Statement of
Christopher & Kimberly Clements
Tucson, Arizona

Testimony Before the House Committee on Ways and Means

Hearing on Reducing the Tax Burden

January 28, 1998

Mr. Chairman, ladies and gentlemen of the Committee, we are very privileged and honored to address you today for not only ourselves, but also for beer wholesalers across the country who belong to the National Beer Wholesalers Association. We hope we will answer some pressing questions regarding the inequity of the death tax.

Why should a person build a business in America? Why should a person sacrifice everything to run the risk of having his or her livelihood taken away from his or her family?

It seems a silly question, but it is asked more frequently than many people think. This is the dilemma the American entrepreneur faces today -- to invest capital in his or her company and community, and risk its future if anything were to befall him or her.

The vision of our Founding Fathers was simple enough -- that all Americans should reap the fruits of their labor -- that the right to life, liberty, and property is sacred and divined by God.

Hundreds of thousands of immigrants come to the United States every year fleeing from the tyranny of non-democratic regimes, from poverty, from terrorism. Whatever the reasons, people come with the thought that the United States will give them the inalienable freedoms of life, liberty, and property.

Many start families, begin businesses, work hard, and see their lives grow.

However, the thought that the government, over time, could take away all that they have built is unconscionable to many immigrants and, indeed, to many Americans who have been here for generations.

Today in America, without "proper planning" -- which usually entails the investment of numerous resources in the guise of accountants, lawyers, and wayward insurance salespeople -- a family can see their business and livelihood stripped away by the most destructive tax created -- the estate tax (or now commonly known as the death tax).

The family entrepreneur, who puts his good name and reputation on the line to create jobs and wealth for his loved ones and his community, is one of America's greatest resources. Yet, if this vital resource fails to protect his family from the government to which he provided countless tax revenues and the creation of innumerable jobs, he may find that upon his passing that his family is forced to sell their life's work to pay the government again.

The greatest misperception about death taxes is that they only affect the very rich. However, death and taxes do not discriminate. Death taxes are hardest on the small farmer, the independent shopkeeper, the restauranteur, and the beer wholesaler -- small business people with families and strong ties to the communities they serve.

In fact, a recent study reported that "nine out of 10 family businesses that failed within three years of the principal owner's death said that trouble paying estate taxes contributed to their companies' demise."

Mr. Chairman, our family is one of the lucky ones.

We had a father who planned properly and who allocated the appropriate resources to make sure hho would have known?

Who would have known that during the Christmas of 1994, our father, William M. "Bill" Clements, an entrepreneur and philanthropist, would be driving down the street and suddenly be unable to see? Who would have known that subsequent tests and diagnoses would discover cancer throughout his body? Who would have known that two arduous months later he would leave a wife, two children, a business, and a community wondering...?

What is next?

To understand the answer to this question, we would like to share with the committee how far our family business has come and where it has yet to go.

In 1941, our grandfather, Dudley M. Clements, founded All American Distributing Co., which was a wholesale liquor operation in Phoenix, Arizona. Dudley, a banker by trade, was raised in Casa Grande, Arizona. His father, William Preston "W.P." Clements, was a banker and rancher. W.P. also served as mayor of Casa Grande back in the early 1900s.

They raised Dudley with a strict work ethic and he survived much of the depression by working in Idaho as head of the new state liquor board, which was formed following the repeal of prohibition. His son, Bill, was born April 29, 1936, in Boise, Idaho. After a brief move to New York City following Bill's birth, Dudley along with wife, Patricia, and son moved to Arizona.

Several partners joined to form All American Distributing. One of the more notable partners was the cinema singing cowboy, Gene Autrey. During that time, Arizona was a growing state and business was good. Over the years, All American grew from a small wholesaler with a limited portfolio of products into a large supplier of beers, wines, whiskeys, and scotches. Over time, the business even expanded to several different markets including Casa Grande, Globe, Flagstaff, Holbrook, and Tucson.

In 1956, August A. Busch, Jr., Chairman of Anheuser-Busch (A.B.) and affectionately known as "Gussy," called our grandfather to ask a seemingly simple question, but one with extensive implications.

Would Dudley handle Budweiser?

Our grandfather was skeptical. Back then, Budweiser was a regional brand known primarily in the Midwest and in the East. Schlitz, A-1, and Coors were the big brands in Arizona, with Budweiser merely an afterthought. Nevertheless, several of grandfather's key managers prodded him, and All American began to distribute Budweiser in Tucson, Casa Grande, Globe, and parts of Phoenix.

