Prior to 1951 there was no particular trend. True, the Kellogg Co. had purchased Miller Cereal Mills in 1943, but the sales were isolated and formed no pattern or trend. However, in 1951, beginning with the purchase of the Eggerss-O'Flyng Co, by Central Fiber Products Co., a gradually increasing number of these sales or mergers occurred. The Campbell Soup Co. acquired C. A. Swanson and Sons for approximately $27 million.

The Sheraton Corp. of America acquired the Eppley Hotels Co. for approximately $30 million in stock.

Eli Lilly & Co. acquired Corn States Laboratories, Inc., and Fruehauf Trailer Co. acquired Independent Metal Products Co.

Procter & Gamble Co. acquired the Duncan Hines Division of Nebraska Consolidated Mills Co.

The American Linen Supply Co. of Chicago acquired three local linen supply companies, and the Pacific Intermountain Express of Oakland, Calif., has asked the ICC for permission to buy Union Freightways of Omaha.

The same thing is occurring in the other communities where we operate.

For example, in June of this year, Outboard Marine Corp. of Milwaukee purchased Cushman Motor Works, Inc., of Lincoln, for something over $35 million.

Nationally, I am, of course, more familiar with the developments in my own industry. As you know, the Federal Government has filed complaints against National Dairy Products Corp., the largest in the industry, the Borden Co., and Beatrice Foods Co., and Foremost Dairies, Inc., charging violation of the Clayton Antitrust Act, and the Federal Trade Commission law which prohibits unfair competition on the basis that they have violated monopoly laws by acquiring some 289 dairy corporations since 1950.

But you cannot blame the owners of local businesses for selling out to the large national concerns. In many cases, as has been pointed out, they had no alternative..

The irony of it is that a Government which prosecutes monopoly and acclaims small independently owned business as the best protection against monopoly and unfair business methods is the very one who, by its tax laws, is forcing the small-business man to give up the struggle.

In my judgment, it is primarily responsible for the tremendous rise in mergers and concentration of business in large national concerns.

I am remaining in business for the present only as a matter of principle, out of a sense of patriotic duty. For what are these estate laws doing? They are drying up initiative within this Nation at its source. True, our tax laws send men to Florida rather than the salt mines, but they are eliminating the use of many millions of years of creative energy on the part of some of our most productive citizens.

The amount of income taxes lost because of estate taxes is impossible to estimate, but it must be tremendous. Gift and estate taxes produce only 1.2 percent of total Federal revenue, and are not repetitive. What do I recommend?

In my judgment, H. R. 7600 represents a step in the right direction. It would permit a small business to accumulate, over a period of years out of earnings before taxes, funds which could then be used to re

deem enough of an owner's stock at the stockholder's death to permit his estate to meet the impact of the Federal estate taxes without forcing his estate to put his stock on the block.

As I have pointed out in my own case, my business cannot do this out of earnings after taxes, but given the opportunity to set aside 10 percent of its net earnings free of corporate income taxes over the next 10 or 15 years, my personal problem would be met.

Perhaps it is too late in my case for I may not have that long a period to look forward to, but it will at least make it possible for those who follow me to avoid the necessity of selling out to a large national concern and the Government would be assured of revenue in my lifetime.

Something must be done and done soon in order to preserve those which still remain, and I submit to you gentlemen that H. R. 7600 would attack one of the principal causes of this tragic trend.

(The following documents were submitted by Mr. Roberts for the record :)

COMMITTEE ON WAYS AND MEANS,

LINCOLN, NEBR., January 22, 1958.

House of Representatives, Washington, D. C.

GENTLEMEN: This letter is supplemental to the remarks of J. Gordon Roberts in support of H. R. 7600, a bill for estate tax relief for small-business men. Attached hereto is a copy of H. R. 7600 and a copy of the remarks of Repre sentative Baker, before the House of Representatives at the time of introduction of the bill. These are attached for more detailed reference. Representative Baker's remarks contain a general explanation of the bill and illustrations of its application in typical situations.

