forward, Mr. Chairman, to today’s testimony and hope that 

we can identify solutions that will provide targeted tax relief to 

small business owners. It is critical that we examine how our economic policies affect the small business sector and that we develop 

a tax code that awards our risk takers. Thank you, Mr. Chairman

Mr. BRADLEY. Thank you very much. 

I would like to recognize the first witness this afternoon, Mr. Jeff 

Vukelic, who is the executive vice president of Try-It Distributing 

from Lancaster, New York, and is here today representing the National Beer Wholesalers Association. Mr. Vukelic, Thank you. 

STATEMENT OF JEFF VUKELIC, TRY-IT DISTRIBUTING

Mr. VUKELIC. Thank you, Mr. Chairman. 

My name is Jeff Vukelic, and I am executive vice president of 

Try-It Distributing, where we serve the Buffalo/Niagara Falls market as a distributor of Anheuser-Busch, Heineken, and Labatt 

beers. 

Try-It Distributing was started as a soft drink bottling company 

by my grandfather, Stephen Vukelic, in 1928. My grandparents 

were Croatian immigrants. They never dreamed their company 

would grow into an operation with a fleet of over 110 delivery vehicles and more than 200 employees. 

My parents, brothers, and I are fully involved and committed corporate citizens. We serve on civic and not-for-profit boards who respond to needs of charitable organizations, who contribute to programs for at-risk youth and work closely with law enforcement to 

advocate responsible consumption. Elected officials on every level 

rely on us to be well-informed and concerned supporters of individuals and ideas that ensure good government. 

The Vukelic family is typical of other family-owned businesses in 

our association. Our home communities look to us as consistent 

leaders and dependable doers. 

As chair of the National Beer Wholesalers Association, I appreciate the opportunity to share some thoughts with you today on behalf of the 1,850 members of our organization. 

The beer-wholesaling industry directly employs more than 92,000 

Americans nationwide, and the beer industry at large indirectly 

supports more than 890,000 workers, accounting for more than $30 

billion in tax revenues across the country. Many wholesaling companies have been family owned and operated since the repeal of 

prohibition in 1933. 

Regulation is a fact of life for beer wholesalers. We are regulated 

every day by a virtual alphabet soup of federal agencies, including 

TTB, FCC, DOT, NHTSA, EPA, OSHA, and the IRS, just to name 

a few. And because of the 21st Amendment, my company is strictly 

regulated by the New York State Liquor Control Authority. 

I am here to talk about an issue that is absolutely critical to 

every privately held and family-owned business in America: the 

permanent repeal of the death tax. Now is the time for Congress 

to take final action to permanently repeal the federal death tax. 

5

Over the last few years, and again yesterday evening, the House 

of Representatives has made great strides in helping America’s 

small businesses by voting to permanently repeal the death tax. 

We continue to wait on the Senate to take action. 

Small business owners need certainty when planning for their 

succession and the long-term viability of their businesses. As long 

as Congress fails to act, business owners will be forced to divert 

economic resources from investments that grow businesses, create 

jobs, and boost the economy. Instead, they will use those funds to 

pay for estate planners, lawyers, and accountants to navigate them 

through the uncertainties of the current tax structure and utilizing 

state funding vehicles. 

Permanent repeal would free up that time, money, and energy. 

This would allow business owners to focus on growing their businesses, creating more jobs, and working to stimulate economic 

growth as a whole. We want to help keep the American economy 

strong and viable for our future and the future of our children. 

Although full repeal will occur in 2010, the death tax burden will 

return in full force in 2011 due to the sunset language that was 

included in the Economic Growth and Tax Relief Reconciliation Act 

of 2001. 

According to a recent survey, 85 percent of those polled want the 

death tax permanently abolished or significantly reduced. The 

American people oppose, on principle, the concept of anyone being 

taxed on the death of their parents. Unfortunately, if permanent 

repeal is not passed, many small business owners and farmers will 

continue to pay the ultimate price created by the sunsetting of the 

death tax repeal: loss of family businesses. 

As the father of two young children, I am very concerned about 

their future and the future of my company if the death tax returns 

as currently scheduled. H.R. 8, the Death Tax Repeal Permanency 

Act of 2005, was introduced by Representatives Kenny Hulshof 

[MO-9] and Bud Cramer [AL-5] and passed the House with strong, 

bipartisan support yesterday. I would like to thank those members 

of this Committee that supported that legislation. 

S. 420, the Death Tax Fairness Act, has been introduced by Senators John Kyl [AZ] and Bill Nelson [FL]. This bill also seeks full 

and final repeal of the death tax. 

I urge Congress to act quickly and not turn its back on America’s 

small business owners. Please encourage the Senate to schedule a 

vote on permanent repeal now. Congress must make death tax repeal permanency a priority by sending President Bush legislation 

for his signature. 

As I close my remarks, I am thinking about the talents, sacrifices, and hard work that my grandfather and my father invested 

in making Try-It Distributing a success. Stephen Vukelic, a young 

newcomer from Croatia, achieved the American Dream. Please do 

not allow such bright dreams to become nightmares for the third 

and fourth generations of families who are working hard every day 

to sustain solid American businesses. 

Mr. Chairman, thank you for the opportunity to share with you 

our organization’s position on these important small business 

issues. 

[Mr. Vukelic’s statement may be found in the appendix.]

6

Mr. BRADLEY. Thank you very much, sir. 

Our second panelist is Mr. Thomas Pitrone, who is the principal 

of the Integrity Group of Willoughby, Ohio, and a member of the 

National Small Business Association. Welcome. 

STATEMENT OF THOMAS PITRONE, THE INTEGRITY GROUP

Mr. PITRONE. Good afternoon, Chairman Bradley and Ranking 

Member—

Ms. MILLENDER-MCDONALD. —Millender-McDonald.

Mr. PITRONE. —Millender-McDonald.

Ms. MILLENDER-MCDONALD. Thank you so much, sir.

Mr. PITRONE. Thank you. I appreciate the opportunity to testify 

on the negative impact of the estate tax on small businesses. I am 

an estate tax practitioner. My primary focus, my practice, has 

worked with older folks on their money-management issues, but I 

also consult with small businesses on continuity and estate tax 

issues. 

