Mr. ULLMAN. You have an unlimited marital deduction, so that you can pass everything through without any tax to the surviving spouse, so the estate tax then only impacts when that spouse dies. Mr. MARRIOTT. The second death?

Mr. ULLMAN. There is no marital deduction at all. Then you have to go to the estate tax itself. That is why our formula, we think, is the only way you can get the kind and degree of relief that you need to perpetuate small business America.

Mr. MARRIOTT. I thank the chairman.

Mr. Nowak. Thank you, Mr. Marriott.
Mr. Dorgan?

Mr. DORGAN. Mr. Chairman, thank you.

Mr. Ullman, let me commend you for all the work you have done on the tax issues over the years. Welcome to the committee. Mr. ULLMAN. Thank you.

Mr. DORGAN. I would like to just follow up for a brief minute on the issue of concentration which is an issue that I think is critically important to our future.

The chamber of commerce of this country, the national chamber, does pirouettes all over America talking about business as some magic monolithic term when in fact the business community is not made up of just one stratum.

You often have big business and small business engaged in fierce competition, one with another, with small business not winning. I think that those organizations that talk that way do a disservice really to the term "business" and the different representations-different levels of businesses-need to have different representation in the development of public policy.

I am interested in the newspaper business particularly. My home area has a newspaper that was there when General Čuster went West to meet Sitting Bull. They made a lot of money in the last 90 years printing the newspaper there and finally sold to a company that owns 14 or 15 newspapers, I believe.

What is promoting concentration in the newspaper industry? Is it really the estate tax?

Mr. NATT. That is part of it.

Mr. DORGAN. How big a part is it?

Mr. NATT. You have to go back to former owners and kind of scratch them.

In my State I can think of two recent sales in which estate taxes were a part of the reason for the sale. Now, whether they are the driving force or not, I would have to get the former owners on the phone or in person and ask them-ask them what motivated them. I think it certainly is-it was in Salem, Oreg., where Gannett picked up two family newspapers.

That was Chairman Ullman's former district. That was because of estate tax problems.

The Oregonian, 25 years ago, was sold in Portland because the ownership had filtered into a series of trusts that nobody had any interest in running the thing. A fellow came along and offered them a big price, Mr. Newhouse.

So that the pattern all over the country is similar. They go tothese large corporations come in with a great big wad of stock or great big wad of money or a little of both and dangle it in front of

a widow who is looking at her lawyers telling her, gee, I don't know how we will come up with all this money, and bingo, there it

is.

So it passes out of family ownership.

Mr. DORGAN. I think we need to modify the estate tax. If that deals with concentration in a positive way, moving back from concentration, it will serve the country well.

Your statement was right on point, I think. If we are going to get cracking in this international market again and compete with the Japanese and Germans, the way we can, we will do it through the methods of the smart Yankee traders of the past, the innovative small business people who understand what investment is and what competition is.

I think all too often some of the larger enterprises have fallen asleep at the switch and forgotten what the word competition means. I appreciate your comment in that regard. I might make one other comment.

I think that although estate taxes do play a role in concentration, I think the income tax code in this country actually buys and pays for the concentration we see happening. I think the new tax bill, with its business tax cuts, will probably be the largest expenditure in that regard that we have seen in the last 8 or 10 decades in this country.

It will provide the largest transfer of funds from the smaller business community to the largest corporations in the country that we have ever seen through the vehicle of 10-5-3 and several other devices.

I really hope in the next few weeks we talk about the substance of the business tax cuts and start worrying about what share of the business tax cuts will small business get and why.

If we do that in a meaningful way, we will see how small business is being shortchanged dramatically. If the business tax cut is passed the way it has been proposed, we will see the kind of increasing concentration in industry that we have been talking about.

I really do appreciate your comments. I think they are right on point.

Mr. NATT. Thank you very much, sir.

Mr. NOWAK. Thank you very much.

