Despite the differences in our political perspectives as a former chairman of the Republican National Committee and a representative who served in the Democratic congressional caucus for three decades, we are writing with one shared perspective on the unique harm of a provision before policymakers to force small and family-owned businesses to pay taxes they cannot afford. Worse still, members of the middle class would face crushingly high tax bills at their lowest moments as the so-called Sensible Taxation and Equity Promotion (STEP) Act’s new levy would only be triggered following the death of a loved one.
The broad, bipartisan coalition of those opposed to the STEP Act’s elimination of the “stepped-up in basis” protection – from every Republican senator to more than a dozen House Democrats – is rightfully worried that the proposal would create devastating consequences following a year in which a full “31 percent of small businesses and 52 percent of personal businesses have stopped operating as a result of the [COVID-19] crisis.” Indeed, per an important column on the subject by former Democratic Sen. Max Baucus – who previously served as Chair of the Senate Finance Committee – “family businesses would have to pay taxes on their appreciated value even if that value is still locked up in the business. Eliminating the step-up would force family businesses and ranchers to liquidate when an owner dies and to lay off employees while bringing in little revenue for Uncle Sam.”
As such, according to a recent Ernst and Young analysis, the new death tax would cost an already battered economy 80,000 American jobs each year over the next decade, eliminate an additional 100,000 jobs annually in the long run thereafter, and decrease GDP by roughly $100 billion over the course of 10 years. Additionally, the analysis estimates that “for every $100 of revenue raised by repeal via tax at death the wages of workers would decline $32. That is, the burden of the tax is such that nearly one-third of every dollar of revenue raised comes out of the paychecks of US workers.”
While we care deeply about how these ramifications would serve as a roadblock to any economic recovery, our particular concern with the STEP Act is rooted in its capacity to impose a chilling effect on Black entrepreneurs for generations to come following a year in which our country embarked on a racial reckoning and parallel pursuit to rid America of racial inequality. Our particular concern is rooted in the fact that minority-owned businesses, which “employ more than 8.7 million people and are concentrated in the industries most immediately affected by the pandemic,” have been hit especially hard since March 2020 – as well as in the belief that the rather privileged politicians in favor of this bill, some of whom are millionaires many times over, should be devoted to buttressing social and economic mobility rather than blocking those who dare seek to join their ranks.
The American people agree. Per a compelling nationwide survey on the subject released by Saving America’s Family Enterprises, “voters believe that the STEP Act blocks social mobility. 86 percent of voters are concerned that the STEP Act would impact historically disadvantaged groups who are finally finding financial security for their families.” A full 87 percent of Black voters and 86 percent of Hispanic voters share this sentiment. What’s more, 78 percent of voters see the STEP Act as explicitly discriminatory – slowing upward mobility for groups that finally have a shot at the American Dream for themselves and their kids. And 78 percent of voters believe that the STEP Act’s readymade loopholes would exacerbate income inequality in America. This view is held by both lower-income voters (82 percent agree) as well as higher-income voters (85 percent agree).
Accordingly, as policymakers prepare to formulate their positions on such a pressing issue, we urge them to follow the consensus of their constituents, who recognize that the imposition of this new death tax immediately upon inheritance would be both unprecedented and unjust. Congress should protect the step-up in its current form rather than those who would benefit on the backs of grieving families and budding entrepreneurs in communities of color.