The federal estate, gift and generation-skipping transfer (GST) taxes are punitive, confiscatory and harmful to family businesses – the engine of the American economy. At a time when employers should be encouraged and incentivized to grow and create jobs, Policy and Taxation Group (PATG) is working to ensure family-owned businesses throughout the country do not face a significant and potentially crippling increase in their estate taxes.
The estate tax should ultimately be repealed and replaced. By making death a taxable event, government has put America’s most valuable innovators and entrepreneurs at a competitive disadvantage in the marketplace and unfairly burdened them during life, death and even beyond. While the permanently indexed $5.25 million exemption enacted in the 2012 fiscal cliff deal is a welcome reform, the confiscatory 40 percent rate kills jobs and threatens the viability of family-owned businesses.
Below are some of the key reasons PATG and its allies seek relief from and ultimate repeal of this harmful tax.
The Case for Relief and Repeal
Under current law, estate, gift and GST taxes:
- Impede economic growth and cost American jobs. Future employment is lost when business owners decide not to expand or open another store because of the ever-looming death tax. Current employment is also destroyed when businesses are liquidated to pay estate taxes. Relief and repeal would enable and encourage businesses to hire, creating jobs and spurring economic growth.
- Frequently result in double taxation. The estate tax is imposed on earnings and assets that have often already been subject to income, payroll, capital gains and other taxes at the state and federal level.
- Force the fire sale of many family-owned businesses. Because many family-owned businesses often lack liquidity due to long-term investments in land, farms, buildings and equipment, they are often forced to sell the business in order to pay the tax.
- Put family-owned businesses at a competitive disadvantage. Family-owned businesses face a death event every generation, while they are often forced to compete with multinational conglomerates that live in perpetuity without fear of the estate tax. While family-owned firms may have half of their value eviscerated every twenty years, their competitors keep chugging along.
- Increase the cost of capital for family-owned businesses. Because of the major financial consequences of the tax and the near impossibility of predicting when a death event may occur, family-owned businesses divert a significant amount of resources away from investing in people and innovation to cover the cost of attorneys, accountants and life insurance. The result is not only a disadvantageous allocation of resources, but also an increase in the cost of capital, hindering the ability of businesses to grow.
- Discourage savings and investment. Employees want both their own families and their employers to be prepared for the challenges and opportunities of tomorrow. The estate tax penalizes savings and investment, encouraging families to squander capital instead of building a nest egg and investing in their future.