Monday, May 01, 2006

The case against the estate tax

Tasted a Milky Way lately? It probably didn't seem much different (except in size) from those you had as a kid.

Perhaps it was even comparable to the first Milky Ways, dreamed up by Fred Mars back in 1923. Those were the days when most drug stores had soda fountains, and Fred thought of the Milky Way as a portable chocolate malted.

Today's Snickers bars aren't bad, either. Why else would the Scots love to deep-fry them?

Even products developed by others but now owned by Mars Inc. seem to have held up pretty well. The last Dove bar I sampled certainly wasn't as big as the original, but it tasted good.

Maintaining quality from generation to generation is a distinguishing characteristic of the best privately-owned companies. Even when family-owned businesses grow immense, as Mars has, they march to a different drummer.

To an unfortunate extent, publicly-held companies are now in the business of manufacturing quarterly earnings as specified by Wall Street. Family-run firms can stick to the business of making stuff, like candy.

Plenty of consultants have marched into Mars Inc. over the decades, peddling ideas for increasing quarterly earnings by cutting corners here and there. ("You guys don't need to use all that real chocolate. With this new additive, you can save a bundle, and few customers will ever notice the difference.")

The Mars boys (Fred's grandsons) have felt free to tell such consultants to close the door on the way out. Could the CEO of a publicly-traded company be equally upstanding? Possibly, but only at his peril. Eventually the consultants would start comparing notes and realize they had enough ideas for bulking up profits, at least temporarily, to take to a private-equity fund or corporate raider. Pretty soon, goodbye CEO!

The Mars family is one of the infamous 18 wealthy families cited in Jim Gust's recent post. Like other families on the list, they're too rich to be worried about the dollar cost of estate taxation. They're seeking to stay in business, even though their family businesses have gotten awfully big.

Tech businesses are a special case. Microsoft isn't the sort of business one would try to keep in the family. I'd guess that Steve Jobs felt the same way about Pixar and Apple.

Paul Newman, the Sage of Westport and founder of the remarkably successful Newman's Own, is unabashedly pro-tax:

“For those of us lucky enough to be born in this country and to have flourished here, the estate tax is a reasonable and appropriate way to return something to the common good. I’m proud to be among those supporting preservation of this tax, which is one of the fairest taxes we have.”

Why isn't Paul worried about keeping Newman's Own in the family? Maybe he doesn't have to worry. The value of a business rests on earnings. Newman's Own has never earned a cent, save what goes to charity. Can't we at least argue that the estate-tax value of the business should therefore be zero?

John and Forrest Mars, you and your sister just might have found a Plan B!

1 comment:

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