A high-profile politician recently proposed raising the estate tax. In contrast, others have argued America should repeal the policy. So it’s worth asking: what’s an estate tax and how does it impact small business owners?
The estate tax is often referred to as the “death tax.” If a deceased person’s will calls for the transfer of property worth over a certain amount to another individual — such as a child — that transfer is taxed by the federal government, leaving less value for the inheritor. This can be compounded by similar taxes at the state level.
Supporters of the tax say the policy is intended to curb large sums of money from staying in the same family for generations and help disperse the funds back into society. However, while in some cases the estate tax serves this purpose, in many other occasions, it can harm small businesses.
Businesses that are passed down through a family are not uncommon. Think farms, wineries, local general stores or even restaurants. These multigenerational businesses do not come along with billion dollar fortunes and often operate on very tight budget constraints—as most small businesses do. So squeezing money out of these businesses every time ownership changes hands can mean financial ruin—leading to business closure out of financial necessity.
Efforts to raise the estate tax may be well-intentioned, but in reality, the policy harms the very family-owned small businesses that inject economic vibrancy into Main Streets across the country. Government policies should be encouraging these entrepreneurs to succeed, not pulling them through financial hardship.