ISSUE BRIEF Federal Estate Taxes
Rental businesses of all sizes are sensitive to changes in the tax code. Current law that contains increasing exemptions, declining rates and the ultimate elimination of the estate tax expires in 2011 when estate tax exemptions and rates revert to the 2001 tax code. The current law on estate taxes has created an unwarranted level of uncertainty for business owners who have a significant portion of their net worth invested in their equipment and buildings. Under current law business succession planning is virtually impossible and reverting to the exemption levels and tax rates on 2001 will create an unfair burden on family owned rental businesses.
All rental businesses require significant capitalization. Many rental businesses are multi-generational enterprises. Estate taxes create a costly burden on rental business owners because estate taxes force them to either make large expenditures for insurance and estate planning or pay the resulting estate taxes upon the death of the owner. In some cases, rental businesses cannot continue to operate because heirs are forced to liquidate the business’ assets in order to pay the estate taxes. Eliminating estate taxes for small businesses will create incentives to invest more in the business, increase available cash to hire workers and invest in productive assets rather than paying for insurance and estate planning, and allow businesses to survive intergenerational change. ARA supports estate tax reform that provides an exemption that is large enough to cover most of our independent businesses, a step-up in asset basis valued at the time of inheritance, and lower rates for inheritances above the level of the exemption.
The provisions of current law have helped reduce taxes paid by small rental businesses. They have also created and continue to maintain long-term uncertainty for small business owners. Recently, Senator Kyl (R-AZ) sponsored an amendment to the Senate Budget Resolution that called for a $5 million exemption per taxpayer indexed for inflation, a step-up in basis, and a top rate of 35 percent for estates larger than the exemption level. ARA believes that the provisions of Senator Kyl’s amendment will meet the needs of the vast majority of family-owned rental businesses and will provide certainty to all taxpayers. ARA supports passage of these provisions into law.
The time for estate tax reform is NOW. ARA calls on the Senate Finance Committee and the House Ways and Means Committee to pass legislation reforming the estate tax that embodies the provisions contained in Senator Kyl’s amendment.