My firm was started with my dad, Frank Pitrone, who was a 

CLU, in 1983, and I have been in advocacy for small business since 

about 1988, through my association with COSE, the Council of 

Smaller Enterprises in Greater Cleveland, and then I was a delegate to the White House Conference on Small Business, and I am 

sitting on the board of the National Small Business Association 

now. 

The estate tax is a tax on capital, as far as small businesses are 

concerned. For the majority of small business owners, their major 

asset is their business. I know scores of business owners who are 

worth more than $5 million, but they could not cash a check for 

more than 10 because they do not have any liquidity. It is hard to 

get cash out of a company. 

They have worked hard all of their lives, as we just heard. They 

are frugal, they amass wealth, and they take care of their families. 

They live around the demands of their business. It does not make 

any difference if it is a farm or a store or a distributorship, insurance agency, when the business is in trouble, everybody in the family reacts. They understand that the business is important to the 

business owner, to the breadwinner, and it pays the bills. 

It is not a new phenomenon. The issues of small business are 

older than our country. The founders, by our standards, were all 

small businessmen. They were tradesmen, lawyers, farmers, and 

they saw the importance of small business preservation as one of 

the issues that drove the Revolution. In the 1760’s, George Washington saw the separation from England as important to the survival of small business, just business in general because there was 

nothing but small businesses then. So it is not too much to say that 

part of the reason for the Revolution was the existence of business 

in the United States, the colonies then. 

Well, as I said, I have been involved in advocacy for 17 years, 

and I hear representatives talking about how important small busiVerDate 0ct 09 2002 14:12 Aug 29, 2005 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 G:\HEARINGS\21286.TXT MIKE
7

ness is and how they believe in small business. I have just got to 

say, you need to do more than believe in it because, as the Ranking 

Member mentioned, it is the engine that drives the country, and 

the freedom to start a business is one of the most important freedoms, and you see it blossom wherever there is liberty. If you go 

to New York, Kiev, Nairobi, you see people with a box and a few 

things to sell. They are small business people; they are making it 

on their own. 

So, in our country, a business owner works for 30, 40 years, pays 

his taxes, volunteers, does all of the things that we know they do, 

and then one day I come in and talk to him and tell him about 

what he is going to have to do to avoid the estate tax, or the government is going to take half of his business when he dies. And 

often, they do not believe me. 

I can think of an instance where I went to see a fellow who 

owned a truck terminal, and I told him that he was going to have 

to pay half, or the government was going to take his business, and 

he said, I never heard of this; it cannot be true. And I said, No, 

no, it is true. And he said, Well, my business is not worth anything. So I looked out the window, and he has got a truck terminal 

and all of these tractors and probably 25 trailers, and he said, I 

have written them down; they have no book value. I said, Well, the 

IRS does not care about that. They go by what a willing buyer 

would pay a willing seller. And he said, If you get a willing buyer, 

get him in here. 

So we began to talk about what he had to do, and he, frankly, 

did not believe me. He began to rant and rave, say bad things 

about the government, and finally ended up kicking me out. 

And the truth is, what we have to do to avoid the estate tax is 

ridiculous. I tell people that they have to do obviously transparently stupid things to avoid the estate tax. They have to have 

a defective trust. They have to send their children crummy letters, 

and I feel like a witch doctor. It is like voodoo, but that is what 

they need to do avoid the estate tax. They often cannot believe me. 

They also have to buy a lot of life insurance and pay attorneys a 

lot of money to draft the documents that they need. 

A small business owner already has a buy/sell agreement. He has 

got insurance for liquidity. He understands that. It makes sense to 

him, but when you tell him that the government is going to take 

half of his business when he dies, the value of his business, and 

he has to come up with the cash within nine months, you cannot 

blame him for feeling persecuted. 

So the proponents of the death tax are dismissive about our 

issues. Small business is secondary to them. They say, ‘‘Can’t we 

just fix it? Raise the limits.’’ 

There are two provisions that I just want to talk about real briefly. One is Section 6166, which allows a company to finance for 14 

years. I have only known one company that did that. They told me 

it was hell. The IRS is not really financing as much as they become 

your partner. The other is the family-owned business exclusion, 

which is so complicated, nobody uses it, and the reason is the exclusions and the inflation have reduced the benefit of it, at any 

rate. 

8

I will sum up just by saying that small business will not be safe 

until we have totally eliminated the death tax, and I want to thank 

you for the opportunity to make my statement, and I look forward 

to questions. 

[Mr. Pitrone’s statement may be found in the appendix.]

Ms. MILLENDER-MCDONALD. Mr. Chairman, before we proceed to 

the other one, I have just been told that we have a vote within a 

half hour, is it?—about a half hour, and then I will have to leave, 

so can you please ask the witnesses to be very brief and summarize 

as opposed to extending their remarks?

Mr. BRADLEY. Well, you have just done that, so I will repeat it, 

and I will let you ask your questions first when we are completed 

with all of the witnesses. 

Our third participant this afternoon is Ms. Paula Calimafde and 

is representing Paley Rothman from Bethesda, Maryland, and the 

Small Business Council of America. 

STATEMENT OF PAULA CALIMAFDE, PALEY ROTHMAN

Ms. CALIMAFDE. It is a pleasure to be here, and I commend all 

of you for holding these hearings on very difficult topics. 

I am Paula Calimafde. I am the chair of the Small Business 

Council of America. It is a national, nonprofit organization which 

represents small businesses only on federal tax, health care, and 

employee benefit matters. I am also a tax attorney, and I work 

with small business owners every day, and, unfortunately, from 

time to time, I have to deal with probate, which is what happens 

when someone passes away. I was fortunate enough to be a commissioner at the White House Conference in 1986, and I was a 

presidential delegate to the White House Conference in 1995. 