At that time, our father, Bill, was in college at the University of Washington, playing football and majoring in engineering. With all those activities, he had practically no interest in entering the family business.

After graduation, a degree in engineering brought many opportunities. In fact, Dad furthered his education and received a Ph.D. in Environmental Engineering from the University of California at Berkeley. He stayed in the San Francisco Bay area and eventually started his own firm. Much of his work involved the military and the National Aeronautical Space Administration (NASA). At one point, he was designing air flow specifications for spacecraft and consulting with the Defense Intelligence Agency (D.I.A.).

Government projects began to dry up in 1967, when President Lyndon B. Johnson successfully moved many contracts out of California and into his native state of Texas. Dad was left contemplating his future. As it turned out, back at All American, Anheuser-Busch began to inquire about the status of Dudley's son.

A.B. wanted a succession plan for the family.

Sensing the long-term stability and profitability in the wholesale business, Dad returned to Phoenix with his new wife, Virginia, and worked alongside his father. He worked hard to learn the wholesale business, which was no easy task since he had no formal experience or training. Moreover, his father was very strict with him, holding him to higher expectations than his other employees. Despite his doctorate, his father expected him to perform even the most menial tasks, like scrubbing floors. But Dad persevered and came to know the business from the ground up.

After several years, market pressures finally forced our grandfather to separate the liquor and the Budweiser side of business. Budweiser, along with Anheuser-Busch's other brands, had grown and deserved more attention. Consequently, Dad, Mom, and the two of us moved to Tucson to open the corporate headquarters for our new company.

So, in the spring of 1974, Golden Eagle Distributors, an exclusive distributor of Anheuser-Busch products was born.

The first few years in Tucson were difficult. Budweiser held a market share of less than 10 percent and, for a while, Golden Eagle destroyed more beer than it sold.

In 1976, a national brewery strike nearly crippled the company. Dad dug deep into his own pockets and borrowed to keep the company afloat. He lost nearly 18 months of profits but never laid off one employee. It was this type of commitment to his company that would endear his employees to him for years to come.

The strike soon ended and Golden Eagle finally had the freedom to grow. Between 1977 and 1984, Golden Eagle saw incredible change, including the proliferation of new brands like Natural Light and Michelob Light. In 1981, Tucson was the number one test market for a risky excursion in the light beer category, Budweiser Light.

With the new growth, our company created new departments and new job opportunities. Golden Eagle added an in-house Marketing Department (one of the first of its kind in the nation). Chain stores began to demand more attention, so Golden Eagle established a National Account Representative position to better serve local buyers. Growth in computer technology mandated the development of an in-house Data Processing Department that continues to change and evolve with the needs of the business. With more employees, human resource management became a priority and our company established a Vice President of Human Resources.

Through it all, Dad felt that it was imperative to give back to the community of Tucson and the cities of the surrounding branches for all he had received. He embraced countless community projects and donated his time and money to worthy causes. From Chairman of the United Way, to the Boy Scouts of America, to the Copper Bowl Foundation, to creating the Greater Tucson Economic Council -- Bill Clements was a man who could never say "no" to anyone who asked for help. In addition, he was politically active and a close friend and confidant to many past and current members of this Congress. Not surprisingly, this legacy of duty to others continues to grow, both in ourselves and in our company.

On February 23, 1995, our father died unexpectedly after a brief yet valiant bout with cancer. He was 58.

At that time, we were both forced to forgo many training steps we would normally take and assume executive positions in the company. Currently, we are working to be recognized by Anheuser-Busch as Equity and Successor Managers of the company.

Luck, and extensive and expensive estate planning, has allowed Golden Eagle Distributors to survive. Indeed, with the unprecedented growth in the business over the past twenty years, we are extremely fortunate that Dad foresaw the need to protect what he had built.

Yet at what cost?

Thousands of dollars were spent to hire lawyers, accountants, and insurance people to draw up trusts, wills, and accounts to protect the fruits of Dad's labor. Congress making changes to the already complicated tax laws forced Dad to frequently reevaluate our company's plan. Ironically, he finished the final arrangements in our family's estate plan barely six months before his death.

Golden Eagle could have better used these "necessary" resources in the business for new salespeople, more trucks, better benefits, etc. In other words, we could have reinvested them in people.