The problem to be solved by H. R. 7600 is a problem which practical experience shows, and we are certain the committee's hearings will disclose, faces practically all owners of small businesses. They find that it is necessary to use most of their assets in their business, and it is practically impossible for them to set up an adequate reserve of liquidable property sufficient to meet the demands of Federal estate taxes which will come at the time of their death. Thus they face the prospect that their executor may be required to liquidate their business in order to meet death expenses, and they are impelled in many, many cases to merge their business with a large national corporation or sell their business to a large national corporation during their lifetimes when they can negotiate the transaction themselves and receive in exchange liquidable property. The owner of a small-business corporation, in order to acquire funds for payment of death taxes, must either sell a portion of his business, which is not practicable, or else accumulate a fund out of earnings after taxes. Earnings of a corporation are subject to the corporation tax, and that portion of the earnings after tax which is not required for working capital of the business can be distributed to the owner in the form of dividends, making them subject to his personal income tax. That which is left over after the corporate tax and the personal income tax is still subject to Federal estate taxes. All that is left to pay estate taxes on his business is the remainder after the payment of corporate income tax, personal income tax, and Federal estate tax on the unit of earnings of the corporation. The practically confiscatory impact of the combination of these three taxes is a dominant factor in many mergers or sales of small businesses to large national corporations. Thus, Government tax policy is forcing the elimination of many small businesses.

H. R. 7600 proposes that the family corporation and the individual taxpayer be allowed to purchase estate tax anticipation certificates and deduct not to exceed 10 percent of their taxable income for amounts used to purchase such certificates. The family corporation is allowed to invest in such certificates and investment is not considered an unreasonable accumulation of earnings. The certificates may be used to redeem stock and the redemption is not considered equivalent to the declaration and payment of a dividend.

The certificates may be redeemed by the executor of the deceased taxpayer at face value in payment of estate taxes up to the amount of $500,000. They

may be redeemed by the executor of the deceased taxpayer other than for payment of estate taxes, or for payment of estate taxes in excess of $500,000, at an amount less than their face value, which amount is determined by the Secretary of the Treasury at the time of sale, and which shall be not less than 90 percent of face value. The certificates may be redeemed other than by the executor of a deceased taxpayer for an amount less than face value, which amount is determined by the Secretary of the Treasury prior to sale, and which shall be not less than 75 percent of the face value. The noninterest bearing feature of the certificates plus their redemption at less than face value is designed to prevent their use for purposes other than anticipation of estate taxes.

The family corporations which are allowed to obtain an income tax deduction for purchase of the certificates are defined as corporations a majority of whose stock is held by not more than 10 persons and which is engaged in an active business, as defined in section 395 (b).

There is an additional provision for payment of estate taxes in installments over a period of not more than 10 years in estates where one-half or more of the value of the gross estate consists of stock or investments in one or more closely held business enterprises. Closely held business enterprises are defined to include business proprietorships, business partnerships having 10 or less partners and business corporations having 10 or less stockholders.

The bill has provisions which result in the taxpayer losing the advantage of the tax deduction if the certificates are redeemed during his lifetime, by treating the redemption as gross income and adding to his tax the amount of any savings in income tax which occurred in the year of purchase of the certificates to the extent that the savings in tax exceeded the additional tax in the year of redemption.

The effect of the bill in its actual operation would be that the taxpayer would be required to pay to the Government as a result of purchase of the certificates more than the amount of the income tax savings. The cost of the certificates, limited by 10 percent of the taxable income, is treated as a deduction from income, which would result in an income tax savings of some amount less than the amount of the deduction. Thus, in effect the Government is receiving the same amount of money as it would otherwise have received in income taxes plus an additional amount which represents advance payment of estate taxes. At the time of the taxpayer's death the Government does not receive money to the extent that the certificates are redeemed in payment of estate tax. Instead the taxpayer is credited with an amount which in effect includes the income tax savings resulting from the purchase in prior years of the certificates, plus the advance payment of estate tax in the years in which the certificate was purchased.

The net effect to the Government would be a reduction in the amount paid at the time of death, but measured by the amount of the income tax savings during life, which would be a reduction in total tax revenue to the Government and the reduction in tax to the taxpayer. This is offset by the fact that part of the estate taxes will be paid in advance.

We submit that the loss of tax revenue to the Government would be very minor compared to the major effect on small-business men in increasing the incentive to retain their businesses.