I have a very important message, and it is very strange for me 

to be sitting here, surrounded by these people who I know have 

spent a lot of time and effort to come here and who obviously believe in what they are saying, but my message is very different. I 

believe, and I guess it is even stronger, I know that repeal of estate 

taxes in 2010 and beyond actually hurts small business owners, 

and the reason why it hurts them is a technical reason, and I think 

that is why most small business owners do not understand the 

issue. It is because, in 2010, small business owners are going to 

lose a part of their step-up in basis, and the way the estate tax 

rules work today, when a person passes away, the heirs get the 

property from that decedent at fair market value. That is their 

basis. 

In the 2010 rule and beyond, $1.3 million of the assets goes decedent’s heirs with a step-up, and the rest get the carry-over basis 

from the decedent. What that means is whatever the decedent’s 

basis was, they have to use that, and, believe me, it is not easy to 

figure out what a carry-over basis is. I believe, in 1976, Congress 

tried to repeal the step-up in basis. It got extended to 1980. It 

never got put into place. The reason why is a number of attorneys 

and accountants kept coming to Congress and saying, There is no 

way we can figure out the basis for someone who died who acquired 

9

property 50 years ago. And under the rules, if you cannot prove the 

basis, the basis in the property is zero. 

So the Small Business Council of America believes strongly that 

repeal is not the answer. What the answer is, is an increase in exemption level, and I will go over some numbers quickly, but you 

will see that that exemption level should be $3.5 million next year, 

not 2009, because when you see how many small businesses are 

trapped by the $1.5 million exemption level to the $3.5 million 

level, it is more than, like, 84,000 small businesses are getting 

caught between that $1 million and the $3.5 million exemption 

level. 

We think the step-up in basis needs to be preserved, and we also 

believe that the gift and estate tax system should be reunified. 

Let me explain to you a simple example so you will understand 

what I am talking about. As soon as a small business owner who 

owns exactly $3.5 million of assets—he is single, and he passes 

away. He passes away in 2011. Congress has repealed the estate 

tax. Of the $3.5 million, $1.3 million gets a step up in basis. The 

other $2.2 million of assets that this man has owned and worked 

hard for is now a carry-over basis. 

Imagine this man is 85 years’ old. Who is going to figure out 

what the basis in these assets were? Who knows? But let us assume, for argument’s sake, that the basis in the assets is a million. 

That leaves the heirs of that small business owner with $1.2 million of income tax. Compare that to the estate tax law staying in 

place in 2009. There would be a $3.5 million exemption, a complete 

step-up in basis. The man dies, his family inherits those assets, 

and they have $3.5 million of step-up. If they were to set up the 

next day, zero taxable income and zero gain. 

Now, I hate to be so technical. I hate to be talking about stepup and carry-over. I know Bill knows what I am talking about, and 

a few others do, but it is because of this that repeal, even though 

it is being touted something beneficial to small business owners, it 

is not. This is a very, very sad state of affairs, and, in fact, the 

small business owners are the straw men today for carrying repeal, 

and it is the very, very, very, very rich who will benefit from repeal, not the small business owners. 

I have got a chart which, if you take a look at it, explains very 

clearly who is a winner and who is a loser, but basically the small 

business owners who have more than $1.3 million in assets and 

less than $3.5 million, which happens to be a huge percentage of 

small business owners, will do worse with repeal. 

So that is my message, and as far as AMT, AMT, just like estate 

taxes, was never intended to hurt the owners of small businesses 

who work for a living. It just got that way, and we would much 

rather see an exemption high enough to get estate tax away from 

small businesses and repeal AMT. Use those dollars to repeal 

AMT, which is really hurting small business owners. Thank you. 

[Ms. Calimafde’s statement may be found in the appendix.]

Mr. BRADLEY. Thank you very much. 

Our fourth panelist is Ms. Jenell Ross, who is a dealer and operator and vice president of Bob Ross Buick GMC Hummer in 

10

Centerville, Ohio, and is representing the American International 

Automobile Dealers Association. Thank you. 

STATEMENT OF JENELL ROSS, BOB ROSS BUICK GMC 

HUMMER

Ms. ROSS. Good afternoon. My name is Jenell Ross. I am here 

today as a representative of the American International Automobile Dealers Association. I want to thank the Committee for allowing my testimony today. 

The death tax is an issue that is near and dear to my heart because of my family’s firsthand experience with it. I am the dealer 

principal of Ross Motor Cars in Centerville, Ohio, representing 

Buick, GMC Hummer, and Mercedes Benz franchises. Thirty-one 

years ago, my father, Bob Ross, took the chance of a lifetime and 

started Ross Motor Cars. 

Our family-owned dealership had been in business for 23 years 

when he passed away unexpectedly. My father was a very talented 

and capable businessman. Like a lot of small business owners, he 

knew about the death tax, but he passed away long before any of 

us expected him to, and because of that, the dealership’s estate 

planning was years behind where it should have been. When he 

died, the responsibility of keeping the business running and the 

workers employed fell on my mother, brother, and me. Although we 

were familiar with many of the dealership operations, I can tell you 

that none of us was fully prepared to take on the overwhelming responsibility of managing the day-to-day operations of the business. 

It was, in many ways, on-the-job training. 

Perhaps you can imagine, amidst all of the emotions surrounding 

this personal family tragedy, the incredible shock we felt in receiving a federal tax bill for more than half the value of our business. 

That shock was compounded by the fact that nearly 90 percent of 

our dealership’s net worth was tied up in land, building, equipment, inventory, and parts—assets that could not be easily liquidated without seriously damaging our ability to function. And 

that was true not just in our case, but it is true for most dealerships today. 

Dealerships are heavily leveraged, and in today’s competitive environment, dealers have no choice but to maintain large inventories 

of new vehicles. At the same time, we are under enormous pressure 

from manufacturers to maintain our properties and buildings at increasingly higher and higher levels. 

My experience with the death tax has made this issue a very personal one, and we are not alone. Every year, tens of thousands of 

families are forced to endure what we have endured. But it is important to remember that the death tax imposes a huge cost, even 

on automobile dealers who are fully prepared for it. In fact, 70 percent of dealers view the tax as the greatest barrier to expanding 

business opportunities because death tax planning drains resources 

away from growing the business and creating more jobs. 

