The Estate Tax Has No Impact on Small Businesses, Unless Repealed | Commentary
By Deborah Field As a small-business owner, I’ve grown accustomed to the political exchange that takes place over issues regarding the best policies for our growth, but the most recent narrative illustrating the plight of small business owners in regards to repealing the estate tax is unnerving. Claiming that small businesses and family farms are negatively affected by a tax that virtually none of them pay is exasperating and undermines the values of America’s small business owners.
My business, as with any small business, grows when customers have the money to spend at my shop. When patrons in my community are able to buy high-end paper goods and custom-design services, my business thrives. The opportunity to own a successful business and to, “Pass along something to my children and grandchildren,” as Speaker John A. Boehner, R-Ohio, mentioned, has never been jeopardized by the estate tax.
The Federal Estate Tax is a tax on the transfer of a person’s assets after they die, given their taxable estate meets certain criteria. Its modern form has been in effect since 1916, but its origins in the U.S. date back to our founding. Support for the tax now and historically derives from the basic economic principle that unearned, inherited wealth concentrated in the hands a few lucky people doesn’t create a healthy economy. It is also widely accepted as the tax that has the least effect on labor and capital, as opposed to the income tax or the sales tax. The only argument the opposition raises is that the government shouldn’t tax the deceased for doing well in life. They galvanize public support by manipulation, leading people to believe they will be affected by the tax when the overwhelming majority never will.
The estate tax is imposed on the taxable estate―the remainder of the estate after all qualifying deductions and most notably, after the exclusion amount of $5.34 million, an amount that doubles if the deceased is married at time of death. If you have a booming small business or farm that meets this threshold, odds are you’ve hired a team of money gurus to help you take advantage of the myriad of loopholes in the tax code.
For instance, many high priced estate-planners use special financial instruments to pass down sizable assets tax-free. If after the exclusion amount and deductions taken your small business is still valued high enough to be affected by the tax, the estate is taxed at a graduated rate up to 40%. When opponents claim that the government will take “almost half” of your estate through the estate tax after you die, this is patently false. Almost no one, even mega-billionaires see that amount. There are simply too many ways to get around it.
The estate tax is one way to level the playing field for small businesses and family farms. Most of us can’t afford high-dollar lawyers and financial planners to help us circumvent the rules. The revenue we bring in usually goes right back into our business to grow, innovate, and hopefully survive in an economy designed for the wealthiest minority. The estate tax is the only tax that captures certain capital gains on acquired wealth of million and billion-dollar companies that would otherwise go untaxed. When a company’s assets appreciate in value, the amount of appreciation is due as capital gains only when the amount is realized. So for the wealthiest companies that rarely need to sell any of their assets to grow their business, this acquired value is never taxed―that is until the owner or executive dies and is subject to the estate tax.
What supports and favors small businesses and family farms is a healthy middle class which is facilitated by tax rules that everyone has to follow. The revenue generated from the estate tax is substantially more beneficial to the financial stability of my community than the effect it has on the hand-full of those in which the tax is levied. While tax policy anywhere is inherently controversial, this seems like a no-brainer.
According to the Congressional Budget Office, the estate tax will generate about $246 billion over 2016-2025 under current law. Opponents assert that because this is such a small percentage of the government’s total budget it only has the capacity to do harm. However, $246 billion goes pretty far when you consider the cuts that are usually made to support similar tax holidays for the wealthy. This often includes funding for education and medical research, local law enforcement and emergency services, as well as crucial tax incentives that create opportunity for middle class families and small businesses like mine.
It is unreasonable and fiscally reckless to add more than $246 billion to the deficit by eliminating yet another tax from a few wealthy estates while at the same time asking for further sacrifices from businesses like mine. While the estate tax has limited impact on my business, the effects of the budget shortfall created by eliminating the tax will be felt here at Paperjam Press and throughout our community.
Deborah Field is the owner of Paperjam Press in Portland, Oregon and is a member of the Main Street Alliance, a national network of small business owners working to provide a new voice on important public policy issues.
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