It was hard work, sacrifice, perseverance, and faith in people that allowed our father to be successful. Dad, however, knew that success in America carried with it a terrible price. We are lucky that all these measures were in place and that our company did not have to be sold to satisfy the I.R.S. Hundreds of jobs would have been lost and countless lives devastated.

Thankfully, estate tax planning usually provides for no taxes due when the first spouse dies. However, at the death of the surviving spouse, it becomes very difficult and complicated to keep control of a family business for the next generation due to the heavy burden imposed by death taxes.

Today, nearly three years following the death of our father, Golden Eagle is still a growing company forged by a vision of teamwork, fairness, and duty.

Golden Eagle is a company of 242 employees across Arizona with annual wages and benefits of $10.3 million. It paid $3.1 million in state luxury taxes and purchased $5.3 million goods and services. Golden Eagle employees participate i funds from the corporation. Our health plan is one of the finest in the industry with employees able to choose almost any doctor they want.

All of this viable economic activity takes place in six separate counties statewide -- communities that would be severely affected if the company ever had to be sold to satisfy the greed of the federal government.

There is a misconception in Washington, D.C., about how family businesses operate. Many government bureaucrats, who have never invested a lifetime in building a future for a family and a community, see family businesses as cash rich and easily able to pay the whopping 55 percent death tax levy.

However, the vast majority of families who own a business have capital tied up directly in the operation. Not only in the plant(s) and equipment, but in the lives of its employees. Golden Eagle, for example, has capital tied up in the education of salesman Orlando Iosue's children and in driver Rudy Duarte's new marriage. While tangible items may be easily sold, it is the human capital that is the most precious and the most fragile.

We are thankful that this Congress saw fit to pass new laws friendly to family businesses. Many in Congress, to their credit, attempted to alleviate the death tax burden by increasing the exemption levels from $600,000 to $1 million by the year 2006 in the last budget agreement.

Unfortunately, these new increases in the unified credit do little for the majority of family businesses. In fact, none of the provisions, including those specifically targeted to family-owned and operated businesses, provide significant help for medium to large family businesses. Moreover, they are very complex to implement for small family-owned businesses.

Further, although the current law provides for installments of 14 years to pay off a levied death tax, the government charges interest for this "privilege." Although Congress reduced the rate from four percent to two percent, expecting a family that has paid countless taxes over the life of a business to pay interest to the government when a loved one dies is ridiculous. This interest payment is not even deductible for estate or income tax purposes.

Again, an entrepreneur may have a net worth near or upwards of this amount, but most often his capital is tied up in nurturing his business. We think Senator Jon Kyl from Arizona and Congressman Christopher Cox from California have the correct approach to the death tax dilemma -- do away with it! Mr. Chairman, we also know that if you had your way, this would be your solution as well.

According to a recent Insight magazine article on the nation's growing tax burden, if the death tax were eliminated, "the U.S. economy would be producing $79.2 billion more in annual output and creating 228,000 more new jobs a year." This is growing evidence that the tax revenue gained from the increase in Gross Domestic Product (GDP) and jobs would be enough to offset the elimination of the death tax.

Understandably, the thought of completely eliminating the death tax may not be completely realistic for this Congress. Therefore, it is important that Members of Congress continue to recognize the unique nature of the family-owned business and consider exempting from the death tax a family business that is closely held by 50 percent or more by family members. As you know, the current laws provide some help for these types of businesses, but fall well short of eliminating the tax.

Mr. Chairman, ladies and gentlemen of the Committee, the death tax is an injustice to American working families who have risked everything to make a business grow and create opportunities for their employees and communities. It is especially unfair to the smallest of businesses for they do not have the resources to set up the trusts, the accounts, and the wills to protect themselves from the death tax.

It is time to lift this burden from the hundreds of thousands of family businesses in this country. Let us begin to protect one of America's greatest resources -- the entrepreneur, the risk taker, the provider, the community leader, the philanthropist. A family business owner is all these things, and more. We know -- we learned from one of the best.

Why should a person build a business in America? To perpetuate it. To make it grow. To keep it through the generations. To provide opportunity for its employees and the community.

We are committed to sending the message for those who might not have a voice. We hope that other wholesalers and all closely held family businesses would see fit to rally behind this important cause and give it the support it deserves.

We thank the Chairman and the Committee members for the opportunity to address this vitally important issue and look forward to progressive steps to alleviate this unfair burden on American family businesses.