It is not uncommon for dealers to divert upwards of $10,000 per 

month in estate planning. That has certainly been the case for our 

family business. Ever since we received the federal death tax bill 

years ago, my mother has been in weekly contact with a team of 

11

lawyers and insurance agents to make sure our death tax payment 

plan remains viable and our dealership remains solvent. We are 

currently embarked on a 10-year payment plan to pay off the death 

tax. In the meantime, our business is being held for collateral. Our 

dealership and our employees are managing very well today, but 

there is no question, the experience took a tremendous toll on my 

family. 

Our ordeal with the death tax has been eye opening. It has motivated us to do what we can to help bring a permanent end to his 

oppressive and burdensome tax. Not a day has gone by over the 

past eight years in which we have not been haunted by what could 

have been, not only to our business but to the 145 employees of 

Ross Motor Cars whose families depend on us. 

The majority of today’s 21,000 automobile dealerships are true 

family businesses, run, managed, and expanded by family members 

across several generations. We employ over 1 million Americans. 

When small businesses do not have to commit tens of thousands of 

dollars to death tax planning, that money is typically reinvested 

into the business, and as we expand, so do our payrolls. 

The argument that death tax repeal would be too costly to the 

federal coffers is just flat-out wrong. As you may be aware, Dr. Wilbur Steger, who advised six U.S. presidents, conducted a study on 

the death tax recently. He calculated what the repercussions of 

death tax repeal would be on the economy and concluded that repeal of the tax would actually result in a slight increase in revenue 

to the federal government, $1.7 billion over 10 years. 

The arguments for permanent repeal of the death tax are many, 

but perhaps the most important reason for why this tax should be 

permanently repealed is that this tax, more so than any other, is 

viewed by the public at large to be fundamentally unfair. Last 

year, AIADA conducted a national survey to gauge public sentiment on this issue, and what we found was truly remarkable. Voters across political, ideological, and demographic lines considered it 

unfair for the government to tax individual earnings twice, both 

when they are earned and again at the time of the earner’s death. 

Nowhere among the major voter groups did we find less than 70 

percent saying it was unfair. If for no other reason, the death tax 

ought to be permanently repealed because it is a tax that is fundamentally unfair. 

I want to applaud this Committee for recognizing this reality 

early on, and I want to applaud this Committee and this entire 

chamber not only for the work you did in 2001 to repeal the death 

tax but also for your bipartisan cooperation on this issue yesterday. 

In today’s competitive auto-retail business environment, auto 

dealers need predictability in the tax code in order to hire additional employees, buy new equipment, and expand business opportunities. This chamber’s vote yesterday will help bring badly needed predictability to the tax code. 

In closing, I want to urge the Senate to follow this chamber’s bipartisan action on this issue and vote to permanently repeal the 

federal estate tax. This issue is not about politics; it is about fairness. Thank you. 

[Ms. Ross’ statement may be found in the appendix.]

12

Mr. BRADLEY. Thank you very much, Ms. Ross. 

Our next panelist is Paul Zittel. He is from Eden, New York, and 

represents the American Farm Bureau Federation. 

STATEMENT OF PAUL ZITTEL, AMOS ZITTEL AND SONS, INC.

Mr. ZITTEL. Thank you and good afternoon. My name is Paul 

Zittel. I, along with my brother and two sons and two nephews, 

own and operate Amos Zittel and Sons, Inc., in Eden, New York. 

I am also the elected vice president of New York Farm Bureau. 

Farm Bureau thanks the Subcommittee for holding this hearing to 

spotlight the need for permanent death tax repeal and to end the 

alternative minimum tax. 

Farm Bureau supports the permanent repeal of death taxes. This 

is for a good reason: Farm and ranch estates face heavier, potentially more disruptive, death tax burdens than other estates. 

Roughly twice the number of farmer states paid federal death tax 

in the late 1990’s compared to other estates. Moreover, the average 

death tax is also larger than the tax paid by most other estates. 

My brother and I are the fourth generation of Zittels to farm. We 

grow fruits and vegetables on 180 acres of land and flowers under 

plastic in two and a half acres of greenhouses. We sell a portion 

of our products through our own family retail market. 

Our family farm corporation employs 60 people, 22 of them year 

round. My two sons and two nephews plan to continue the family 

farming business. My family and I have spent thousands of dollars 

and countless hours structuring our business to try to reduce or 

eliminate the impact of death taxes when my brother and I die. We 

pay thousands of dollars per year in life insurance so that there 

will be cash for Uncle Sam if the tax is due. The financial drain 

on our business is significant, and still no one can tell us for sure 

that our escape plan will successfully protect the future of my children’s livelihood. 

Last year was a particularly difficult year for us due to crop 

damage caused by three hurricanes that ravaged the East Coast. 

Even so, we could not risk foregoing our insurance payments. This 

meant that we had to freeze our wages for our employees and reduce the wages for ourselves. In addition, we had to borrow money 

for operating expenses and were not able to afford the scheduled 

improvements to our buildings and equipment. We do not know yet 

when we will be able to recover. 

The impact of death taxes with rates as high as 47 percent can 

be so severe that their imposition can destroy farm businesses. 

Farm operations are capital-intensive businesses whose assets are 

not easily converted into cash. In order to generate the funds that 

are needed to pay death taxes, heirs often have to sell parts of 

their business, and this can ruin the economic viability of the business. Faced with the realization that their family farm may not 

survive death taxes, children may choose to leave the farms. 

An increase in the death tax exemption is not the answer. Only 

a complete elimination of the death tax can erase the impact of the 

death tax and the estate-planning burden caused by changing exemptions. 

13

Before I conclude, I would like to mention the alternative minimum tax. AMT relief is important to farmers since they pay the 

tax more often compared to other taxpayers. According to the 

USDA Economic Research Service, slightly more farmers are subject to AMT, with just under 2 percent of farmers currently paying 

a tax. Farm Bureau supports the extension of the increased AMT 

exemption and the total elimination of the alternative minimum 

tax. 

