Larry Drummond

101 Walston Bridge Road North
Jasper, AL 35504

U.S. Senate
Committee on Finance
Washington, DC 20510

Federal Estate Tax: Uncertainty in Planning Under the Current Law

November 14, 2007

Chairman Baucus, Ranking Member Grassley and members of the Committee:  I am pleased to present testimony on the death tax and how it has affected – and short of repeal, will continue to affect – my business.

Drummond and Company, a coal mining operation based in Alabama, is a great example of the American virtue of hard work and delayed gratification.  My father started the company in 1935 with nothing but the land he inherited and his own hard work.  He had been a foreman in another mine until he realized that he might be able to run his own mine as well, if not better, than his employer.  Because he lacked access to capital, he was forced to incur major debt and leverage the majority of the business.  He took this risk because he believed that our small town of Sipsey could support a major coal mining operation. Seventy years later, I can tell you that he was right.

Today, Drummond and Company employs over 3,600 workers directly, plus other 1,500 contractors, and grosses nearly $2 billion annually.  We have expanded our efforts internationally to Colombia, where we are one of the two largest miners of Colombian coal.  We arrived here because a depression-era mining foreman had the courage to take a risk and put his entire effort behind it.  In my father’s tradition, we continue to work hard, and reinvest 100% of our assets in the business.  We also take great pride in our community, and are dedicated to making it stronger.  Our corporation alone has donated over $1 million to charity every year.

Our company is a great example of the very achievement promised by the American dream to those who work hard.  My father believed that he had the right to maintain, use, and bequeath the fruits of his labor to another generation.  However, as he came to learn later in life, and I know only too well, the American dream does not apply to the death tax.  Not long after my father’s death in 1956, my family and I were greeted by an IRS agent who drove up to our house in an expensive sports car – the kind of possession that my father would have considered an unnecessary extravagance.  I find no humor in the irony that the very tax which punishes hard-work and frugality, was administered by someone who obviously enjoys the material benefits of wealth. 

Paying the death tax has placed the business in considerable financial duress in the years following my father’s death.  We were forced to reallocate useful assets in order to make cash available for our yearly payments.  This is due to the fact that coal mining is a very capital intensive business.  All cash must be reinvested in purchasing the best equipment, exploring new sources, and employing workers to extract the material.  Retaining cash in order to pay for the death tax prevents reasonable expansion and investment and results in fewer new jobs created.

I would like to point out that the harm of this tax does not only fall on the owners of a business such as Drummond and Company, but the employees and their families as well.  If we are forced to sell our business at the next generation’s death, it is very likely that it will go to a large corporation who would sell off much of the assets and consolidate the operation.  Many of our employees who have been with the company for years would be out work.  These men and women have families who depend on their jobs.  They do not have the kind of wealth that would make them a liability for the death tax.  However, by contributing their effort to our business, they have unwittingly made themselves incidental potential victims.   

In conclusion, please understand that business owners such as my father and I are asking for no special consideration.  All we want is the freedom from a confiscatory tax that unfairly falls on our livelihood and punishes us for our hard-work.  We have no objection to contributing our share to the federal government.  We do have a problem with a tax which confiscates over half our earnings at death if we saved and invested it, rather than spent it on material consumption. 

The members of the Senate Finance Committee have a special opportunity to make a difference for hard-working business owners such as myself and the over 5,000 employees on our payroll, by permanently repealing the onerous death tax.  I encourage the committee to support legislation to this effect immediately.

Respectfully submitted:

Larry Drummond