A National Policy Analysis paper published May 1996 by The National Center for Public Policy Research, 20 F Street NW, Suite 700 , Washington, D.C. 20001, (202) 507-6398, Fax (301) 498-1301, E-Mail [email protected], Web http://www.nationalcenter.org.
"We're not rich people. My father and I do almost all the work on our land ourselves... My father and I planted some more trees not long ago. He knows he will not likely be here to see them mature. But he hopes that his grandchildren and great-grandchildren will be able to watch those trees grow on the Thigpen Tree Farm..." --Lonnie Thigpen, the son of 84 year-old Missippi tree farmer Chester Thigpen, testifying before the House Ways and Means Committee on April 24, 1996.
Lonnie Thigpen isn't alone in his sentiments. His father, a grandson of slaves, is joined by many other black Americans who risk seeing their hard work and earnings squandered away by a federal government that consoles grieving family members by levying as much as a 55% tax on their estates. If there is one enemy that will deal a mortal blow to black business, then the federal government will be that enemy and the estate tax its weapon of choice -- not racism, not welfare reform, not a Republican Congress.
Black Enterprise magazine's recent report in its June issue that the nation's top black businesses increased their sales 11.8% in one year, outpacing the Forbes 500 and Fortune's 500 lists, is welcome news. But it will not last if the estate tax is not reformed or abolished altogether.
A July 1995 survey of the nation's top black businesses by Kennesaw State College's Family Enterprise Center revealed the potency of the estate tax. On a 10-point scale with 10 being a major concern, more than half rated the federal estate tax at least a nine. The average business surveyed had spent $67,914 planning to reduce the estate tax's impact. Assuming heirs were to inherit the businesses (the estate tax does not take effect if there is a surviving spouse), 29% would have to sell all or part of their business to pay the estate tax. For 53% of the businesses, this would result in a loss of jobs. In the last five years, these businesses have been responsible for an average of 27 new jobs.
Until the 1996 budget agreement, the estate tax was in effect for estates with a taxable value of $600,000 or more. Under the terms of this latest budget agreement, the starting taxable value will increase to $750,000 by 1998, and be indexed for inflation beginning in the year 2000. By the time the value of the home, life insurance, retirement benefits, and any business assets are appraised, one in twenty estates are in the taxable range of the estate tax. In 1940, only one in sixty estates were affected. In 1993, over 60,000 estates were taxed. And if the Persian Gulf War was the "mother of all battles," this is the "mother of all taxes." The starting tax rate is 37%.
With enforcement and compliance activities consuming 65 cents of every dollar collected from the estate, with the tax consuming 8% of each year's savings, and endless amounts of money being spent in measures to avoid the brunt of the tax, one would think the estate tax is the equivalent of a Jackie Onassis auction for the federal government -- a heavy revenue raiser whose participants are rich people with nothing better to do with their money. In reality, it hardly accounts for 1% of the federal government's annual revenue and many of the people affected are only guilty of hard work, wise investment, and smart saving.
One of those people is Chester Thigpen. Chester Thigpen grew up on a farm where he used to plow the fields behind a mule. In 1940, he bought a little land. Today, he owns 850 acres of land worth more than a million dollars. On that land he grows trees, allowing him to finance his five childrens' college educations. Last year, he and his wife were named National Outstanding Tree Farmers of the Year. To pay the estate tax, Chester Thigpen's inheritors would have to sell some land, risking that it would be used for other purposes than growing trees. As he and his son have testified before Congress, that's not good for the environment or the future of the Thigpen Family Farm.
In 1992, current House Majority Leader Dick Gephardt proposed that estates worth as little as $200,000 should be subject to the estate tax. In his greed to put more money in the federal treasury, he was attempting to placate those envious of the success of men like Chester Thigpen. With voter anger that swept the Republican Congress into power in 1994 making such appeals unpopular today, his liberal colleagues are attempting to prevent an outright abolition of the estate tax by modestly increasing the estate value taxed or exempting lands used for conservation purposes. The problem with the tax is not that it doesn't have enough exemptions, the problem is that the tax exists at all.
What Chester Thigpen spent a lifetime working for, the federal government wants to tax away in nine months -- in most cases, the required time period to pay the tax -- after he and his wife die. The reason for this is ostensibly to make the rich man pay his fair share. All I know is when Project 21 called 84 year-old Chester Thigpen to discuss the estate tax, his wife had to stop him from mowing the lawn so he could answer the phone. Who mows Dick Gephardt's lawn? ###
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