Farm Bureau commends the Committee on Small Business for 

holding this hearing to highlight the need for permanent death tax 

repeal. Farmers, however, will not be able to rest in peace until 

Congress finishes the job of eliminating the death taxes. Farm Bureau calls on both the House and the Senate to pass legislation to 

end death taxes once and for all. Thank you. 

[Mr. Zittel’s statement may be found in the appendix.]

Mr. BRADLEY. Thank you very much, Mr. Zittel. 

Our final panelist is Mr. Bill Beach, who is the director of the 

Center for Data Analysis at the Heritage Foundation here in Washington, D.C. Thank you, sir. 

STATEMENT OF WILLIAM BEACH, CENTER FOR DATA 

ANALYSIS, THE HERITAGE FOUNDATION

Mr. BEACH. Thank you, Mr. Chairman, Congresswoman. In the 

interest of your time, I am going to lay before you the case for repealing the estate tax presented by my colleagues. Clearly, you can 

see it is a tax on virtue, a virtuous life. It undermines the economy. 

It slows the economy. It is, in many respects, a tax that undermines the income tax. It has every earmark of the kinds of bad 

taxes that you, from time to time, review and yesterday repealed, 

and I congratulate you for that. 

Let me focus, instead, on the alternative minimum tax because, 

as the chairman said, this is also an important tax for small business, and I will just take a few minutes to review a few facts about 

the AMT. 

In a conversation I once had with former Senator Bob Packwood, 

I asked him, Senator, tell me how many people, taxpayers, did you 

originally intend, or did Congress intend, to cover with the AMT? 

And he said that it could not have been more than 150,—I believe 

you used the number, 155—and it was 150 very high-income taxpayers, at that. 

We are a very far cry from 150 taxpayers today. If we do nothing 

to rein in the AMT or to repeal it, the tax is expected to be paid 

by nearly 40 million taxpayers in just five years from now. If that 

forecast holds, the population of AMT taxpayers would have grown 

by 16 times since 2003, or 16 times over a seven-year period. 

The personal AMT directly affects individuals who file their business taxes through the 1040, and it does so in a number of ways. 

First, the AMT filers generally pay higher tax rates than regular 

income tax filers. The AMT tax rates are 26 percent and 28 percent. Higher tax rates mean that one’s own labor income and capital costs are higher, thus either driving down overall operating 

margin or increasing prices, and we believe that there is a tangible, 

14

measurable, and significant effect on economic performance because of the increasing coverage of the AMT. 

Second, the AMT tax brackets are not indexed for inflation, unlike the regular tax brackets. That means the AMT filers annually 

face an increase in their taxes just from the effects of inflation. 

And, thirdly, small businesses located in high-tax states are 

much more likely to incur AMT liabilities than in low-tax states. 

According to Len Burman and David Weiner, the state and local 

tax deduction permitted on the 1040, Individual Income Tax Form, 

accounts for 51 percent of all tax liabilities under the AMT. In 

other words, 51 percent of those people who are thrown into the 

AMT are thrown in because you are permitted to deduct state and 

local taxes. Indeed, taxpayers in high-tax states are 5 percentage 

points more likely to be on the AMT than those in low-tax states. 

Mr. Chairman, on page 9 of my testimony, copies of which are 

available at the table in the back, we have all original data just 

for this hearing. I asked my colleagues back at the Center for Data 

Analysis to go through their data bases and to determine the number of AMT taxpayers who have a small business in their tax form, 

and they found, for 2005, 1.9 million taxpayers are also small business operators and filing their taxes through the 1040. 

As you know, the current law has an increased exemption 

amount which expires at the end of this year, and so how much 

more AMT filers will there be in the small business community? 

That number will jump from 1.9 million to 6.4 million in just one 

year alone. If Congress does nothing to extend the current exemption levels between now and the end of the year, we will have a 

threefold increase in small businesses covered by the AMT. 

So, in conclusion, like my colleagues who made a very good case 

for the permanent repeal of the estate tax or for repealing the estate tax in such a way as to fix the basis problems that Paula was 

talking about, I would make the case, or, at least, start the case, 

that we should repeal the AMT for purposes of fairness in the tax 

code, to get back to the original intention, at least, and also for economic efficiency. 

You cannot have that big of an increase in small business people 

who are covered by the AMT and expect the economy to continue 

to produce the kinds of good jobs and strong growth that it has 

been producing in the last two years. Thank you. 

[Mr. Beach’s statement may be found in the appendix.]

Mr. BRADLEY. Thank you very much, Mr. Beach. 

Congresswoman McDonald, because you said you have to attend 

another hearing,—

Ms. MILLENDER-MCDONALD. Thank you so much, Mr. Chairman. 

It seems like if it is not one end of the spectrum, it is another, but 

thank you all so much for your testimony. 

Mr. Pitrone, I think it is, you stated that if we are interested in 

small businesses, then we should understand, and I am paraphrasing you, the anguish that small businesses have in terms of 

the estate tax and AMT, and, I mean, we certainly do sympathize 

with you, and we are certainly for small businesses, so I want to 

make that position first. But I do want to go back to what Ms. 

15

Calimafde said about the step-up in basis and that being a disposition or an imposition for small businesses as opposed to the exemption level. 

How do you disagree with what she is saying, when she has so 

eloquently spoken to that and, I am sure, has the data to support 

that, Mr. Pitrone? Is it Pitrone?

Mr. PITRONE. Yes. Pitrone is correct. Thank you. 

You are asking me why I would support the elimination of the 

death tax?

Ms. MILLENDER-MCDONALD. What I am saying is that Ms. 

Calimafde said that, of the years that she has had the experience 

of working with taxes, that she does not think the step-up in basis 

and the estate tax should be repealed, that the step-up in basis 

should be reserved, and she would much rather see exemption levels being dealt with. Do you not agree with what she is saying, or 

if you disagree, why is that?

Mr. PITRONE. Okay. I do not know that I disagree. I have to be 

frank. Before I sat down next to her and started talking to her before the panel began, I had not given it a whole lot of thought. I 

had done some research on the topic that she is discussing. I think 

that a lot of what she is saying is valid and the small business 

community has focused primarily on the elimination, and, as you 

know, especially from the testimony yesterday and the debate, the 

American people do not like the idea of having to pay a tax just 

because someone died, whereas the capital gains tax, which is what 

she is talking about, does not occur because someone died; it occurs 

because somebody sold something. 

