Taxes & Spending

How Death Tax Shafts Black Americans

New York — After their Independence Day recess, Republican senators will try again to declare America independent of the death tax. As Democrats ponder their position, they should consider how this levy hurts their most dependable supporters: black Americans.

When the House of Representatives voted 272-162 to kill the death tax on April 13, 2005, 42 Democrats concurred, including eight members of the super-liberal Congressional Black Caucus.

“Employees of family businesses, many of whom are minorities, are at risk of losing their jobs because their employers are forced to pay the unfair and exorbitant death taxes levied on them,” CBC member Sanford Bishop (D.- Ga.) said in that day’s debate. “Funeral homes, weekly newspaper publishers, radio station owners, and local dry cleaners, all are affected all across the demographic spectrum…”

Bishop, who co-sponsored The Death Tax Repeal Permanency Act of 2005, added: “Although reasonable minds may differ on this issue, I believe that the death tax is politically misguided, morally unjustifiable, and downright un-American.”

Currently at 46 percent and falling, the death tax will vanish in 2010. But without permanent repeal, it will boomerang to 55 percent in 2011. That will hammer prosperous families, black and otherwise. As Cato Institute tax analyst Chris Edwards ominously observes, “If you are in poor health in 2010 and you own substantial personal or business assets, your heirs might favor your prompt departure.”

Liberals love to discuss social capital — in essence the idea that the silver spoons of “old-moneyed” whites repress minorities. The obvious answer is to help minorities acquire their own silver spoons, in part by letting successful non-whites bequeath their riches to their heirs. The death tax frustrates this objective.

A 1997 Kennesaw State College study discovered that 90 percent of black business owners surveyed believe the death tax hindered their long-term growth prospects. The equivalent figure for companies overall was 61 percent.

Writing in the June 14 edition of Alabama’s Anniston Star, Senator Jeff Sessions (R.-Ala.) recalled his day-earlier discussion with Robert Johnson, the well-heeled founder of Black Entertainment Television. Johnson, Sessions wrote, “explained how devastating the death tax was” to black entrepreneurs. “He explained how his company was strong and vigorous, but it was small compared to CBS, ABC, NBC and Fox. If something happened to Mr. Johnson, the death tax owed by his estate would be huge and his heirs would have to sell, most likely to ‘some big conglomerate,’” rather than another black owner.

Before his ethical problems exploded, CBC member Rep. William Jefferson (D.-La.) delivered a floor speech on the death tax that supply-side economics guru Arthur Laffer could have written.

“The federal estate tax results in…slower economic growth, reduced social mobility, and wasted productive activity,” Jefferson said just before the House’s 2005 repeal vote. “Those few minority-owned businesses that have been able to take steps to reduce their estate-tax liability complain that it has detracted from their ability to meet business objectives by channeling time, energy, and resources away from productive endeavors.”

Jefferson cited Leonard L. Harris, owner of Chicago’s Chatham Food Center. “My focus has been putting my earnings back into growing the business,” Harris explained, according to Jefferson’s speech. “For this reason, cash resources to pay federal estate taxes, based on the way valuation is made, would force my family to sell the store in order to pay the IRS within nine months of my death. Our yearly earnings would not cover the payment of such a high tax. I should know. I started my career as a CPA.”

For some black-owned companies, this challenge has proved fatal.

“The Chicago Daily Defender — the oldest black-owned daily newspaper in the United States — was forced into bankruptcy due to financial burdens imposed by the estate tax,” National Black Chamber of Commerce CEO Harry C. Alford, Jr. wrote in an April 5 American Family Business Institute commentary.

“It is all right for black folks to begin building wealth in this country,” Alford adds. “It is not against the law, and it certainly is more enjoyable than poverty.”

Senate Democrats claim to be among the best friends black Americans ever had. If so, they can help us overcome by helping Republicans kill the death tax, once and for all.

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