In March, IWF came together with the Center for the Study of Taxation and the National Association of Women Business Owners (NAWBO) to release a study of women-owned businesses. The study reports the results of a new survey of women business owners, and details the adverse effects of the federal estate tax, the death tax. This tax costs jobs, prevents business growth, wastes vital business resources, and threatens the long-term health of small business. In today?s economy, women-owned businesses are a vital and vibrant part of the economy. But in too many cases, female (not to mention male!) entrepreneurship is being crushed by the death tax.

Anita K. Blair
IWF President

Women-owned businesses are now over 9.1 million in number and $3.6 trillion in sales. They employ 27 million workers in the United States.

The estate tax not only affects rich people who have what we think of as “estates,” it affects everybody. It affects people who own businesses and people who work for businesses. Everybody. Today you are going to hear from women business owners who have to spend a lot of money, change their plans, make decisions that are contrary to good business sense, and devote a lot of resources simply to comply with the tax requirements the government imposes. All of this is done merely to ensure that the business to which they have devoted so many years of their lives will continue after they are gone. That has always seemed unfair to us.

Congresswoman Jennifer Dunn

Women today are starting businesses at twice the rate of men. As a result, you have a lot more women beginning to worry about the negative impact of taxes in general, and particularly the death tax.

The Black Chamber of Commerce is one of the supporters of my tax proposal that repeals the death tax over ten years. The reason is that a black business person starting a business understands that it takes about three generations to really create standing in the community, to create a legacy that’s important to pass on to his or her family. So the death tax becomes the enemy.

That’s what women-owned businesses are discovering.

Women-owned businesses range from a self-employed, one-person operation running on the Internet out of a second bedroom, to major operations. Women-owned businesses employ more people than all the Fortune 500 companies do in the world. We’re talking about some pretty big stakes here.

On average, including tiny, start-up businesses to the larger ones, women-owned businesses spend about $1,000 a month just complying with the requirements of the death tax. Those dollars often go to purchasing insurance policies that at the owner’s death can be cashed in to create the liquidity that’s necessary to pay the death tax, which must be paid within nine months after the owner’s death. This tax burden can be up to 55 percent of the value of the owner’s assets. It’s huge.

What does that mean to businesses and to the economy in general — to neighborhoods where we want to create employment for the folks who live there? It means that this capital is totally wasted! That thousand dollars a month is wasted. The 55 percent of the value of the assets is wasted. The opportunity cost is greater employment — or benefits for workers — that women-owned businesses would like to provide.

We have 44 million people who are uninsured in this nation. Some of them are working for women-owned businesses that can’t afford to offer health insurance. This is how complying with the death tax prevents a better quality of life for everyone who works for businesses in this country. It is a devastating tax.

Patricia Soldano
President of the Center for the Study of Taxation

In our survey, we discovered that in the past five years, $60,000 has been spent on average by women-owned family businesses to plan for the death tax. Insurance is the easiest cost method for planning for the death tax and costs about $30,000. Then about $15,000 is spent on paying the tax itself. About $9,000 is spent on internal labor costs and another $6,000 for consultants for a total of $60,000.

Job creation. In our survey we asked: “How many jobs have you lost in the last five years due to the planning and the costs associated with this death tax?” On average: thirty-nine jobs! Thirty-nine jobs, times 272 respondents is 11,000 jobs that have been lost in this group over the last five years due to this tax.

In the next five years, the respondents expect to lose 103 jobs on average. That’s a total of 28,000. This is just for the 272 businesses that responded to the survey. So the death tax is a huge job issue.

Because legislators inquire about how this affects job growth, we asked, “What if the principle owner dies? What happens to the jobs in the business?” Of existing jobs, on average, 9 jobs would be lost. Of future jobs projected in the next five years, 16 per business would be lost. Those numbers are a little low because with first-generation businesses, you have a spousal deduction that you can use.

Forty-three percent of the respondents said the tax would force them to stop the expansion of their businesses. Forty-three percent said they would actually have to sell the business to pay the tax. And 35 percent said they would have to borrow.