Frankly, I am not crazy about any taxes, but I am really not prepared to give you an answer, although—

Ms. MILLENDER-MCDONALD. That is all right. I do understand 

that, and I am sorry that I put you in that imposition, but what 

about the gentleman next to you? Is it Vukelic?

Mr. VUKELIC. Vukelic, yes.

Ms. MILLENDER-MCDONALD. Yes, Vukelic. What are your 

thoughts on what Ms. Calimafde said?

Mr. VUKELIC. In just listening to her, like Mr. Pitrone, I heard 

her talk about it for the first time, and that, to me, sounds like 

more of a compromise. Maybe she was talking more of a compromise. I do not know. For me, I am for a permanent repeal.

Ms. MILLENDER-MCDONALD. I see. If we had permanent repeal of 

that, as I look at the budgetary cost of that, it would be in the 

neighborhood of $290 billion that the budget will be hit, and as we 

move into years of this repeal and interest payments on the debt, 

we are talking about nearly a $1 trillion budget hit. We are already 

at $450 billion as a deficit. What do you gentlemen propose that 

we do, as members of Congress who have to balance your budget? 

16

Where do we get that money when we have been hit like that with 

a repeal of those taxes?

Mr. PITRONE. Well, you know, the numbers that you are discussing have been in the Washington Post. Over the week, they 

have run a series of articles. I think the numbers come from the 

Urban Tax Foundation.

Ms. MILLENDER-MCDONALD. It does not say that, sir, but I do 

know that our own deficit does raise the issue because—

Mr. PITRONE. I understand. I understand.

Ms. MILLENDER-MCDONALD. Yes.

Mr. PITRONE. Well, first of all, what exactly the numbers are 

going to be is highly speculative. For instance, I hear someone talking about if we repeal the estate tax, and Bill Gates, Warren 

Buffett, and Larry Ellison happen to be on a plane the next day, 

and it crashed, the government would have lost several billion dollars.

Ms. MILLENDER-MCDONALD. Let me just say this. I am saying, 

what do we do, as members of Congress, to backfill this money, irrespective of whether it is whatever or whatever?

Mr. PITRONE. It works out to 2 percent a year. It is 2 percent a 

year. The trillion-dollar number over the next 15 years is 2 percent 

of the annual budget a year.

Ms. MILLENDER-MCDONALD. We are still talking about a deficit.

Mr. PITRONE. I understand, but—

Ms. MILLENDER-MCDONALD. So where do we get the money if we 

should happen to repeal all of these on a permanent basis, and that 

is only one tax?

Mr. PITRONE. You can make the case that economic growth, as 

a result of eliminating the estate tax and not forcing small businesses to spend huge amounts of money on planning and insurance 

that they otherwise would not need, would raise growth to the 

point—it is only 2 percent.

Ms. MILLENDER-MCDONALD. That is certainly not a valid assessment of that, Mr. Pitrone. 

Ms. Calimafde, what do you think, as we grapple with this? And 

you have said, and I certainly appreciate your assessment of this, 

what can one do when we are faced with this large deficit, and we 

are talking about a repeal permanently on these taxes?

Ms. CALIMAFDE. Well, I have thought about this a lot, and years 

ago I was for repeal, and I was for it because, at the time, it 

seemed that too many people who worked hard all of their lives 

17

were losing businesses and farms, and then the more I looked at 

it,—

Ms. MILLENDER-MCDONALD. And we all regret that.

Ms. CALIMAFDE. Right.

Ms. MILLENDER-MCDONALD. That is right.

Ms. CALIMAFDE. But the more you look at the numbers, they are 

not nearly what they seem to be, and the more I looked at the repeal bill, and I realized it was really hurting small businesses, we, 

as a group, had to just change our position. And I do think that, 

for instance, if NSBA looks at this issue carefully, they are going 

to realize more of their members get hurt by repeal than if they 

keep it at the $3.5 million exemption, and I would hope that that 

amount would increase. 

I do think there are some numbers out from the Center of Budget and Public Policy Priorities, I believe, is the group, that say that 

if you increase the exemption, even, like, to the $10 million level, 

which is $10 million per person, and if you have got a married couple, that means $20 million of assets that is going to the estate tax 

free, if you keep the estate tax rate at a 45-percent level, which, 

by the way, the effective rate is usually around 18 percent, even 

though it says 45 percent, because of deductions and charitable 

contributions, I think you retain quite a bit of the revenue from the 

estate tax. 

Saying that in another way, what that means is there are some 

very, very high-income taxpayers out there,—they are the ones who 

are generating that percentage of the revenue—and then you have 

this huge group of small businesses, between 1 million to 3.5 million, that are also putting a lot of revenue into the estate tax. So 

that is why I am saying, if we get them out of the system, we still 

have revenue for the folks who are very, very high-income taxpayers. That would be my approach.

Ms. MILLENDER-MCDONALD. And would you agree that even with 

the repeal of the estate tax, that there will continue to be some 

complexities associated with the system that provides for the 

stepped-up-basis regime?

Ms. CALIMAFDE. From a probate viewpoint, it is going to be terrible because the repeal part sounds good, and actually, Mr. 

Pitrone mentioned, well, it will be a capital gains tax. It is not always a capital gains tax; it can also be a regular income tax on assets that small business could be hit with. But if you cannot prove 

your basis, your basis is zero, so, to me, it is totally unworkable, 

and I would say you either have to go with the exemption at a 

higher amount so that small business is really taken out, or if you 

are going to go with a repeal, somehow you have got to step up the 

basis to a minimum of 3.5 a person so, at least, they are as good 

as they were in 2009. And, frankly, as I said, years ago they tried 

to—not ‘‘they,’’ Congress—tried to appeal the step-up in basis—

18

Ms. MILLENDER-MCDONALD. We are ‘‘they.’’

Ms. CALIMAFDE. I know. I did not want to make you feel badly.

Ms. MILLENDER-MCDONALD. We feel badly all the time.

