As Congress looks hard at what it can salvage from the expiring Tax Cuts and Jobs Act of 2017 (TCJA), the tax priorities for family businesses are beginning to take shape.
Family business owners also recently voiced their feelings at the Congressional Family Business Caucus meeting held in the Longworth Building on Capitol Hill, the last Caucus meeting of 2024.
In addition, new survey results from family businesses and Hill tax expert recommendations are making it clear what the tax priorities are for the next 12 months.
Saving What It Can
As I write this, the House Ways and Means Committee is busy managing its 10 Tax Teams to improve, or save, what it can from the TCJA, which is set to expire on Dec. 31, 2025.
Items on the salvage list include avoiding increased income taxes; stopping a decrease in estate tax lifetime exemptions and an increase in capital gains taxes; and restoring research and development expensing.
The Tax Team initiatives were brought up several times during the Congressional Family Business Caucus meeting, held in mid-September. The meeting's focus was “enterprise structure.” It addressed the challenges of operating a pass-through tax entity structure, which, according to research, is the operating structure of 80% of family businesses.
At the bipartisan meeting, generationally owned family businesses leaders met with Rep. John Duarte (R-Calif.), a family business owner himself. A panel discussion focused on the tax disadvantages family businesses face.
The panel discussion included Karsten Manufacturing Vice President & Corporate Counsel Dawn Grove, Wedgewood Weddings Chairman John Zaruka, Awesome (owner of SmugMug and Flickr) Chief Executive Officer Ben MacAskill, Superior Paving President David White and Capri Capitol Chief Executive Office Robert Mancuso.
At the Caucus, attending family businesses also had a chance to air their concerns about existing tax law.
For example, Bill Hickey, chairman of Lapham Hickey Steel, a nearly 100-year-old company based in Bedford Park, Ill., with 850 employees in 12 US locations, emphasized the importance of retaining many of the existing laws related to pass-through entities.
“The existing tax law on pass-through businesses allows for greater investment and more efficient production for our country,” Hickey said. “This tax rate helps pass-through businesses compete against C corporations. Our company is part of the manufacturing supply chain in North America. We support, assist and supply thousands of industrial manufacturing companies that are creating wealth for tens of thousands of their employees. If the tax rate is increased, pass-through businesses will be less competitive. That will affect everyone in the entire manufacturing supply chain and eco system.”
Tax Poll Results
The meeting also featured new research from a national survey of 100 family-owned businesses on the topic of taxes.
The Tax Policy Priorities Survey, sponsored by Family Enterprise USA, found that the top concern was “no decrease in estate tax lifetime exemption,” cited by 30% of respondents from 33 states.
In close second place, the poll found family businesses wanted “no increase in the income tax rate,” which received 28% of votes.
The survey found that 13% of respondents felt that “no increase in capital gains tax rate,” the was a top tax concern, while 11% were very concerned about “establishment of a wealth tax.”
In addition to the discussion about the poll results, Duarte spoke at the Caucus meeting about his experiences running an agricultural-based family business in California's Central Valley.
Duarte is a fourth-generation farmer and businessman based in Modesto, Calif. He and his wife, Alexandra, have run vineyards and orchards in the state's Central Valley since 1989.
Seven Tax Policy Priorities
To help Congressional Family Business Caucus members understand family business-friendly recommendations, the tax experts at law firm Squire Patton Boggs's Washington, D.C., office have offered the following list of “Seven Tax Policy Legislative Priorities” for the 119th Congress:
- Preserve the current tax rates and brackets enacted under the Tax Cuts and Jobs Act.
Family-owned businesses rely on the consistency of tax rates more than corporate businesses do, because of the increased complexity in succession planning. In addition, family businesses are uniquely suited to reinvest more in their business, their employees, and their communities.
- Reduce the estate tax rate.
Estate taxes severely hamper family business owners' ability to pass the business and related assets (which are typically illiquid) to the next generation, making it more difficult for the business to continue growing, providing important jobs and contributing to local communities.
- Make permanent the Section 199A deduction for passthrough businesses.
The Tax Cuts and Jobs Act included a new deduction to help ensure business owners pay tax rates that are more comparable to the corporate tax rate reduced by the TCJA. If allowed to expire, the section 199A deduction will severely disadvantage pass-through businesses.
- Restore the full deductibility of research and development (R&D) expenses.
The R&D deduction has historically been a bipartisan issue, gaining support from both parties in discussions on economically beneficial provisions to include in a 2025 tax bill. According to research from Family Enterprise USA, 22% of family-owned businesses are in the manufacturing/operations industry, and 11% are in the construction/facilities industry, which rely heavily on R&D investment.
- Restore 100% bonus depreciation.
Next to their commitment to their employees, family-owned businesses rely on capital investments to compete, grow and thrive. Bonus depreciation is a critical tool for family businesses, enabling them to support their capital investments and to finance facilities and equipment essential to their ability to grow, expand employment and contribute to the communities in which they operate.
- Preserve the capital-gains tax rate.
Like the estate tax, capital-gain taxes present an obstacle for capital formation and investments necessary for family businesses to expand, modernize and succeed in an increasingly competitive market.
- Prevent the creation of a wealth tax.
Wealth taxes – taxes on existing assets and unrealized gains – will be particularly harmful to family business owners, who often disproportionately invest in the business in the hopes of passing it on to the future generations.
Let Congress Know
Nobody knows what Congress, or the new White House, will ultimately agree on when it comes to taxes, or how they will manage the growing gap between revenues and expenses. But everyone agrees there will be a new tax bill in 2025 — good, bad or ugly.
The only way to state your case is to let your representatives know what your priorities are for the new tax bill.
The next Congressional Family Business Caucus meeting will be held in March 2025. In total, there will be three meetings in 2025. These will be the last chance to speak to the Caucus about critical family business tax concerns.
Pat Soldano is the president of Family Enterprise USA and the Policy and Taxation Group, both nonpartisan organizations advocating for family enterprises of all sizes. They are the organizers of the Family Enterprise USA Annual Family Business Survey 2024 and assist in organizing the Congressional Family Business Caucus.