We left lines on the survey for comments. I was astounded, because almost every single person wrote something.

One family from Oklahoma City had just settled their father’s estate and paid three-quarters of the estate for taxes and fees. They’d sold stocks and bonds and had to borrow, so that with the next generation, there would be no disposable assets left. The business will have to be sold.

West Hollywood, California wrote that their family had recently experienced a triple tax. First, the grandfather paid income taxes on his income when he earned it. When he died, it was taxed again. The mother died two years later and they were taxed again. This was effectively an 88 percent tax.

And Louisville, Kentucky wrote: “This business provides income for thirty families. It provides tax income for city, state, and federal governments. estate tax is a sweat tax on families. The more families sweat, the more tax they pay.”

Joy Turner
Owner and President of Jeffers Business Services

Many people say that the estate tax brings in a lot of revenue. In truth it brings in maybe one percent of the government’s total annual budget. But this one tax destroys many family-owned businesses and estates for individuals.

This is an issue that affects people other than those with large estates. You’re looking at one.

When I first entered the employment market, I was making $77 a week. Can you imagine? And I was raising two daughters because I suddenly found myself in the midst of a divorce that I didn’t know was coming and did not want. But I kept going.

I started from point zero. I did not have any alimony. I had nothing given to me but two wonderful daughters who are my most prized possessions. After going from $77 a week to where I am now, it’s important to me to make sure that my daughters and my three grand-daughters will have somewhere to start, that they don’t have to start from point zero.

I came down last summer with a very sudden illness, something totally unexpected. My family was in shock, and so was I. But my first thought on recovering was, “Hey, wait a minute. I can’t go now. I haven’t finished my estate planning! My children are going to end up paying out everything that I’ve tried over these years to gather for them.”

I had not been able to afford the high expense of an attorney to finish my estate plan. We had started it, but I had not finished it.

So then that became my priority — to rise out of that bed and somehow get the money out of my very limited cash flow for an estate plan.

So much of our money goes into estate planning to try to avoid taxes on income that we’ve already paid taxes on. Much of the money that funded my business came from income that I paid taxes on when I worked in a corporation. So now, when my daughters inherit the business, they’re going to be paying taxes a third time on the same money. And that’s grossly unfair.

Terry Neese
National Association of Women Business Owners

Women business owners in this country employ one out of every four workers. These are first-generation businesses, so most of us are just now beginning to understand the death tax.

A lot of these women business owners are now thinking about succession planning and what happens to their companies after they’re gone, but it’s more than that. It’s, “What is going to happen to my employees if my business has to be sold?” We want to make sure that our employees are taken care of.

I, too, was a single mom, and I wanted to start my own company. I grew up on the farm in Cookietown, Oklahoma. We were lucky if we had beans on the table to eat. Breakfast, lunch, or dinner. And I helped my family farm.

I started a company when I was 21 years old with about $600. I didn’t know you could borrow money. I just built my company day-by-day putting people to work. I took that $600 and put a lot of sweat equity into the business. We will be celebrating 25 years in July of this year! So I would hope that this sweat equity has earned me something.

Two years ago my daughter came to work for Terry Neese Personnel Services, and now she runs it. She’s doing a lot better than I did. All of a sudden, the realization hit me that I started out with $600, but now the company is worth a few dollars. And I hope that when I die, my daughter can continue the company. And she now has two daughters, so wouldn’t it be great if I have granddaughters that come into the business?

But I haven’t done my estate planning. If I were to walk out here this afternoon and be hit by a taxi cab, she would probably have to sell my business to pay the taxes. And what a shame! I’ve been in business 25 years and I’ve got people who have been with me 10, 15 years. And I would hope that those people could remain there.

What you have to look at with the death tax is the number of jobs that are lost when someone has to sell a business in order to pay the taxes. It’s all about jobs in my opinion…and keeping the entrepreneurial spirit going in America, because that’s what America is all about.