Yours very truly,

MASON, KNUDSEN, DICKESON & BERKHEIMER, By JOHN MASON.

[H. R. 7600, 85th Cong., 1st sess.]

A BILL To provide a program for survival of small businesses and payment of estate taxes by estate tax anticipation certificates

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SEC. 1. NON-INTEREST BEARING ESTATE TAX ANTICIPATION CERTIFICATES.

(a) TRANSFER OR REDEMPTION OF ESTATE TAX ANTICIPATION CERTIFICATES.— Part II of subchapter B of chapter 1 of the Internal Revenue Code of 1954 (relating to items specifically included in gross income) is amended by adding at the end thereof the following new section:

"SEC. 78. ESTATE TAX ANTICIPATION CERTIFICATES.

"The face value of estate tax anticipation certificates (as defined in section 6317 (a)) transferred, assigned, or surrendered for redemption by a taxpayer shall be included in the gross income of taxpayer, unless :

"(a) The taxpayer is a corporation and the transfer or assignment is in exchange for part or all of the stock of taxpayer; or

"(b) The surrender for redemption is by an executor of the estate of a decedent."

(b) TECHNICAL AMENDMENT.-The table of sections for such Part II is amended by adding at the end thereof the following:

"Sec. 27. Estate tax anticipation certificates."

(c) DEDUCTIONS FOR INDIVIDUALS PURCHASING ESTATE TAX ANTICIPATION CERTIFICATES.-Part VII of subchapter B of chapter 1 of the Internal Revenue Code of 1954 (relating to additional itemized deductions for individuals) is amended by redesignating

"SEC. 217. CROSS REFERENCES"

as

"SEC. 218. CROSS REFERENCES"

and adding the following new section 217:

"SEC. 217. AMOUNTS REPRESENTING PURCHASES OF ESTATE TAX

ANTICIPATION CERTIFICATES.

"In the case of an individual, there shall be allowed as a deduction the amount expended by the individual during the taxable year in the purchase from the Secretary or his delegate of estate tax anticipation certificates, but such deduction shall not exceed 10 percent of the taxable income of such individual for the taxable year (computed without the deduction allowed by this section)."

(d) TECHNICAL AMENDMENT.-The table of sections for such part VII is amended by redesignating

as

"Sec. 217. Cross references."

"Sec. 218. Cross references."

and inserting after section 216 the following:

"Sec. 217. Amounts representing purchases of estate tax anticipation certificates."

(e) DEDUCTIONS FOR FAMILY CORPORATIONS PURCHASING ESTATE TAX ANTICIPA TION CERTIFICATE.-Part VIII of subchapter B of chapter 1 of the Internal Revenue Code of 1954 (relating to special deductions for corporations) is amended by adding at the end thereof the following new section :

“SEC. 249. AMOUNTS REPRESENTING PURCHASES OF ESTATE TAX

ANTICIPATION CERTIFICATES.

(a) DEFINITION OF FAMILY CORPORATION.-A family corporation, for the purpose of this section, is a corporation which meets the requirements of section 355 (b) of the Internal Revenue Code of 1954 as to active business, and more than 50 percent of the voting stock of which is owned by not more than ten individuals or more than 50 percent of the voting stock of which is owned by another corporation which qualifies as a family corporation. For the purposes of this section a trust shall be deemed an individual.

"(b) AMOUNT OF DEDUCTION.-In the case of a family corporation there shall be allowed as a deduction the amount expended by the corporation during the taxable year in the purchase from the Secretary or his delegate of estate tax anticipation certificates, but such deduction shall not exceed 10 percent of the taxable income of such corporation for the taxable year (computed without the deduction allowed by this section)."

(f) TECHNICAL AMENDMENT.-The table of sections for such part VIII is amended by adding at the end thereof the following:

“SEC. 249. AMOUNTS REPRESENTING PURCHASES OF ESTATE TAX

ANTICIPATION CERTIFICATES."

