The Grim Tax Reaper

President Clinton, the anointed "First Feminist President," claims to be a staunch advocate of women’s rights. Yet he has vowed to veto a bill, passed by the House, that would phase out the federal estate, gift, and generation-skipping taxes. The so-called "death" taxes penalize business owners, including women-owned businesses whose numbers are on the rise.

Since 1987, the number of female-owned companies has doubled. Today those businesses employ approximately 20 percent of American workers. According to Linda Ladas of the National Association of Women Business Owners, the rising participation of women in the workforce makes estate taxes an increasingly important issue for them.

Some of these female business owners are nearing retirement. In preparation, they are taking stock of the heavy financial burden associated with federal estate tax planning—life insurance, consultants, and taxes—and the negative impact those levies will have on their businesses when they die.

Under current federal law, when a business owner passes away, the heir must pay a tax of 37 percent on estates worth $675,000. As the size of the estate increases in value, so does the tax, eventually hitting a 55-percent levy on estates worth $3,000,000 or more. Proponents of the estate tax tout it as a levy "on the rich" and assert that it only affects the wealthiest Americans.

That is a misrepresentation of the facts. The levy destroys the life’s work of many female entrepreneurs. A recent study by the California-based Center for the Study of Taxation, which surveyed 272 women-owned businesses, shows that upon death of a principal owner, four out of 10 female business owners will have to downsize or sell to pay federal estate taxes.

During the past five years, 11,000 jobs have been lost and an additional 28,000 jobs that should be created over the next five years will not materialize. The study also found that, over the past five years, three out of four businesses incur annual average costs of $60,000 for federal estate planning expenses—all this for a levy that produces little more than one percent of all federal tax revenues. Another study, also published by the Center for the Study of Taxation, found that nearly 69 percent of the public agrees that this tax is unfair.

Women who work hard to be successful should not have their achievements die with them. Slapping a levy on a person’s lifetime accomplishments discourages and punishes them for their success. While incremental attempts have been made to reduce the burden of the levy, more can be done. A case in point is California.

In a 1982 statewide referendum, Californians set the stage for abolishing death taxes. By a staggering two-to-one margin, they voted to annul the state’s gift and inheritance tax. Since then, 18 states have followed suit by reducing or eliminating the taxes.

Today California is the national leader for female startup companies. According to the National Foundation of Women Business Owners, the state accounts for 15 percent of all sales produced by women-owned businesses and employs 14 percent of their workers. It’s time for the nation to follow California’s lead with actions, not rhetoric.

Policymakers who, like President Clinton, say they support the interests of women can back up that claim by repealing the death taxes. That will reward women for success and allow them to leave a legacy of prosperity and entrepreneurship.

– Alejandra Arguello
Fiscal Policy Analyst