A blow in the stomach for small businesses

So let's tax the estates of the wealthy. What could go wrong?

The return of the estate tax starting on January 1st will force many families to divert resources into measures to minimize the tax, rather than grow their businesses, according to a new report by Duquesne University Economist Antony Davies.

The report finds that up to 67 percent of estates subject to the estate tax in 2011 would own small business assets, with more than 22,000 farms, 29,000 private corporations and 14,000 real estate partnerships likely to be affected if the owner dies. 

“The more assets small business owners need to redirect toward preparing for the impact of the estate tax,” Davies stressed, “the fewer assets they have to create jobs.”

Indeed, he said, the historical data show that the size of small businesses increases as the size of the estate tax exemption increases – meaning that “higher exemptions encourage entrepreneurs to shift assets into small businesses rather than reserving the assets to protect against estate tax liabilities.”

Aren't we sticking it to the rich and ending concentrations of wealth? Davies writes elsewhere:

Proponents of estate, inheritance, and gift (EIG) taxes claim that the taxes prevent wealth from becoming concentrated in the hands of “generational dynasties” and so help to promote economic equality. This paper presents evidence that EIG taxes can have the reverse effect – encouraging the concentration of wealth – via a greater propensity for small (versus large) businesses to be liquidated for the purpose of paying the EIG tax. 

Never let common sense get in the way of good demagoguery.

(TaxProf Blog)