Published Friday, November 5, 1999, in the San Jose Mercury News

JOHN F. STURM

Estate tax is wiping out
family-owned newspapers

by John F. Sturm

The federal estate tax has many family-owned newspapers up against the ropes, and without some quick help from Congress, these vibrant voices of the community are in danger of going down for the count.

In 1910, there were 2,100 independently owned newspapers in the United States. Since then, the number has dropped to only about 300. One of the biggest contributors to their demise is a punishing estate tax that requires payment of up to 60 percent of all assets at the time of death. This can result in heirs being forced to sell the property simply to meet the tax burden.

One recent victim is The Tribune in Ames, Iowa, which was put on the market in September after the sudden death of one of its owners. With the grieving family facing a huge estate tax due Oct. 1, the two remaining partners, Pulitzer Prize winner Michael Gartner and newspaper veteran Gary Gerlach, were forced to sell The Tribune and the other community papers and assets they owned.

Family newspapers are just one of the many businesses that are being crippled by the estate tax. This scenario is repeated thousands of times a year in other industries as this crushing tax brings a wide range of family-owned businesses to their knees. It is telling that 91 percent of all businesses in America are family-owned, and 90 percent of family businesses fail shortly after the death of the founder. According to the Small Business Administration, 33 percent of grieving families must sell all or part of the family business to pay the estate tax.

Women and minorities are hit particularly hard, especially those entrepreneurs who are newly economically empowered. Following the recent death of John Sengstacke, the publisher of the Chicago Daily Defender -- one of the oldest black-owned daily newspapers in the United States -- his heirs were forced to put the newspaper up for sale. They could not afford to pay the $1 million in estate taxes. Sengstacke's granddaughter is trying to come up with the financing to pay the taxes and keep the historic newspaper in the family.

If family businesses, one of our country's greatest sources of jobs and creativity, are suffering such losses, who gains? The answer appears to be no one, with the exception of the accountants, tax attorneys and estate planners hired by families to manage their assets in ways to avoid the tax. That money could be better used investing in equipment, expanding business and creating more jobs.

The irony is that the estate tax directly contradicts the fundamental principles that the United States supports: hard work, saving for the future and fairness. Why use this onerous tax to penalize a person who works hard, pays taxes along the way and invests and saves money?

For all this, the estate tax brings in less than 1 percent of total federal tax revenues, while enforcement costs the government 65 cents for every dollar received. According to the Joint Economic Committee of Congress, in 1998, families spent more than $20 billion to prepare for and comply with the estate tax. The amount was nearly as much as the revenues the estate tax raised that year.

Suffering from the estate tax runs deep and wide, which is why, according to The Center for the Study of Taxation, 75 percent of the public believes that this tax is wrong and should be repealed. Repeal is supported by diverse business groups, including the National Black Chamber of Commerce, U.S. Hispanic Chamber of Commerce, the National Indian Business Association and the National Association of Women Business Owners.

Family-owned newspapers make a vital contribution to the diverse voice of America. Congress should act now to reduce and eventually eliminate the unfair, unproductive estate tax. These unique entrepreneurs are a community resource too valuable to lose.

John F. Sturm is president and CEO of the 2,000-member Newspaper Association of America, the newspaper industry's largest trade organization, whose members account for nearly 90 percent of the U.S. daily circulation.

http://www.mercurycenter.com/premium/opinion/columns/ESTATE.htm