Mr. Weber from Minnesota?

Mr. VIN WEBER. Thank you, Mr. Chairman. I guess I would like to follow up a little bit on Mr. Marriott's questioning.

My feelings run very much along his lines, that I see very little redeeming value in the estate tax.

I frankly think we would all be better off and wouldn't notice it if it were repealed. I would like to go back to his question to you, Mr. Ullman, when he asked you about repealing it.

I understood part of your answer was that the politics of it makes it very, very difficult. You also said you didn't think it would be a good idea.

I would like to probe a little bit further. Quite aside from the political impossibility maybe of repealing the estate tax, what is the good you see that is served by the estate tax?

Mr. ULLMAN. Well, first, I have to premise my statement by saying that I see no redeeming value in estate taxes at their present levels. I think if you had the choice of present level estate taxes and elimination, I think I probably would support elimination.

But I do see that this country does have a stake in preventing accumulations of wealth perpetrated through the generations without any public control.

My judgment in evaluating America, where we ought to be and where we ought to go, is that we do need to continue to be concerned about that, but that we ought to reduce the estate taxes so that it applies to the very small percentage of vested wealth in this country and not be a burden on the small businessmen of this country.

Mr. VIN WEBER. I understand that. Without either agreeing or disagreeing with the idea that we should be doing something to prevent that concentration of wealth, do you think the estate tax is serving that function today? Is it preventing to any degree at all concentration of wealth?

Mr. ULLMAN. Well, of course, it is, but it is certainly an overdose and one acting in reverse. When it forces small businesses to consolidate in estate tax situations, you are forcing concentration.

I think ultimately that can be justified. I think at this point in looking at where America is now and looking at the political atmosphere, the most realistic thing to do and the only thing I think you can do being realistic is to move along the pattern that we have recommended and greatly reduce the tax. But you give a very special consideration to small business America where the biggest problem is.

Mr. VIN WEBER. I appreciate that.

I wouldn't want any disagreement we may have on the question of repeal to detract from the merits of your bill, or your proposal. I would like to clarify or have you restate one of the conclusions I draw from your testimony, which I don't think many members are fully aware of, at least many that haven't looked closely at this issue.

When we talk about preventing concentration of wealth being the sole purpose of the estate tax, there is a certain point at which that may be effective in a certain business, and below that point obviously it is counterproductive toward that end, when the business is too small for the heirs to meet the estate payments.

The point I try to make, and I think your testimony points out, is the breakeven point in terms of the social cost of the estate tax is not the same for all businesses, and I think that is the point that you are trying to make when you talk about a $15 million exemption for certain classes of businesses.

Isn't it true that even if we go up to the level of exclusion of $1 million or so, there are still going to be many, many instances of family held businesses that are going to be penalized when their estate taxes come due and we are still going to continue to promote a concentration of wealth in certain types of businesses?

Mr. ULLMAN. Absolutely. That is absolutely right, but we think the 50-percent formula goes a long way to correct that. We have a cap of $50 million. So we say any closely held business with a

valuation of $50 million or less is eligible for the 50-percent formula.

An awful lot of small business in America is in that category. We found among the small lumber people that virtually everyone was. It just was not possible to be in the lumber business unless you did have an invested capital of $20 or $30 million.

Mr. VIN WEBER. I would like to talk a little bit about the revenue impact of the estate tax and that will be the last point that I question you on.

Since nobody seems to understand taxes very well and we have an oportunity to question someone like yourself this morning, I would not want to pass it up.

The chairman, in his opening remarks, pointed out the estate tax will raise $6.9 billion this year. It costs a certain amount of money to collect any tax. Do you have any recollection or guesstimate of the cost to the Federal Government of collecting estate tax?

Mr. ULLMAN. No; I don't have. It is my impression, working with it through the years, that many estate tax situations are involved in unending litigation and there is a heavy cost involved.

