Tax excuse unlikely
Let's do the math on Murray Gerber's company, Prototype & Plastic Mold Co. Inc., reported in a Feb. 5 article concerning estate tax ("Estate tax debate picking up on the Hill," Page 4). "[Estate taxes were] one of the reasons I decided to sell my business."
You reported that the company had sales of about $8 million, in an industry with 3-5 percent profit margins. So let's say the company would have reported earnings of about $400,000 in 1999. Public plastics companies are trading at five or six times earnings, so the overall equity of Mr. Gerber's company might have been worth about $2 million, if it was public.
Of course the company was not public, so deducting a discount for lack of liquidity (or marketability) of 30-40 percent would result in an aggregate fair market value for the equity of the company of about $1.3 million.
Mr. Gerber and all taxpayers had a lifetime exclusion from estate and gift taxes of $650,000 in 1999 (this will rise to $1 million per taxpayer in 2006 under current law). If Mr. Gerber had a spouse, Mr. and Mrs. Gerber could have combined $650,000 gifts to their son James and transferred virtually all of the equity of Prototype & Plastic Mold to their son tax free in one year.
Without a spouse he could have transferred about one-half of the equity tax free in 1999. The remainder could have been dribbled out in annual tax-free gifts of $10,000 to James, as well as any children or siblings James might have. There are a number of gifting techniques that would have allowed Mr. Gerber to speed the transfer of ownership to his son.
If Prototype & Plastic Mold had sales of $800 million and 5 percent margins, it would take longer than a few years to transfer ownership tax free, but our firm has worked with business owners who have done that over a period of years.
With respect to Mr. Gerber, the statement that estate taxes played a big part in his decision is likely not true. The estate tax is a convenient excuse for many reasons that owners decide to sell businesses, and reporters should dig deeper when the seller of a business offers it as the sole explanation.
Stephen J. Roberts
Management Planning Inc.
Yocum given praise
Ron Yocum, thank you for postponing your retirement in order to lead the American Plastics Council to a higher level of excellence. As president of the Society of Plastics Engineers, I have first-hand experience working on joint projects with APC. Today, APC is operating at a higher level of excellence.
Ron's message has been consistent and straightforward. The plastics industry has to remind people of the good things about our industry. If we don't take care of that part of our business, we will all lose our business. Not many people know that because of the diligent efforts of Ron and his staff, a California law banning the use of plastics in store dairy cases was narrowly defeated.
So it is not about the relationship of the Society of the Plastics Industry Inc. and APC, it is about the relationship of the plastics industry with the general public.
So thank you, Ron, and I will personally continue to deliver the message about the good things about the plastics industry.
James H. Brackeen
Society of Plastics Engineers