Retired Chairman, President and CEO
American Pacific Corporation
2300 W. Sahara Avenue, Ste. 1130
Las Vegas, NV 89102-4352
Statement for the Record
U.S. Senate Finance Committee
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Grassley, and Members of the Committee: I am honored to present testimony on why the Federal Estate Tax should be repealed.
The death tax, as the estate tax is more properly known, is the scourge of family-owned businesses in America. I know this all too well, having dealt with my father’s death tax liability. Today American Pacific Corporation is thriving. Thirty-five years ago, the company was on the brink of being sold and consolidated into a larger corporation.
My father started Pacific Engineering & Production Co., predecessor to American Pacific Corp., in 1955 to produce material for rockets and missiles for the military. Over the course of the last 50 years, the company has grown and expanded to handling such diverse chemical applications as the commercial aerospace industry, anti-viral pharmaceuticals, and water treatment, just to name a few. Between our various operations, we employ more than 500 people, most of whom take advantage of our generous medical and retirement benefits.
Bringing our company to such a level of success was no easy task. My father was a driven and disciplined man, who understood the need to constantly reinvest in the company and take advantage of all sources of capital, including significant credit. This strategy kept us on the cutting edge, and allowed us to quickly build a reputation for high-quality chemical manufacturing. It also left us with very few options when it came time to pay my father’s death tax liability.
The initial IRS assessment of our company would have invariably led to its sale. In response, we were forced to hire an attorney and challenge the assessment. Most business owners are not prepared for this ordeal. After months of negotiations and substantial legal fees, we were able to reach a settlement which, while still confiscatory, we could likely pay. I know there are many other businesses who did not have the resources to challenge the IRS’s assessment of their business, and who were forced to scale back their business or completely sell it in order to pay. My good fortune is the exception that proves the rule – the death tax is a dangerous burden for family-owned businesses.
In the aftermath of my father’s death, we made the decision to take the company public.
This would prevent the death tax from threatening the business in the future. While my family and I initially retained majority stake, today we own a minority of the total shares. On the one hand, I see this development as simply the lesser of two evils. On the other, it bothers me that my company is forced to sacrifice family ownership simply to preserve its longevity. My children will never have the type of creative ownership that my father and I had with the company.
I believe that the purpose of tax policy is to raise government revenue in the least damaging way possible. Tax policy should most certainly not lead to the erosion of family-owned businesses, discourage the capital accumulation that leads to new jobs and higher levels of prosperity, or cause misallocation of precious business resources. However, this is just what the death tax does to businesses throughout America.
For these reasons, I encourage the Senate Finance Committee to support legislation to permanently repeal the death tax.
