WASHINGTON (FNS) -- While the grocery industry is targeting a variety of legislative proposals in the 105th Congress, it is taking dead aim at the estate tax, charging that relief is needed to preserve family-owned businesses.
The tax, which has been levied in one form or another periodically since 1797, must either be reduced or eliminated, industry officials say.
It tops an ambitious agenda for grocers in this session that began in January, and which also includes passage of a bill to permit employers to grant compensatory time off instead of paying workers overtime; a repeal of a federal law governing tobacco sales to minors; elimination of Food and Drug Administration user fees; and implementation of a nationwide electronic benefits transfer system.
The current version of the estate tax, which is levied on the value of businesses when the principal dies and leaves it to his heirs, can be as high as 55%. While the grocery industry is mobilizing behind a plan that would repeal it, nearly two dozen versions have been introduced in the House and Senate.
One, which is backed by a bipartisan group of senators that includes Senate Majority Leader Trent Lott, R-Miss., would substantially reduce the tax by increasing the current $600,000 general exemption to $1 million. The plan also would offer additional credits to family farmers and small business owners, even those whose enterprises are worth as much as $10 million.
A Democratic bill, sponsored by Sen. Thomas Daschle, D-S.D., would limit the 100% exemption for family farms and small businesses to $900,000. Another plan would increase the unified credit against estate and gift taxes from the exemption equivalent of $600,000 to as much as $1.2 million, and then would index it to inflation.
President Clinton has said he opposes elimination of the tax, and instead would defer the tax on up to $1 million of the estate's value and permit payment of the tax over 14 years at a 4% interest rate. Clinton would allow the 4% rate on up to $2.5 million of the estate's value.
One business owner personally affected by the tax is Martin J. Whelan, president of Ettline Foods Corp., a distributor of food-service products in York, Pa. In testimony before the House Ways and Means Committee, Whelan said he fears for the future of his firm, and for his children who want to follow him into the family business.
"I have a terminal illness," Whelan told the panel. "It mandates constant planning for the managerial succession of my business, and the financial security of my family after my death+If at my death, Congress has yet to act on the issue, my company's capital structure may very well be impaired, causing at best, the stagnation of Ettline and at worst the demise of my family business and the loss of a significant number of jobs+Simply put, death taxes steal from America's family-owned businesses."
Attempting to dispel charges that a change in the estate tax would benefit only the wealthy, which could prove to be one of the biggest barriers to its reduction, Whelan noted that in 1995, profits before tax as a percent of sales for food-service distributors were only 2.2%. For wholesale grocers, their profits were 1.3%, down from 1.6% in 1994, he said.
"I am not a wealthy man," he told the panel. "In my business, the days are long, the work is hard and the profits are slim. . . My family has invested all of its after-tax profits into facilities, equipment and working capital+Most small businesses would be unable to survive without the reinvestment of profits."
The estate tax is not a big revenue raiser for the federal government, bringing in just 1.2% of annual federal revenues. This would facilitate reduction of the tax since Congress would not have to come up with a large amount of money to make up the loss. Repeal could be more problematic in coming up with offsets, since repeal is estimated to cost $75 billion to $100 billion over five years and more than twice as much over 10 years.
John Block, president of Food Distributors International, Fall's Church, Va., acknowledged that while estate tax repeal was No. 1 on his agenda, a reduction was more likely. "The estate tax is a monster that must be exterminated," he said.
Both Block and Tim Hammonds, president and chief executive officer of the Food Marketing Institute, Washington, acknowledged that there still is confusion on Capitol Hill as to whether an estate tax plan and other tax-reform issues will be included in a balanced-budget bill or will move separately in a tax-reform package. Yet both are optimistic that something could happen in this Congress.
Tom Wenning, senior vice president and general counsel of the National Grocers Association, Reston, Va., said a 1995 survey of NGA members showed that 56% of them thought the tax threatened their businesses. "They said they would have to sell all or part of their business to pay the tax," Wenning said.
COMP TIME VS. OVERTIME
Another item being pushed by the grocery industry is a bill that would permit employers to give workers compensatory time off instead of paying overtime. This measure tops the agenda of House Republicans and it was the first bill introduced in the House in the 105th Congress.
