The U.S. House of Representatives will vote this week on a bill that would permanently extend the estate tax (known better as the death tax) at its current rate and exemption level. This extension would prevent the death tax from expiring as scheduled on January 1, 2010. As such it would be a significant tax increase. Before voting to extend the death tax, Congress should consider the devastating impact it has on family-owned businesses.
Grande Harvest Wine, a family-owned wine retailer operating in Grand Central Terminal in New York City, for example, pays tens-of-thousands of dollars each year for life insurance policies. The owner hopes these policies will pay his heirs enough to cover the death tax liability when he dies. Otherwise they could lose the business. As the video below shows, if Grande Harvest didn’t have to pay these expensive premiums it could expand its operations, hire more workers, and pay higher wages:
Continuing the death tax would be a severe blow to Grande Harvest and other family-owned businesses that plan for the possibility of a death tax liability by purchasing expensive life insurance policies. They will continue to pay high premiums that will divert more and more of their precious cash flow away from productive activities – like expanding their businesses and hiring new workers.
Instead of passing a punishing tax increase, now is the time for Congress to repeal the death tax forever. Doing so would lift a tremendous burden from countless family-owned businesses across the U.S. that fear a death tax liability could wipe out their businesses.
Full repeal of the death tax would have an enormous positive effect on the economy in addition to the relief felt by family-owned businesses. It would create millions of new jobs because the death tax is an enormous drag on the economy. It discourages hard work, saving and investing. Lifting impediments to these economy growing activities would put millions of unemployed Americans back to work.
As the debate over the death tax continues, you can view more videos on the tax’s devastating impact on family-owned businesses and read all of the Heritage Foundation’s research on the topic at our new rapid response page at www.heritage.org/deathtax.