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Pepperdine University School of Law

Monday, November 23, 2009

Heritage Foundation: The Estate Tax is a Killer for Family-Owned Businesses and Their Workers

The Heritage Foundation has published Estate Tax a Killer for Family-Owned Businesses and Their Workers, by Curtis S. Dubay:

The death tax is a drag on America's family-owned businesses, destroys jobs, and lowers wages while raising little revenue. As such, Congress should repeal the estate tax once and for all to remove an unfair burden from the backs of American family-owned businesses and their workers.

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What a liar. Every tax professional and congressman knows the alarmist statements in this article are false "Sarah Palin" type tea party remarks. Destroys the family farm, the family business, bankrupts the heirs. When did The Hertiage Foundation quit being part of America? Go sent up your tax shelters on Trinidad and get out of my country.

Posted by: Mark Vogel | Nov 24, 2009 6:44:44 AM

Be careful what you wish for. People would give less to the Heritage Foundation if there were no estate tax. Every day they pray for repeal; but every night, in their dreams, . . .

Posted by: Michael A. Livingston | Nov 24, 2009 7:33:31 AM

The typical Heritage Foundation b.s.--long on assumptions, short on facts.

Why can't the author come up with a single example of a business done in by the estate tax (as opposed to, say, incompetent second- and third-generation management or heirs demanding liquidity)?

Posted by: Anonymous Poster | Nov 24, 2009 8:11:27 AM

@Mark Vogel-the Heritage foundation is right. Why don't you learn the facts, or get out of my country?

Posted by: Michael | Nov 24, 2009 8:41:05 AM

I heard the estate tax took someone's job once. All by itself.

Posted by: Kyle | Nov 24, 2009 11:40:14 AM

The article makes precisely one good point:

The estate tax does hit small, capital-intensive businesses hardest. This is a personal anecdote, and as such has limited usefulness, but I feel a need to share it.

My father owns a small manufacturing business. In its heyday, it was extremely lucrative. Now it brings in MAYBE 200k per year. But he has assets with book values well into the multi-millions. None of these assets are capable of being sold (simply moving a permanently-affixed 10-year-old molding machine worth 50K isn't worth the expense usually). Now multiply that times 25 molding machines. However, at death, the IRS will argue that all should be included in his estate at FMV. Sure, there is the language in the regs about the "price at which the property will change hands in an arms-length transaction," but the reality is that the company will probably be included at a value of a 4 - 6 million dollars simply due to the large amount of capital assets leftover from its heydey in the early 1990's.

Assuming the exemption reverts back to $1m next year, that is a HUGE estate tax bill. My father's estate will have NOWHERE near the cash to pay that off. The company has nowhere near the cash flow to pay that off. The only choice will probably be liquidation -- but no one, especially in America, is buying manufacturing capital assets. There is a very large chance that the estate tax may wipe out my father's entire estate (well, my mother's estate, assuming he uses his exemption and gives the rest to her via the marital deduction).

Sure, we could set up an LLC, distribute the interests as gifts inter vivos to take advantage of minority discounts, etc ... But this is a charade, and it is a huge pain in the ass (not to mention borderline unethical).

In conclusion, to the extent this paper sheds light on the common plight of the aging closely-held capital intensive businessperson and the estate tax, it makes a valid point.

To the extent it meanders into questionable policy areas, it tends to fall flat.

Posted by: Hmm | Nov 25, 2009 12:18:44 PM


A business that earns only $200,000 is worth a million or 1.2 MM tops.

You claim the business is capital intensive, yet the equipment is 10 years old. Capital intensive means you have to spend to have new equipment, not that you have an inventory of old equipment.

Oh, and its hard to believe that 10-year old molding machines have any book value.

In other words, your tale makes no sense and illustrates little about the impact of the estate tax, except perhaps that its effect on small business is grossly exaggerated.

Posted by: Anonymous Poster | Nov 25, 2009 11:35:33 PM