Through a written, voluntary agreement between employers and workers, comp time would accrue at the same time-and-a-half rate as overtime wages. The bill also requires continuous employment of at least 1,000 hours within the last year before an employee can agree to comp time. It also limits the amount of comp time that can be accrued to 160 hours. Under this plan, employees would be paid overtime for any hours worked above the 160-hour limit.
The measure passed the House March 19 in a narrow 222-210 vote. Advocates of the plan say it gives employers and workers more flexibility.
A Senate plan sponsored by Sen. John Ashcroft, R-Mo., has been advanced by the Senate Labor Committee to the Senate for consideration, but no date has been set for a vote. Ashcroft's bill contains two flexible scheduling provisions, biweekly work programs and flexible credit hours. Under the biweekly program, workers would have the option of establishing biweekly work programs that permit them to work 80 hours over a 14-day period.
Under the flexible program, employers would have the option of establishing a flexible credit-hour program that would permit employees to work extra hours during a work week so they can be used later for comp time. These extra hours would be compensated at a rate of one paid hour off for every extra hour worked. Workers would be permitted to bank 50 flexible credit hours per year, and at the end of the year, any unused flexible credit hours must be cashed out at the worker's regular rate of employment.
A similar comp-time plan passed the House last year, but was vetoed by President Clinton. The administration has threatened to veto this plan, too, because, according to a statement from the Office of Management and Budget, the bill does not provide workers "real choice" or protection against employer abuse. Also, the bill does not do enough to protect workers' rights, the administration said.
Instead, the administration backed a Democratic substitute, which was rejected. The substitute would have prohibited employers from encouraging workers to take comp time instead of receiving overtime pay. It also would have included an expansion of the Family and Medical Leave Act, which would have given all workers 24 hours of leave that could be used throughout the year for family educational activities, such as PTA meetings, or medical care. The Democratic amendment also would have required that employers pay overtime to workers who work less than 35 hours a week, are seasonal or agricultural.
Because Clinton endorsed the concept of granting comp time instead of paying overtime in his campaign, Block said he "would be surprised if Clinton vetoes the bill in the end. I think he'll sign it in the final analysis."
Following is an update on a few other issues:
Another concern of grocers is a federal regulation that requires retailers to make identification checks on everyone up to 27 years old to ensure that minors aren't buying cigarettes or smokeless tobacco. Beginning in August 1997, vending machines or self-service displays would be banned. Under the plan, the FDA could fine retailers up to $250 per violation and levy additional criminal and civil sanctions that could amount to $15,000.
Retailers are organizing behind a measure introduced by Rep. Ray LaHood, R-Ill., that would prevent the Food and Drug Administration from penalizing retailers. LaHood's plan has bipartisan support in the House.
The federal regulation currently is being challenged in a North Carolina court and a decision is expected in the next month.
"We don't want to sell tobacco to children, and in fact, there already are state regulations in place to prevent that," Hammonds said. "This debate is about regulatory agencies trying to discourage consumption among legal-age adults and making the retail store the battleground for that effort."
Wenning has complained that the federal legislation is duplicative of state laws that already make it illegal to sell tobacco products to people less than 18 or 19 years old. "It's a redundant and unnecessary process," he said.
While the FDI is not actively lobbying the tobacco issue, Block said that six companies in his association are being sued by state attorneys general for alleged violations of state tobacco laws. "It's outrageous that they would sue wholesalers and food distributors for distributing a product that is legal," Block said.
FDA USER FEES
Clinton's fiscal 1998 budget included $450 million in food-industry user fees, which are ardently opposed by the grocery industry. The proposal would levy $47 million in user fees at the Food and Drug Administration, which would be designated for operating expenses; and another $390 million in new fees at the Food Safety and Inspection Service that would go toward offsetting the costs of federal meat, poultry and egg inspection.
According to the administration, fees levied by the FSIS would be used to offset the costs of salaries, benefits and in-plant inspections. Currently, fees are levied to reimburse the government for the cost of overtime inspectors at some FSIS-inspected establishments. The fees would not go toward funding food-safety activities, such as microbiological testing, technology development and emergency response, the budget said.
Steve Ziller, vice president of scientific and regulatory affairs for the Grocery Manufacturers of America here, testified before the House Subcommittee on Agriculture and Rural Development that proposed fees are "a regressive tax on food products. Although user fees would be paid by food companies, the ultimate cost would be borne by consumers."