Ms. CALIMAFDE. No. You all are doing a very good job. But the 

step-up in basis, the reason why it never got repealed is that it was 

unworkable. So here we are going to 2010 with a bill that, I think, 

is really unworkable.

Ms. MILLENDER-MCDONALD. I thank you so much. 

Mr. Chairman, just one for Mr. Beach. 

Mr. Beach, you might have some legitimacy to some of your 

points on AMT because while it was initially for those that were 

wealthy, it has kind of impacted a lower level of persons who are 

making $50,000.

Mr. BEACH. You are absolutely right about that.

Ms. MILLENDER-MCDONALD. And so it is a possibility we need to 

look at a balanced approach here, and I would love to maybe sit 

with you about some balance to this as opposed to just terminating 

it altogether so, at least, we come halfway with what you have said 

with the AMT.

Mr. BEACH. Well, if I may just comment on that, if you will permit me, I think the balanced approach has a name, and it is called 

‘‘tax reform.’’ The AMT was put in place as a plug in the tax system, and, at the time, it was an appropriate plug. Many people 

were upset about those 155 people. It was in the Newsweek magazine, as you may know from looking at the clippings of that time 

period. But now it reaches every income level except the bottom 10 

percent of the income distribution, and the more the Congress does 

will well-intended, social policies, the more difficult it becomes. 

So I am very happy to hear you say that you are interested in 

that, and I would be delighted to sit down with you at any time.

Ms. MILLENDER-MCDONALD. I would love to do that. 

Mr. Chairman, I appreciate your allowing me to go first and to 

raise the questions. And I would like to perhaps look at a study, 

request a study to be done, on this to ensure that we are, at least, 

getting information that is recent to look at the stepped-up basis, 

along with the estate tax repealed permanently, because we do 

want to do the right thing for small businesses,—you are the engine that drives the country—but we also want to make sure that 

that deficit does not continue to grow so exponentially that we are 

just off the chart and trying to, at least, take care of the people’s 

business. So I thank you so much.

Mr. BRADLEY. Thank you very much, Congresswoman MillenderMcDonald, and perhaps our respective staffs can talk about that information issue. 

19

I would like to get back to one of the points that my colleague 

raised and Mr. Pitrone answered in terms of the ability of the repeal of the estate tax to make it easier for small businesses to survive and not have the financial impact that a static look at where 

revenue loss would be, and that was estimated to be nearly $300 

billion would be, and if you had some further information or perhaps, Heritage,—I see nodding—that you might have some further 

information that would diminish that tax loss by virtue of the tax 

repeal. And we know that, for instance, as the capital gains tax has 

been less, that it actually increased revenues because people were 

not holding onto investments that would have been more productive elsewhere, and perhaps this is a similar situation, so if you 

would like to comment on that.

Mr. BEACH. If I could be permitted to do so, there is a body of 

economic literature—it exists in the academic literature and the 

public policy literature—that, I think, correctly analyzes the estate 

tax from a tax standpoint. It is a tax on capital. It increases the 

cost of capital. It increases the cost of capital to all borrowers of 

that capital, and, as a consequence, when you reduce the tax wedge 

or the tax on the capital that reduces the price of capital, when you 

reduce the price of capital, you make it more available for investment. 

And so we do see, in the modeling on this, an increase in economic activity, an increase in employment in the neighborhood of 

about 250,000 jobs per year, an increase in national output, and 

also, as a consequence of all of that sort of thing, an increase in 

the revenue reflows back to the federal government. Just as an exercise, if you had about a $25 billion static reduction in the estate 

tax revenue in one year, in the first year, and all of the economics 

that I have just described to you come true, about a third of that 

would come back to you in additional revenues in that second year, 

and that grows over the course of time. 

The estate tax repeal never totally pays for itself, but it is not 

the complete static losses that have been described here today. In 

fact, if we can address the basis issues that Paula has, quite correctly, raised, and we can get to a situation where we have, one, 

repeal; and, two, we are taxing the voluntary transfer of assets outside the family business or a family situation, either under cap 

gains or income taxes, then the work that others have done on this 

indicates that the reflows are substantial because now what you 

are doing is you are augmenting the natural reflows coming from 

repeal of the estate tax with additional cap gains revenues and income tax revenues. 

I have not seen a simulation yet, over a 10-year period, in which 

all of the revenues come back, but they are getting very close to 

coming back. So if we can reduce the question to how do we do the 

basis, I think there are many different answers to that. Again, it 

is voluntary. We do not hear a basis question, carry-over, or stepup until there is a voluntary transfer outside of this family business. We could exempt very old property or have a fair-marketvalue test for very old property. 

Back in the seventies, we had some real questions about basis 

because we were dealing with a lot of property that predated any 

20

tax law at all, back in the 1910’s and into the 1890’s. Now, most 

property in use has come into use or has transferred into somebody’s hands since modern taxation policies have been put in place 

at this date in federal level, so record keeping is much better than 

it was, even 30 years ago. 

And I think there is a good discussion which can be had either 

in the House, probably in the Senate, and, hopefully, and compromise on this whole basis question. We should not let that stand 

in the way of what is the right move here, and that is a complete 

and permanent repeal of estate taxes.

Mr. BRADLEY. Thank you very much. 

I would like to ask one quick question about the alternative minimum tax. I have been a co-sponsor of Mr. English’s bill to permanently repeal AMT, but, as you know, given the budget circumstances that we have, it is just very unlikely that that is going 

to happen. 

Yesterday, I introduced legislation that will extend will extend 

the expiring provisions that up the income limits, and it makes indexing for inflation permanent. Is this, in your view, ladies and 

gentlemen, a reasonable solution, at least for this year, as we try 

to address, I think, what you spoke about in terms of tax reform?

Mr. BEACH. Well, if I could just start very quickly, yes, that is 

the necessary step that Congress must take. The exemption levels 

need to be extended so that the President’s Advisory Panel on Tax 

Reform, the president himself, his staff, and the relevant members 

of the Committees here, tax-writing Committees in the Congress, 

can do the work of changing the entire tax system to something 

that is simpler, fairer, and more pro-growth. 

