N.C. small business owners and family farmers can look forward to keeping their businesses in the family – at least this year.
The federal estate tax, or "death tax" as it is commonly known, expired at the end of last year. Prior to that, families could be required to hand over to Washington nearly half of the combined value of virtually everything they own – personal and business assets alike. They had nine months after the death of a business’s owner to pay the bill.
Unfortunately, the draconian tax automatically comes back to life on Jan. 1, 2011, at the extraordinary rate of 55 percent on all assets exceeding $1 million.
If Congress allows this to happen, the heirs of many N.C. business owners, most of whose wealth typically is tied up in the business, will be forced to liquidate large portions of their businesses simply to pay the IRS. Before the tax expired it happened all the time.
Even worse, federal lawmakers – desperate for revenues to pay for their recent spending binge – are now talking about increasing the top rate to 65 percent. What this means is that the owner of a successful business could owe the government nearly two-thirds of everything he or she has managed to build, save and accumulate over an entire lifetime. This is wrong. Congress should make repeal permanent.
Contrary to popular myth, the estate tax has little practical effect on the super rich, who have high-priced lawyers and accountants to make sure they avoid the tax. Rather, a disproportionate number of estate tax filers come from the ranks of family business owners and family farmers.
According to the Joint Economic Committee of Congress, between 1995 and 2005 estate taxes were paid by more than 37,000 "closely held businesses," 24,000 family farms, 50,000 limited-partnerships and nearly 28,000 "other" non-corporate businesses, such as sole proprietorships.
Concerns that repeal of the estate tax will lead to diminished federal revenue at a time when Washington needs every tax dollar available are also misplaced. A report for the American Family Business Foundation by economist Stephen Entin, a former Treasury official, shows that permanently repealing the estate tax would stimulate investment in family-owned businesses and create jobs, both of which would generate as much as $23.3 billion in additional annual taxes.
Former Congressional Budget Office Director Douglas Holtz-Eakin calculates that as many as 1.5 million new jobs would be added to the economy nationwide if the death tax didn’t exist.
Of those jobs, nearly 43,000 would be in North Carolina, the John Locke Foundation has estimated – good news when the unemployment rate still exceeds 10 percent.
Sens. Kay Hagan and Richard Burr and the rest of North Carolina’s congressional delegation should make every effort to prevent reinstatement of the federal estate tax. Permanent repeal would spur the growth of N.C. businesses and farms, adding jobs, and increasing tax revenues.
This article originally appeared in the Charlotte Observer.