New Estate Tax Proposals Threaten Survival of Family Businesses

In my last column, I wrote that AICC will be mobilizing our members and our industry allies to help preserve the business tax cuts enacted in 2017, which are now threatened with repeal by the Biden administration and the Democrats in Congress. “We’ll need everyone on the front lines,” I wrote.

After reading the Small Business Council of America’s recent summary of the Biden administration’s new estate and gift tax proposals, titled “Allow Small Businesses to Thrive; Keep the Step-up in Basis and Current Estate Tax Exemptions,” my plea for mobilization has taken on greater urgency. For I believe the changes being proposed for estate tax laws truly threaten the long-term survival of family businesses in our country.

Simply put, current estate tax law allows for a unified credit of $11.7 million per spouse—which will be halved on January 1, 2026, per a sunset provision of the Tax Cuts and Jobs Act of 2017—and a tax rate of 40%. Heirs may sell inherited assets without paying capital gains taxes—called “basis step-up”—or they can hold inherited assets without paying capital gains taxes until the assets are sold. Changes proposed by the Biden administration would reduce the unified credit to only $3.5 million per spouse and graduated tax rates beginning at 40%. Step-up provision is repealed, meaning heirs who receive inherited assets with the decedent’s basis must pay capital gains taxes on these inherited assets, whether they are sold or not. The exception to this is inherited family businesses that will continue to be run by the family.

To illustrate the potential effect, if the owner of a business valued at $12 million passes away, a total tax of $120,000 under current law could balloon to a possible $6 million. I’m not sure the heirs in this scenario and others would be able to pay the estate tax bill without selling the business outright to raise the cash. This would be a tragic outcome for our small business community, especially among our capital-intensive manufacturing base that AICC members represent.

What can you do? Contact your representatives and senators today and tell them:

1. The proposed changes would negatively impact millions of America’s small businesses.
2. Many taxpayers not wealthy enough to owe estate taxes under current law will suddenly be subject to new death taxes.
3. The same assets shouldn’t be taxed twice—estate taxes and income taxes.
4. Taxes shouldn’t be triggered unless there is a sale so there are funds available to pay the taxes.

Go to www.senate.gov/senators to find your state’s senators, and visit www.house.gov/representatives to find your representatives. As I said, we need everyone on the front lines, and these battle lines are now clearly drawn

Eric Elgin is owner of Oklahoma Interpak and Chair of AICC’s Government Affairs subcommittee. He can be reached at 918-687-1681 or eric@okinterpak.com.