You would complicate the matters extremely by letting key provisions, AMT being one, to expire and thus to produce a different 

baseline from which all of the tax reform measures would be taken. 

So I strongly recommend that as a good move, and I can hear members on both sides saying, yes, that is something that they could 

support.

Mr. BRADLEY. Anyone else on that?

Ms. CALIMAFDE. I think it is a great first step because, you know, 

AMT, when you really look at it, it is a second-alternative system 

sitting on top of the regular system, and what it does in the small 

business arena is the owners are not able to take advantage of deductions, so it is a really unfair tax.

Mr. BRADLEY. And when one looks at the AMT, and this is my 

last question on AMT, the cost of compliance is just something that 

seems excessive. Have there been any studies that have been done 

that you are aware of that would indicate what the cost of alternative compliance is?

Mr. BEACH. Remember, Mr. Chairman, that the alternative minimum tax exists at the individual level and at the corporate level; 

there is a corporate AMT. Most of the tax analysts—Leonard E. 

21

Burman is the most, I guess you might say, accomplished of those 

here in town—have argued that the compliance of the AMT is almost as great as the compliance cost with the estate tax because 

of the record keeping required, the accountants and lawyers required to advise, the kinds of penalties associated with miscalculation, late-filing fees, on and on and on. 

So I would guess, conservatively speaking, that it is probably 

close to 30 cents on the dollar. We have generally kind of settled 

on 31 cents on the dollar as the compliance cost for all federal estate taxes, and that is gift, generation skipping, and the estate tax. 

If AMT is close, I would say 25 to 30 cents is not a bad estimate.

Mr. BRADLEY. Mr. Beach, if you could leave us with that study, 

or get it to us, that you talked about in your first question, that 

would be great.

Mr. BEACH. It is a footnote in my testimony, sir.

Mr. BRADLEY. Okay. Thank you. 

Lastly, and we are in the middle of the vote on the bankruptcy 

bill, and I do not want to miss that vote, and I know it was not 

so much the subject of today’s hearings, but perhaps you would like 

to touch on some of the provisions in the 2001 and, in particular, 

the 2003 tax cuts and their impact on small businesses. Were they 

positive? Were they negative? What is your view on some of those 

expensing provisions, the drop in the income tax rates, and how 

they impact small business?

Mr. BEACH. Let me just reference a couple of things. We have 

written on this on several occasions, the Heritage Foundation has. 

Starting with 2001, the best thing in that legislation was the reduction in the rates, sir, and those rate reductions have accounted 

for a significant proportion of the growth since 2001 in the economy. The combination of the rate reduction in 2001 with the very 

pro-growth elements of the 2003 bill, i.e., dividend rate reduction, 

the way you handle cap gains, but particularly the accelerated depreciation provisions; the provisions that stimulated investment, by 

themselves, account for three-fourths of the employment gain since 

that time, probably as much as half of the overall output gain. 

We had a very severe contraction in our stock markets, we had 

a major contraction in world trade flows and capital flows following 

September 11th, and we had what is almost an unprecedented blow 

to the confidence that investors have in corporate America—all 

three of those things combined together, as the president has said 

many, many times, and yet we had one of the shallowest recessions 

in U.S. history. And now we have had nearly 3 million jobs growth 

since the 2003 act. I think that those are the provisions that affect 

everybody, but they really help small businesses.

Mr. BRADLEY. I am very sorry. I have one more question, and 

perhaps each of you would like to touch on this. There has been 

an awful lot of discussion about a compromise in the Senate on the 

estate tax. What is a realistic compromise that achieves the goals 

that, I think, all of you have expressed on the estate tax and how 

22

it impacts small businesses and the economy? What would be a 

reasonable compromise, or perhaps there is not one?

Mr. VUKELIC. A reasonable compromise? I believe the exemption 

rate would have to be more than what they proposed yesterday in 

the Pomeroy Amendment. I believe it had to be at least $10 million, and the rate would be a capital gains rate. That is what we 

would be for.

Ms. CALIMAFDE. I would like to add to that that step-up basis 

should be preserved, and the gift and estate tax system should be 

reunified, and I particularly think if the rates are going down, 

there is a way that Congress could target that to small business 

interests only, so if somebody went above the exemption level, and 

it is because of a family-held business or a closely held business, 

those interests could be taxed at, say, a 15-percent rate. 

Once again, our view is protecting small business here, so that 

is why I think a compromise is very doable.

Mr. PITRONE. Yes. I would go with the $10 million per individual, $20 million for husband and wife.

Mr. BRADLEY. At a cap gains rate?

Mr. PITRONE. At a cap gains rate.

Ms. ROSS. Considering the personal experience that my family 

and I have had, we are in the mindset of a permanent repeal of 

the death tax due to what we are still having to pay and how that 

compromises us extending and expanding our operations as well as 

creating jobs.

Mr. BRADLEY. I would agree with you. Unfortunately, in order to 

get something through, there may have to be a compromise.

Mr. ZITTEL. I am sure there probably will have to be a compromise, but agriculture’s view has been repeal of the death tax, 

and I think that is where we would stand, but certainly when we 

are talking the $10 million per person, it would go a long ways in 

meeting the needs of agriculture.

Mr. BEACH. I honestly do not think you need to compromise, but 

if you do, then make it a temporary measure. We are in favor of 

a unified capital tax—put everything at the same rate, under the 

same definition of taxing capital, throw everything into the pie—

because we think, once we are there, we can then talk about double 

taxation much more reasonably, and we can move for fundamental 

tax reform. 

The estate tax is likely on its last legs because the American people do not view it as an economic or fiscal issue; they view it as 

a moral issue, and they think it is the wrong thing to do, to talk 

to the tax collector at death. So if there is a compromise, it must 

necessarily be a temporary one because I do not think that the voters are going to say, ‘‘Ah, you fixed it at last.’’

23

Mr. BRADLEY. I would like to thank all of you who have come 

this afternoon. It has been very informative. We appreciate it very 

much, and please stay in touch with us on these critical issues. 

[Whereupon, at 3:17 p.m., the Subcommittee was adjourned.]

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