Sunday, June 15, 2003

Too many American families today face a triple-tragedy when the senior member in a family business dies. Not only does the family lose a loved one and a leader, but surviving family members suddenly find they have to pony up as much as 55 percent of the family’s assets — in cash — to pay federal death or inheritance taxes.

This literally forces many families to sell the family business in advance simply to avoid the agony of a fire sale. As a result, the death tax is probably the No. 1 reason there are few large circulation, family-owned newspapers in the United States. It’s just impossible for many families to come up with that kind of cash for taxes, and so they sell.

One notable victim was the Chicago Defender, a famous black-oriented newspaper that began publishing in 1905. The Defender’s reporting on employment opportunities and the social climate in the industrialized North is widely credited with triggering the “Great Migration” of blacks out of the South in the years between the world wars. Facing an estate tax levy of $3 million following the death of publisher and family patriarch John Sengstacke, surviving family members were forced to put the Defender up for sale.

Similarly, Seattle’s Bridge family had to sell their 63-store jewelry chain to Berkshire Hathaway, the global conglomerate run by investor Warren Buffett. No wonder Mr. Buffet, the billionaire liberal, wants to keep American families under the weight of the “death tax” that forces many of the family-owned companies he gobbles up onto the block. Company founder Herb Bridge, who is near retirement age, told a Seattle newspaper that the federal death tax was a “very strong factor” in the decision to sell.

This sad story repeats itself countless times every year, as farms and small-to-medium sized businesses go on the block. Sometimes, as with Ben Bridge Jewelers, the process is orderly. Often, however, it’s a race against IRS grave robbers.

The sad fact is that few such companies can survive a 55 percent tax levy against their value. Many small business families spend a great deal of money on life insurance in order to cover the tax liability they know looms just around the corner. But as the Seattle Times puts it: “They’d better buy a lot. And they had better not be too successful: The smarter they work, the more they plow back into the family business, the more jobs they create, the more they create a bomb that goes off at their death.” This is one counterproductive tax.

A tax that might as well have been designed to discourage families from reinvesting in the work of a lifetime makes no sense. Should not the nation instead encourage job-creating investment and building wealth from generation to generation? Of course.

The irony is that the death tax is not even an efficient revenue producer. The IRS spends 65 percent of what it collects in death taxes just collecting it. Meanwhile, the families that are forced to pay it spend at least 30 percent on top of the tax itself on estate planning — lawyers, accountants, insurance and whatnot. By some estimates, in fact, the death tax actually ends up costing more to collect than it produces. It’s one of those rare anomalies where there simply aren’t any winners.

Congress tried to repeal the death tax in the late 1990s, but President Clinton vetoed it. Now a phase out is part of the Jobs and Economic Growth Plan signed into law by President Bush.

The leadership of the House of Representatives believes rightly that too many families will be hurt during a phase-out. If the death tax is economically suspect and morally wrong, then Mr. Bush and the House leaders are absolutely right: It should be eliminated now, and for good.

House Ways and Means Committee Chairman Bill Thomas of California and Rep. Jennifer Dunn of Washington are going to try to do just that this week on the House floor. If they manage to do it, everyone will win and that’s something that doesn’t often happen in Washington.

Art Linkletter is national chairman and Charles Jarvis is chief executive of the United Seniors Association.

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