Mr. VIN WEBER. It is a very costly tax for the Government to collect to begin with?

Mr. ULLMAN. Let me add one other point that people sometimes fail to take into account.

I think the estimators had failed to adequately take it into consideration in estimating the cost of producing rates.

In the situations that I know about, most estates that are in the 50-percent and above bracket don't pay those high rate taxes to the Federal Government. They manage their estates in a way that through gifts to private foundations and to charities, they reduce the amount of their estate, so that they do not pay those maximum brackets.

I think there is very little paid above 50 percent.

Mr. VIN WEBER. If I can interrupt you at that point, that goes to an additional question I have in terms of the revenue impact. In the course of doing those things that people do to avoid the estate taxes, setting up trusts, foundations, things like that for the express purpose of successfully avoiding the estate tax, do they not also, along the line, avoid other taxes like the income tax?

Mr. ULLMAN. Certainly, but so what is new about that? Again, that is why we ought to be reducing both. I have had bills in for several years to reduce the maximum investment tax to 50 percent because anyone in a 50-percent-or-above situation, whether it is estate taxes or income taxes, is going to do something to avoid paying that tax.

Mr. VIN WEBER. The point I make is, if you take $6.9 billion this year, you subtract the cost of collecting that to the Government, which you say is very high, and then you try to assess some type of cost in terms of lost revenues from other taxes that are avoided in the course of people avoiding estate taxes, you really come up with a small figure in terms of money that actually nets to the Government from this tax.

Mr. ULLMAN. Well, I have some problems with the estimating that is being done on lost revenue in this area, but we did collect

$6.9 billion last year. They estimate with inflation that will probably bring that to $8 billion this year.

Our bill would probably cost in excess of $5 billion. It probably would cut revenue more than in half, but I don't think you ought to look at estate taxes from the point of view of revenue.

I think that the revenue that would be generated in stimulating the small business sector and preventing the kind of regressive things that take place ought to be taken into consideration.

I think if you did take it into consideration, I think that the revenue loss would be much less than people are talking about. Mr. VIN WEBER. I agree with that.

I thank you for your testimony.

Mr. NOWAK. Thank you very much, Mr. Weber.

Mr. Roemer from Louisiana.

Mr. ROEMER. Thank you, Mr. Chairman.

I want to compliment the gentleman for this statement. I apologize for being late. I was giving testimony at another committee this morning.

As a result, I do not have a long list of questions, but I would like to follow up on what my colleague from Minnesota asked that I thought was apropos to any discussion of estate taxes.

That is, why have them at all, given the paltry sums of money generated to the Federal Government, given the complications, given the skewed decisions that they often force businessmen and families to make, and the answer given by Mr. Ullman was a social answer in the sense that he said, and I quote as best I can, “To prevent the accumulation of wealth through the generations." Is that a fair statement of what you said?

Mr. ULLMAN. Yes; I think so.

Mr. ROEMER. Let me pursue that for a second, just for my own personal information.

The issue of estate taxes is a problem that I have long looked at and I realize that your answer is one of the most forceful arguments for an estate tax situation.

What is the triggering mechanism here for us to say that socially family businesses ought to end, stop, be hindered or be taxed severely on the basis of their length of life? Isn't that basically socially counterproductive?

Could you expand on your answer?

Mr. ULLMAN. I think you are talking about two different things. Mr. ROEMER. All right.

Mr. ULLMAN. When I talk about vested wealth, I am not talking about businesses.

I am talking about a landed gentry. You have seen landed gentries develop in some countries in Europe. I think that that is all we ought to be concerned about in this country. When you think about a landed gentry, you also think about vast stock accumulation as well as real estate, but I can find almost no argument for an estate tax insofar as it applies to a closely held business.

I could actually support an elimination of estate taxes altogether insofar as closely held family business is concerned.

Mr. ROEMER. Very good. On the landed gentry side of things, you are not persuaded by the fact that that is an accumulation of after