Contrary to Claims, Allowing Estate Tax to Expire Would Make Family Farms and Small Businesses Worse off Overall — Center on Budget and Policy Priorities

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By Chuck Marr and Gillian Brunet

While estate-tax opponents have held up family-owned farms and small businesses as “poster children” for the benefits of repealing the tax, such estates would be worse off, on balance, if Congress allows estate tax repeal and related tax changes to take effect on January 1, as now seems likely. The estate tax is irrelevant to the overwhelming majority of small farms and businesses because only a tiny number of them have assets worth more than $7 million for a couple ($3.5 million for an individual), the levels below which estates are entirely exempt from the tax. But if repeal advocates have their way and Congress fails to act to extend the current estate tax by December 31, many small businesses and family farms that never would have owed any estate tax will end up with a new capital gains tax burden and will face a sizeable tax increase because of a little-known provision of the 2001 tax-cut law.

Indeed, the number of people likely to face tax increases as a result of congressional inaction on the estate tax far exceeds the number of wealthy people who would secure a tax cut.
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