Thought I would share with you a letter I recently sent to a newly elected member of the United States Congress. As you peruse, consider giving similar encouragement to your Congressman.
Honorable Daniel Webster
United States Congress
Dear Congressman Webster:
Congratulations on your recent election to the United States Congress. I was pleased to be able to support your campaign. I commend you for taking the high road in light of the despicable nuances and accusations made by your opponent. Your opposition to government-run health care and support of smaller government were heartily affirmed by your defeat of a tax-and-spend incumbent.
In your campaign you expressed support for the creation of jobs through support of small business. As you may or may not be aware, I am a succession planner serving small business owners who are Seeking Succession of their business to the next generation. Those small business owners who you contend create the vast majority of the new jobs are my clients. As you begin your effort to fulfill your campaign promises regarding health care, spending and new jobs, please let me to offer encouragement by sharing a recent experience with a client that illustrates how taxes impact small business.
My 87-year-old client of 14 years, who we will refer to as Mr. John, owned an automobile dealership in a small, semi-urban, southern town. My company, The Rawls Group, a collaborative business succession planning firm, assisted Mr. John and his bride with the incremental transfer of his dealership to their son, John Jr., age 45. After sixty years as a dealer, Mr. John was financially comfortable, but by no means wealthy. In the twilight of his career he was beginning to feel good about the prospect that his son would survive the disheartening 2008 collapse of the credit markets. He was pleased that with the support of a dedicated management team, his son had proven his mettle by weathering the storm while cutting less than ten of one hundred jobs. In marginal health, Mr. John’s current focus was providing for his two daughters who had never been actively involved in the dealership. He was obsessed with making sure that his remaining assets found their way to his daughters. He had made a conservative assumption that he was going to live beyond 2010 and that estate taxes were going to revert to the 2001 position of 55%. He concluded, that the only way for his daughters to have the certainty of an equitable portion of the estate, he and his wife had devoted two lifetimes to create, was for them to set aside $4,000,000 in cash to pay estate taxes.
While Mr. and Mrs. John were accumulating cash for the anticipated draconian estate taxes, his son was going from bank to bank with his hat in his hand unsuccessfully trying to borrow money to build a satellite used car facility. Although Mr. John, his accountant and I were in total agreement that John Jr. had a great idea, we could offer nothing but empty consolation as the banks who caused the financial crisis stated they were not prepared to take any risk associated with funding a new business. Their shallow, naïve humor, offered “If the old man won’t put up his money, why should we?”
As I am sure you can appreciate, this was a frustrating situation: a father staring at $4,000,000 in cash earning less than one percent, while telling his son he couldn’t improve the investment return on the cash by providing him the mortgage to build a facility that would have a favorable impact upon his business and the community. But here’s where you come in and the story get’s exciting. After your election, along with a small army of likeminded, small-government conservatives, President Obama got the message that he should get on the reform train or be prepared to be run over. He wisely chose not to play political roulette with President Bush’s tax cuts and endeavored to send a message that he is small-business friendly by going along with a reduction of the estate tax to 35% and increasing the Unified Credit to $5,000,000. Having a very accurate understanding of the value of their estate, immediately upon adoption of this legislation, I was able to advise Mr. and Mrs. John that their prospective estate taxes had been reduced by at least $1,500,000.
As a fellow small-business, air-conditioning contractor, I am sure you have an idea of what subsequently happened. Yes, Mr. John told the pompous banks to get lost and with a big grin withdrew $1,500,000 that they were using to fatten their balance sheets while turning their backs on small business owners screaming for loans. Most importantly, Mr. John agreed to invest this librated tax capital that would have otherwise been vaporized in Washington by another job stimulus scheme. He hired architects, engineers and a general contractor to build the used car building that he would rent to John Jr.
Of course, the downstream members of the small business community of employed technicians and constructions workers will pay tax from the salaries and profits generated by this much-appreciated work. The invested capital will also create a new facility that will generate property taxes to support schools and infrastructure. The used-car operation will employ approximately 15 new managers, salesmen and technicians generating more demand for community goods and services, all of which will generate more income taxes.
This is a good story illustrating that capitalism is not a bad word. I hope you will tell all your congressional colleagues about this experience. More importantly, share with them that there is no need for them to risk embarrassing themselves by fantasizing that government can create new, lasting, productive jobs. Also, if you get the opportunity, pass on to President Obama that tax cuts for millionaires do not go into banks earning less than 1%. Investments made by capitalists are the catalysts for creating new jobs. To play on the words of one of their democratic icons: “It’s small business stupid!” To look like geniuses, all you and your colleagues need to do is give us small business owners an opportunity to work dark-thirty to dark-thirty to convert capital into jobs. Thank you for your sacrifice to serve our country. Best regards,
Loyd H. Rawls