Larry Reece

Opinion: Ending estate tax will create and save jobs

By Larry Reece

Special to the Mercury News

September 23, 2009

Like many other small-business owners, my first office was the kitchen table.

When we started the family business in 1979, we had a modest goal: to earn enough money to pay the bills and put our kids through college. Little did we know that RFI Enterprises, a security systems company, would grow to employ nearly 250 people at four locations in California, Nevada and Washington.

While it may sound like a cliché, our company, like many of California's family-owned companies, could become a victim of its own success.

Its future, as well as the job security of our employees, will depend in large part on the decisions Congress makes this fall on estate taxes.

Currently, business owners face an estate tax rate of 45 percent, with the first $3.5 million exempt. This is likely to change when Congress revisits the tax in an effort to prevent the rate from going to zero next year and jumping to 55 percent in 2011, which would happen under current law.

The White House wants to maintain the estate tax at the already ridiculously high rate of 45 percent; others want to increase the rate to 55 percent and lower the exemption.

What Congress should do is repeal the tax. Otherwise, small businesses will continue to be ripe for the plucking in the eyes of federal tax authorities.

When my wife and I die, for example, our personal and business assets will be combined, creating a huge tax bill that our daughter will be forced to pay.

If the bill is large enough, she might have to sell the company.

I've seen it happen time and again to other family businesses. One by one they are sold to large corporations, often to pay estate taxes.

While the large corporations absorb their assets, they don't always absorb the employees. Many lose their jobs.

In a study for the American Family Business Foundation, to which I belong, former Congressional Budget Office Director Douglas Holtz-Eakin estimated that 1.5 million U.S. jobs could be created or saved simply by eliminating the estate tax.

More than a tenth of these jobs, nearly 180,000, would be in California, calculates the San Francisco-based Pacific Research Institute.

Meanwhile, back at the kitchen table, we are sorting through estate-planning options and trying to save our company for our family of loyal employees.

We're spending hundreds of thousands of dollars on tax planning — money that would be better spent growing the company and adding jobs.

Sen. Dianne Feinstein, who is not up for re-election next year, is in a unique position to provide leadership on this issue.

She has supported estate tax repeal in the past — and that's what's right for California's more than 700,000 small businesses, which account for an estimated 52 percent of the entire private-sector work force, according to the Small Business Administration.

For the sake of my family, our employees, and the millions of others throughout our state, I encourage Feinstein to stand up for us. I hope that Sen. Barbara Boxer and other members of the California congressional delegation will join her.

LARRY REECE is the owner of RFI Enterprises, a security company based in San Jose. He wrote this article for the Mercury News.