National Policy Analysis Logo

 # 301  

 July 2000




Death Taxes are Killing Black Businesses

By Syd Gernstein

 

Do you ever feel like you're being taxed to death?

The estates of many Americans are taxed when they die - sometimes creating terrible problems for those still living. And these unfair taxes may be the death of new African-American prosperity.

As more Americans reach higher income brackets and open their own businesses, death taxes are an increasing problem. According to figures in Project 21's soon-to-be-published Black America 2000 report, the income levels of black households have tripled in the past 24 years. Black-owned businesses more than doubled in number between 1987 and 1997. This black prosperity and perseverance, however, is put at risk by unfair taxation.

Death taxes make even Oprah Winfrey mad. "I think it's so irritating that once I die, 55% of my money goes to the United States government," Winfrey said. "You know why it's so irritating? Because you have already paid nearly 50% [when the money was earned]."1 Congressman J.C. Watts (R-OK) adds, "The 'death tax' has prevented many African-Americans from building wealth by taxing the estate of the deceased at rates which leave family businesses and living relatives in economic despair."2

Small business owners are the hardest hit by death taxes. Major corporations don't have to worry because their ownership is dispersed. Businesses owned by families, however, can be devastated. This includes a significant number of the almost one million black-owned businesses in America.

Even if a business is making a meager profit or losing money, it is still expected to pay the government death taxes. The determination of who pays is based solely on the full value of the deceased's assets - including buildings and equipment. Neither profit nor appreciation in value is considered.

For this reason, death taxes could force many family-owned businesses to shut down or be sold. The Olivo family kept Perfect Printing in business in Cherry Hill, New Jersey after the death of their father. With hard work, the family increased the company's worth to several million dollars. Now, the younger Olivos fear death taxes will force them to sell the company when their mother dies.3 American estate taxes, which are among the highest in the world with a top rate of 55 %,4 could mean the death of many long-standing family-run busineses like Perfect Printing.

Death taxes are particularly hurtful to capital-intensive businesses. Since a typical family farm might own $10 million worth of land and equipment, there is little chance the heirs to an estate will be able to afford to stay in business since the actual value of an estate has nothing to do with its economic stability.

The Chicago Defender, the flagship newspaper of Sengstacke Enterprises, has been an important voice in the black community for close to 100 years. However, the passing of company chairman John Sengstacke led the IRS to levy nearly $4 million in death taxes against the Sengstacke family. Granddaughter Myiti Sengstacke was forced to seek out outside investors and contemplate selling the paper in order to pay the heavy tax bill.5 Alexis Scott, publisher of Atlanta Daily World, said, "the impact of the estate tax has been particularly damaging to African-American newspapers."6 As the number of businesses owned by African-Americans continues to grow, the damage that death taxes impose on the black community will also rise.

"The total net worth of African-Americans is only 1.2% of the total net worth of the nation. Getting rid of the 'death tax' will start to create a needed legacy and begin a cycle of wealth building for blacks in this country," says Harry C. Alford, president and CEO of the National Black Chamber of Commerce. "Eliminating the 'death tax' will be a great start."7

Congress just passed legislation to eliminate the death tax, but President Clinton may veto it. The President says burying the death tax is "bad economics." If cutting an outdated, oppressive and unnecessary tax that discriminates against minorities and small businesses is bad economics, then what is good economics?



Footnotes:

1 Bruce Bartlett, "From the Coffin to Tax Coffers," The Washington Times, June 28, 1999.

2 "Impact of Death Tax on African American Owned Businesses," Facts and Stats, U.S. House of Representatives Republican Conference. July 21, 1999.

3 Jodie T. Allen, "The American Dream Tax," U.S. News and World Report, June 26, 2000.

4 Bartlett, June 28, 1999.

5 Jennifer Golson, "Carrying the Torch," Black Enterprise, April 1999.

6 "Impact of Death Tax," July 21, 1999.

7 "Impact of Death Tax," July 21, 1999.


# # #

 

Syd Gernstein is a research associate of The National Center's African-American leadership network, Project 21. Comments may be sent to [email protected].



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