(g) DISTRIBUTION OF ESTATE TAX ANTICIPATION CERTIFICATES IN REDEMPTION OF STOCK. Part I of subchapter C of chapter 1 of the Internal Revenue Code of 1954 (relating to distributions by corporations) is amended by deleting the word "or" after the figure "(3)" in section 302 (a) and inserting the words "or (6)"

after the figure (4). Part I of subchapter C is further amended by adding the following new subsection at the end of section 302 (b):

"(6) ESTATE TAX ANTICIPATION CERTIFICATES ISSUED IN STOCK REDEMPTION.— Subsection (a) shall apply to the extent that estate tax anticipation certificates are transferred or assigned by the corporation to one of its stockholders in redemption of part or all of such stockholder's stock, but only if the stock so redeemed has been owned by the stockholder for a period of at least ten years continuously up to the time of the redemption, and in the event that the stockholder is the executor of a decedent's estate, the period of ownership of said stock by decedent during his lifetime may be added to the period of ownership of said stock by his executor."

(h) SPECIAL DEDUCTION IN DETERMINING ACCUMULATED INCOME.-Part I of subchapter G of chapter 1 of the Internal Revenue Code of 1954 (relating to corporations improperly accumulating surplus) is amended by deleting the words "(except section 248)" in section 535 (b) (3), and inserting in lieu thereof the words "(except sections 248 and 249)."

(i) TRANSFER OR REDEMPTION OF ESTATE TAX ANTICIPATION CERTIFICATES.Part VI of subchapter Q of chapter 1 of the Internal Revenue Code of 1954 (relating to readjustment of tax between years and special limitations) is amended by adding at the end thereof the following new section:

"SEC. 1348. TRANSFER OR REDEMPTION OF ESTATE TAX ANTICIPATION CERTIFICATES.

"In the case of a surrender for redemption of estate tax anticipation certificates by a taxpayer and in the case of a transfer or assignment of estate tax anticipation certificates by a taxpayer if the face value of the estate tax anticipation certificates transferred, assigned, or surrendered for redemption by the taxpayer is includible in the taxpayer's gross income under section 78 of the Internal Revenue Code of 1954, as amended, and if the original purchase thereof had resulted in whole or in part in a deduction from the gross income of the original purchaser under section 217 or 249 of the Internal Revenue Code of 1954, as amended, then in the computation of the taxpayer's tax under subchapter A for the taxable year in which the estate tax anticipation certificate is transferred, assigned, or redeemed there shall be added to said tax the savings of tax ander subchapter A to the original purchaser in the year of purchase of the certificate as a result of said deduction to the extent that said savings exceeds the additional tax to taxpayer in the year of transfer, assignment, or redemption of the certificate resulting from the inclusion of the amount received from the transfer, assignment, or redemption in his gross income computed without the adjustment provided in this section."

(j) TECHNICAL AMENDMENT.-The table of sections for such part VI is amended by adding at the end thereof the following:

"Sec. 1348. Transfer or redemption of estate tax anticipation certificates." (k) PAYMENt of Estate TAXES BY ESTATE TAX ANTICIPATION CERTIFICATES.— Subchapter B of chapter 64 of the Internal Revenue Code of 1954 (relating to receipt of payment of taxes) is amended by adding at the end thereof the following new section:

"SEC. 6317. PAYMENT OF ESTATE TAX BY ESTATE TAX ANTICIPATION CERTIFICATES.

**(a) ESTATE TAX ANTICIPATION CERTIFICATE DEFINED.-For purposes of this section, the term 'estate tax anticipation certificate' means any certificate which"(1) is issued by the Secretary or his delegate to carry out the purposes of this section,

"(2) is issued at par,

"(3) bears no interest,

**(4) is transferable, but is redeemable only on such terms and conditions as the Secretary or his delegate may by regulations prescribe."

**(b) ISSUANCE OF CERTIFICATES.-The Secretary shall offer for sale estate tax anticipation certificates in such denominations as may be necessary to carry out the purposes of this section.

**(e) LIMITATIONS ON TRANSFER OR ASSIGNMENT, AND REDEMPTION.—

"(1) Estate tax anticipation certificates shall be regulations prescribed by the Secretary or his delegate, be transferable only in accordance with the rules and regulations prescribed by the Secretary or his delegate.

"(2) Estate tax anticipation certificates shall be redeemable at face value in payment of taxes imposed by section 2001 of the Internal Revenue Code of