Statement for the Record
John B. Byrd III
President
AMT – The Association For Manufacturing Technology
November 14, 2007
Senate Committee on Finance
Hearing: “Federal Estate Tax: Uncertainty in Planning Under the Current Law”

AMT – The Association For Manufacturing Technology represents more than 400 manufacturing technology companies throughout the United States – including nearly the entire universe of machine tool builders who operate in America. As AMT’s president, I appreciate the opportunity to comment for the official hearing record on what the federal estate tax means to these businesses.

In two words, it means potential disaster.

Nearly all of our association members are small to mid-sized companies, and many are closely held and family owned. About three quarters of them, some 78 percent, have less than 50 employees. They are the modern descendants of one of America’s earliest and most venerable trades – machine tools – whose predecessors have gone from the founding of our great nation through the Industrial Revolution to the age of modern technology.

But there is a difference between then and now: While America’s first machine tool makers overcame English tax tyranny and thrived under the new Republic, our modern counterparts are struggling under complex and punitive American tax law amid an increasingly global marketplace.

And, for our family-owned machine tool companies, no American tax is more punitive in the long run than the federal estate tax.

There is no need for me to reiterate at length all the arguments that have been made before this committee or others concerning the effects of the federal estate tax on small, family-owned American businesses. Individuals and organizations have pled that case for many years before the Congress.

But I would like to highlight some of my Association members’ greatest concerns and thinking.

First and foremost, it is worth pointing out that the original intent of the tax was to prevent financial “dynasties” – the accumulation of wealth among relatively few families in America. And perhaps the tax made sense when it was first conceived. But today’s reality is that the U.S. Tax Code has evolved into a complex, special-interest-laden set of laws that has provided the super-rich – at whom the estate tax originally was aimed – with numerous ways to avoid the estate tax altogether. Those “taxpayers” have the advantage of huge resources with which to hire attorneys and accountants to figure out how to structure and restructure their wealth to minimize and, in some cases, avoid taxes. They can reconfigure themselves, they can go offshore, they can purchase substantial life insurance policies to absorb the death tax liability, they can form tax-exempt “foundations” and put their children and families in charge of those “foundations” – thereby ensuring the continuation of their modern-day dynasties without the burden of the estate tax at all.

Most family-owned American companies, however, are not that wealthy – or lucky. They do not have those endless resources to help their heirs avoid a federal tax that can literally wipe out half the assets of their hard-worn labor and investment. And many of them certainly cannot afford significant life insurance premiums if they are trying to invest whatever resources they have into their businesses to build them up, keep them viable and competitive, and provide jobs.

Over the years, the Congress has tweaked the estate tax law to provide some shelter against the effects of this tax on family-owned businesses. But those tweaks, like nearly all other tax laws, are replete with rules and regulations that make them difficult-to-impossible to use. As a result, the federal estate tax represents, for many of these family businesses, a death knell if it is kept on the books and set by the Congress with a high tax rate and a low exemption.

I have no illusion that repealing the federal estate tax is politically possible now. Those who support it – or, at least, support the revenue it produces -- have turned it into a rhetorical war of rich versus poor. But I would make the plea, on behalf of all the small, family businesses that my Association represents, that the Congress at least lock into an estate tax structure that will not destroy the ability of these American businesses to stay in business.

The 2001 law that reduced the tax rate and increased the exemption has provided some relief to the families of these businesses. Its scheduled repeal in 2010 is an even greater welcome. But as you know, that repeal will die at the end of 2010 and, with the new year, the federal estate tax will spring back to life in 2011 with all its pre-2001 destructive force.

On behalf of all of AMT’s family-owned companies that represent the modern version of a very treasured American industry, I ask that you do not allow the federal estate tax to become the instrument that destroys them.

These companies represent an essential industry to America’s manufacturing survival – be that manufacturing in automotive, aerospace, defense, public works or virtually any other sector. But theirs is a cyclical industry, in which price pressures are very strong and profitability relatively low – even in good years. Like others in America, these small and mid-sized companies are fighting to survive in a global marketplace against increasing, subsidized foreign competitors.

They can ill-afford a punishing tax levied by their own government – the successor of our Revolutionary forebearers – to be the reason they cannot survive that challenge.

Thank you for the opportunity to represent them here.