Today, it can be vastly more expensive to die than to make money on investments. The federal estate tax — or “death tax” as it’s often called — has a top rate of 40% and is the highest rate in the U.S. tax code.
The estate tax is imposed on the fair market value of a decedent’s estate (after the lifetime exclusion), not just the appreciation while the taxpayer owned the property. Adding insult to injury, the federal estate tax applies a 40% rate on the full value of the taxable estate, while the capital gains rate tops out at 20%.
It’s not right that family business owners should be subject to a higher rate at death than they would have paid on the sale of the business while they were alive. There is a bill in the House of Representatives right now, the Estate Tax Rate Reduction Act (H.R. 601), that would lower the estate tax rate to 20%. This would provide critical relief to family businesses across the nation.
It’s a bipartisan issue too. “The death tax is an unfair double tax that could force the next generation to sell their family business — on which they’ve paid a lifetime of taxes — to pay another tax simply because of a family member’s passing,” says Rep. Jodey Arrington (R-Texas) about the bill. “Penalizing Americans who work their entire lives, build successful businesses and seek to pass down a better life to their children and grandchildren is the antithesis of the American Dream.”
On the Democratic side of the aisle, Rep. Sanford Bishop (D-Ga.) introduced the bipartisan Estate Tax Reduction Act. As part of the bill’s introduction, Rep. Bishop said, “When Americans have rolled up their sleeves, worked hard their whole lives to provide for their children and take care of their loved ones, and built family small businesses that drive local economies and feed our nation, the tax code should be fair and not stand in the way of one generation leaving the next a better life.”
An estate tax rate of 20% encourages family-owned businesses to keep investing in their enterprises and expand, producing more jobs and revenue and preserving their ability to pass the business on to the next generation. Taxing family-owned businesses at 40% does the opposite. It forces owners to spend scarce capital on complex estate planning and costly insurance coverage to prevent the sale of all or parts of the business just to pay the estate tax. This capital could be reinvested in the business, supporting critical jobs and contributing to economic growth.
The Estate Tax Rate Reduction Act would reduce the tax burden on family-owned businesses and allow business owners to invest more of their hard-earned money in expanding their operations and creating jobs. It’s time to make sure our lawmakers hear this message loud and clear and show up for family-owned businesses.
‘Being There’ on Capitol Hill
There is something to the old Woody Allen quote that says “80% of success is showing up.” If you want something done In Washington, D.C., that figure is likely closer to 100%.
A big part of showing up for family-owned businesses comes in the form of the Congressional Family Business Caucus, which is now back in order. After a strong March meeting, we are now set now for its second meeting on June 9 on Capitol Hill. House Members, Rep. Lou Correa (D-Calif.) and Rep. Claudia Tenney (R-N.Y.) are the new co-chairs of the bipartisan Caucus.
The March meeting focused on “Affordability Strategies for Family-Owned Businesses,” while the June meeting’s theme is “Fuel for Growth: Capital Solutions for Family Businesses.”
One lesson we’ve learned over the years advocating for family businesses is that you need to be on the Hill and you must walk the halls of Congress to get your message heard. But showing up is not so easy.
The most recent edition of Family Enterprise USA’s annual “Family-Owned Business Survey” found a shocking 74% of family business leaders “have not” met their congressmember. When we walk the halls of Congress with family businesses after our Caucus meetings, we find House members and their staffers are more than willing to meet with us and are happy to listen to us. Many have no idea how powerful family businesses are in their districts, how many employees those businesses have or how substantially they contribute to their local community.
We’re on the Hill daily and we’re talking with House and Senate members, gauging their interests and explaining the challenges family owned businesses face. Many congressmembers are new and their staff members are young.
It’s about constant education. Just showing up — being the “squeaky wheel” — makes a huge difference.
Research Shows Priority Shift
Priorities tend to change, but now they’re changing so dramatically — and so quickly — they’re getting hard to track. As the newest research findings are being tallied from our annual “Family-Owned Business Survey,” we’re noticing some profound shifts.
Last year, survey responses listed the “usual suspects” of economic concerns: reduce the national debt (32%), reduce income taxes (23%) and reduce regulations (16%). This year’s survey, conducted among 710 respondents in the first quarter, wiped those concerns away. Now, family business owners say their top economic policy priority is health care, with a whopping 51% listing this as their top concern. Last year, health care didn’t rank at all.
New “wealth taxes” ranked second among respondents’ economic concerns, with 22.5% saying this was their top worry. Last year, it was listed as a concern of only six percent of family business respondents. Last year’s top worry — the national debt — came in at a lowly third place this year, with only 13% saying this concerned them. That’s a big drop from 32% last year.
A full report on this new research will be coming soon and it’s sure to raise some eyebrows on Capitol Hill as our lawmakers take stock in what America’s 32 million family businesses have to say about our economy and the future.
Pat Soldano is president of Family Enterprise USA and Family Enterprise USA Action, both are non-partisan organizations advocating for family enterprises of all sizes. Both groups are supporters of the Congressional Family Business Caucus and organizers of the Family Enterprise USA Annual Family Business Survey.