As the proud daughter of a Korean American immigrant, I am passionate about encouraging people, especially women, to take a seat at the table and make their voices heard. It is with that same spirit that, as the founder of a few of the 31.7 million small businesses that help power the American economy – and that account for 65.1 percent of net new job creation since the start of the century – I wish to add my voice to the conversation concerning a new tax peddled by career politicians in Washington, D.C. If enacted into law, the devastating new proposal, inappropriately titled the “Sensible Taxation and Equity Promotion (STEP) Act,” would create massive tax bills for small businesses, middle-class families, farmers, and homeowners upon the death of a loved one.
The push to eliminate the stepped-up in basis provision, which currently works to shield small and family-owned enterprises from significant tax liabilities when businesses are passed down to the next generation – when relatives are still reeling from a death – is as problematic morally as it is politically. Per a national poll of likely voters on the proposal released by the Saving America’s Family Enterprises (SAFE) coalition, Americans “believe the wealthiest families will still find loopholes to avoid the effects of the STEP Act, while middle-class families and small businesses will face massive new tax bills.” What’s more, “85 percent of voters agree that the STEP Act will affect hardworking middle-class families the most,” while “83 percent of voters – including 77 percent of Democrats – believe that the STEP Act will ruin family businesses and endanger jobs.” And of particular interest to this minority entrepreneur, voters understand “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.”
The SAFE coalition’s findings reflect a broad, bipartisan consensus in Congress around this issue. Back in May, 13 farm district Democrats urged House leadership to consider the likelihood that family farms, ranches, and businesses would be forced to liquidate or sell off assets just to be able to pay new taxes when the prior owner passes away. Additionally, over the summer, every Republican senator – from Susan Collins to Ted Cruz – wrote to warn President Joe Biden that “if the functional benefit of the step-up in basis were eliminated and transfers subject to the estate tax also become subject to income tax… many businesses would be forced to pay tax on appreciated gains, including simple inflation, from prior generations of family owners—despite not receiving a penny of actual gain. These taxes would be added to any existing estate tax liability, creating a new backdoor death tax on Americans.” More specifically, on middle-class Americans and small business owners who, unlike the most affluent among us, lack the resources to examine and exploit potential loopholes.
The macroeconomic ramifications of a stepped-up basis repeal for our country’s economy, meanwhile, mirror those for middle-class families. Among the adverse effects measured by an EY analysis on the subject: a reduction in GDP of about $10 billion per year – or $100 billion over 10 years – annual job losses of about 80,000, and lower wages “given that about 1/3 of the burden of the tax increase is shifted onto labor because the tax-induced reduction in investment makes labor less productive.” Put more plainly, EY estimates that “for every $100 of revenue raised by repeal… 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 U.S. workers.” It would be difficult to conjure up a more damaging set of consequences for a still battered American economy and the men and women who are working with equal parts resilience and resolve to restore it.
And so, while the Biden administration’s well-intentioned objective may be to build back better, its profoundly misguided approach to critical stepped-up in basis protections would only serve to build a barrier between the current state of our economy and the prosperity enjoyed prior to the pandemic; between minority small business owners and the degree of social mobility we deserve. Along with voters of both political parties, I therefore oppose – and urge policymakers to swiftly scrap – a tax hike borne acutely by middle-class families and minorities alike.
