Expiring Estate Tax Would Adversely Affect Family-Owned Firms

As readers may recall, the 2017 U.S. tax reform bill doubled the value of assets that could be exempt from the country’s estate tax, a levy that is imposed on family businesses upon the death of their owners, when proprietorship passes to the next generation. This valuation threshold is scheduled to be cut in half at the end of 2025, subjecting more assets of family-owned industrial metals firms to taxation and increasing these companies’ tax liabilities.

As the National Association of Manufacturers pointed out in a fact sheet issued last week, reducing the valuation would threaten the continued existence of family-owned companies and make it more difficult to pass family businesses on to the next generation. These firms could be forced to liquidate operation-critical assets, such as facilities and equipment, in order to pay the estate tax. Alternatively, an increased estate tax bill could mean that family-owned metals companies are forced to take on debt, limit operations, reduce employee headcount, or close entirely following the death of a loved one.

Some lawmakers have floated the idea of repealing or limiting stepped-up basis, which stops a business owner’s heirs from being forced to pay capital gains taxes on asset appreciation that took place while the owner was alive, but what Congress really must do is preserve tax reform’s increased estate tax exemption threshold.