Guest column submitted by U.S. Senator Mike Crapo
Small businesses are the backbone of our economy, and often when a business owner dies, the family business is tied up in their estate. Recognizing this, Congress created exemptions from estate and capital gains taxes, including allowing a step-up in the value (“tax basis”) of a business to its then fair market value. That way, heirs are not subjected to taxes on the business’s unrealized value, including “phantom value” increases stemming from inflation. This helps Idaho families pass small businesses, homes, land, stocks and other investments on to subsequent generations without having to sell them to pay Uncle Sam when a loved one dies.
Democrats have proposed creating a “double death tax” by eliminating the benefit of this step-up in tax basis while also trying to enact the highest capital gains tax rate in decades and broaden the estate tax’s scope to affect more Americans. Americans work a lifetime to leave something to the next generation. I am adamantly opposed to these proposals that would subject them to excessive federal taxes, sticking them with the bill for reckless, inflationary tax-and-spend policies.
These proposals would bite the middle class hard. A study conducted by the Family Business Estate Tax Coalition (FBETC) estimates Democrats’ proposed repeal of the step-up in basis could kill 800,000 jobs over a decade and lower wages of U.S. workers by $32 for every $100 of federal revenue raised. Further, the researchers find it would make death taxable even for families below the current estate tax exemption--significantly broadening the scope of death and inheritance taxes.
Democrats’ proposals to halve current estate tax exemptions would subject far more Americans to the 40 percent death tax. The Wall Street Journal Editorial Board wrote this proposal would, “hit small businesses and savers who have built up a small nest egg.” The FBETC study states, “both the estate tax and any efforts to repeal step-up in basis will create cash flow problems for family businesses and increase the likelihood that these job creators will be forced to close or liquidate part of their operations, resulting in job losses and economic damage.” Forced liquidations of family businesses and assets to meet higher demands from Uncle Sam undo incentives to build them in the first place, further damaging families and the economy.
R.L. “Dick” Wittman, a retired farm manager of a fifth-generation Idaho farm and ranch who has for decades consulted on succession planning explained, “The proposals to tax unrealized gain on farmland transfers would be devastating for family businesses striving to maintain business continuity and economic viability. Capital requirements essential to running an economically viable farm business have skyrocketed in recent years due to significant inflation in land and equipment costs. A combine that cost $25,000 in 1980 is now over $600,000; farmland valued at $1,000 per acre in 1980 is now selling for $3,000 – the same land performing the same productive function, just with an increased value driven by inflation.”
Members of both parties have long supported the step-up in basis provision and a lower tax rate on long-term capital gains to help Americans save for future goals, including starting and maintaining a business, saving for retirement, achieving financial independence, or buying a home or a car, policies that support our country’s economic and social wellbeing. The proposed supersized tax hikes are a huge step in the wrong direction for encouraging growth and economic recovery. I will continue to fight them. I encourage all those concerned about these proposals to share your views with others to push back against these destructive efforts to pay for reckless federal spending by overtaxing Americans.
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