Statement of Maria Coakley David, Chief Financial Officer,
C.J. Coakley Company, Inc., Falls Church, Virginia,
on behalf of the National Federation of Independent Business

Testimony Before the House Committee on Ways and Means

Hearing on President's Tax Relief Proposals that Affect Individuals

March 21, 2001

My name is Maria Coakley David. My family owns and operates C.J. Coakley Company, Inc., which is a construction company based in Falls Church, Virginia. Our business focuses on interior construction. We are currently working on rehabilitation at the Pentagon and the Interstate Commerce Commission. We also work on private buildings, commercial office space, residential buildings and had a contract for work at Redskins' Park. Additionally, our company completed work right here - modernizing the elevators in the Longworth House Office Building.

I have 4 children. My oldest is 16, and I hope that one day I will be able to pass our family business down to the third generation of Coakley-David's - my children and my nieces and nephews. My father and mother, who are first generation Irish-Americans, started our business with 10 employees in 1962 out of the basement of our home in Arlington, Virginia. I was 2 years old at the time and throughout my life, I have been involved in the business. As an adolescent, my father and mother regularly asked me my opinion on business matters and attempted to involve me in the workings of the business. After majoring in accounting and having a brief career as a CPA, I returned to the Washington, D.C. area to work in our family business. Since then, it has been my focus almost every day of the year.

Running a family business is hard work. In fact, the likelihood of a small business passing from the first generation to the next is about 3 in 10, and to pass this same business to the third generation is about 1 in 10. We struggle at times to keep the doors open during economic down times. With hard work and luck, we have built a solid, successful company. But through thick and thin, one overriding challenge has never been conquered--its existence threatens our livelihood and the livelihoods of our employees. It threatens the tax base of our community, our growth and our ongoing charitable acts. The threat I am referring to is the death tax.

As many on this Committee know, the death tax taxes the same assets twice. As an honest citizen, I have paid taxes my whole life. Annually, I pay income taxes, employment taxes, property taxes, local taxes, social security taxes, and excise taxes, just to name a few. After I pay all of these taxes, I make a choice to invest these after tax dollars back into the business. Sadly, the death tax will take away in after tax dollars much of what we have built over the last 39 years. The death tax endangers both my family's business and the jobs of our employees because much of our assets are tied up in equipment, inventory and other assets necessary to run our company. If we do not have cash assets available to pay the death tax, we will be forced to sell critical parts of the business or the business outright in order to cover the tax liabilities. This tax literally puts almost four decades of work, planning, blood, sweat and tears at risk.

My experience with the death tax is extensive. My father passed away two and a half years ago. Today my mother is 72 years of age. While I pray that she outlives us all, we know the day will come when the business must move from its first generation to the next. When that day comes, the last thing that I want on my mind is a critical business decision. But, today I have no choice. The federal government demands that I visit the undertaker and the IRS within days of each other. I think it is terrible that our government places such burdens on families at a time when it should lend a helping hand.

Many in this room may remember a day in 1985 when a plane crashed onto the 14^th Street Bridge in Washington, D.C. That is the day my parents decided to do something about the death tax burden. You see, my parents were on the plane that took off directly ahead of this flight. Their proximity to that event convinced my parents that it was time to be proactive about passing the business to the second generation.

Until that point, my parents did not think about death and taxes being linked. Like many small business owners, they did not think about anything other than running and building a successful business. Our business today provides good jobs to over 300 employees. We are a typical small business when it comes to job creation. In fact according to the U.S. Small Business Office of Advocacy report, since 1970, small businesses have created two-thirds of net new jobs in America. If it were not for the death tax, this job creation would be even higher.

I have been keeping tabs on this debate over the past couple of years, and I often read that only 2% of American taxpayers actually pay this tax. Mr. Chairman and members of this Committee, I can assure you that more than 2% of Americans do pay this tax--not to the federal government, but to lawyers, accountants and life insurance agents. We get involved in estate planning, because if we don't, all that we have worked for will be eliminated. To ignore the death tax statute is suicide for our family business. My family alone pays $100,000 per year on a life insurance policy to cover the tax liability in the event of my mother's death. Plus, I would estimate annual legal and accounting fees at $20,000.

It's important to realize that this $120,000 is money that is not spent on growing our business or on providing better employee benefits, like health care, dental plans or 401(K) plans. These are products that we want to offer to our employees in order to maintain a quality work force.

I know that opponents of repeal say that small business owners don't need to worry about the death tax because there is a special provision that protects small businesses already in the law. Unfortunately, the small business exemption that we have on the books is useless. That's why NFIB supports full repeal, not a patchwork of reforms. We have been down the path of reform before, as recently as 1997, and at the end of the day, it only led us to a more complex statute filled with provisions that just do not work, and require more legal and accounting fees.

Additionally, I have heard opponents say that we should all just use insurance products to mitigate the effects of the death tax. Well, my father was uninsurable when he was alive, as are countless other Americans. We have purchased a policy on my mother, but as you have heard, these products are extremely expensive. Unfortunately, we have a tax law that forces small businesses to slow their growth and divert needed cash flow to inefficient endeavors. Particularly in today's economy, one must wonder why this is so.

Personally, I would rather spend my time focusing our family company on growth, on employee benefits and on community relationships. Since 1975, C.J. Coakley, Inc. has sponsored a philanthropic entity called Seton Centers. It was founded by my mother. This organization focuses on diagnosing and assisting children with learning disorders. We work directly with schools - both at the elementary and high school level - in the Northern Virginia area. In 1997, we also started a foundation that fosters educational endeavors. We are also involved in supporting activities and scholarship at Marymount University.

We do all of this because we truly care about these individual causes, not because some lawyer told us we could avoid taxes by jumping through a few hoops. For example, my brother suffered from dyslexia when he was growing up, which is why our family felt compelled to create Seton Centers. I support Marymount University because I went to school there. I also support Marymount because it is a local school with a strong ethics and philosophy program. Mr. Chairman, I hope you and the Committee will ignore the scare tactics surrounding the issue of charitable giving. Most Americans are generous to their fellow neighbors. We give because we care.

Finally, we all know that there are people out there on the other side of this issue who say we should keep the death tax. I could not disagree more. The death tax kills jobs and small business growth in America. It also kills incentive to work hard and take risk. Why work so hard to give it all away? If guilt-ridden billionaires are worried about funding the government, then I would encourage them to fire their lawyers and accountants and dedicate their estates to the federal government right now, today. I implore you to stop them from holding the rest of us hostage to the death tax.

In closing, Mr. Chairman, I would like to strongly encourage this Committee and the Congress to bury the death tax once and for all. I understand that a majority of members in the House of Representatives have expressed support for completely eliminating the death tax by cosponsoring HR 8, the Death Tax Elimination Act. I hope this support will translate into action in the very near future on legislation that repeals this unfair tax on small businesses and on all Americans.

I thank the Chairman of this Committee for holding this important hearing, and thank all of you for the opportunity to present my experience before you today.