Saying It Out Loud, By Pat Soldano. May 2024.

Maybe you’ve heard a new Estate Tax bill has been introduced by House member Representative Jodey Arrington (R-TX). Maybe you’re thinking this is déjà vu all over again.

Rep. Arrington has some insight into the damage of the “Death Tax.” He’s heard our stories, multiple times, and he gets it. And he’s doing something about it. He is one of the co-chairs of the bipartisan Congressional Family Business Caucus, which held its second meeting of the year this month.

If his H.R. 7993 is passed it would offer relief from some of the most onerous tax rates levied by our government. If approved it would cut the Federal Estate Tax rate in half, from 40% to 20%, after 2025, when the current rates expire, and the Estate Tax increases back to the ultimate 40% level.

By the way, the 40% rate is the highest tax rate the IRS levies in the U.S. Tax Code. If you are new to this subject, the Federal estate tax , or as it has been called, the Death Tax, is imposed on the transfer of property, land, and other assets from a deceased family member to family heirs.

Without congressional action like Rep. Arrington’s, at the end of 2025 the federal estate tax exemption will be reduced to approximately $7 million per individual, from the current roughly $13 million, pending final inflation. This is due to a “sunset” provision in the 2017 Tax Cuts and Jobs Act.

To put it in real terms, if you have a family business worth $100 and the founder(s) die, and after the current allowable exemption of $26 million (roughly $13 million each for married couple owners), the remaining $74 million is taxed on a graduated scale, eventually up to 40%. This breaks most family businesses. Few have tens of millions available in checking accounts to pay such a sudden expense. So, unless you come up with the money fast, you’re under an urgent deadline to pay or sell the business. This does not include the additional “Death Tax” and inheritance taxes due in 12 states.

To give voice to the bill, Rep. Arrington in his statement introducing it said:

“The Death Tax is an unfair double tax that could force the next generation to sell their family business – on which they’ve paid a lifetime of taxes – to pay another tax simply because of a family member’s passing. Penalizing Americans who work their entire lives, build successful businesses, and seek to pass down a better life to their children and grandchildren is the antithesis of the American Dream. I am proud to introduce legislation to cut this punishing and unnecessary financial burden.”

Rep. Arrington listened to us during our meetings on Capitol Hill and has done something in the form of actual proposed legislation. The bad news is the bill must jump many hurdles to get to the President’s Resolute desk.

To be fair, the bill is in the first stage of the legislative process. It was introduced by Arrington on April 15, 2024, and needs to be considered by committee next before it is sent on to the House or Senate as a whole.

The bill, insiders say, has a 12% chance of getting past the committee stage. For reference, this is better than average, since only 11% of bills get past committees. Between 2021 – 2023 only 2% of bills were enacted. So, believe it or not, this bill has better chance than most bills.

The good news is that the bill helps Members of Congress think about rate reduction as an “option” for reforming the estate tax and, and while I hate this term, it “socializes” the concept, or gets people to talk about it and think about it more.

There are many factors to be considered with all such bills. Is the bill’s sponsor (Arrington) on the committee? Is the sponsor a member of the majority party? Is the sponsor the chair of the committee? Is the bill referred to the House Budget and House Ways and Means committees? Is this a re-introduction of a bill from the previous session of Congress?

Good news. Rep. Arrington is the chairman of the House Budget Committee, and he is on the House Ways and Means Committee. He is on the Subcommittee on Tax Policy. He is in the majority party. Check. Check. And check.

This labyrinthian process is how it works in Washington, D.C., even if the bill is lauded by our generationally-owned family businesses, entrepreneurs, and advocacy groups alike, people who are most affected by this extraordinarily high tax rate need to really fight to make this happen.

We are not a small group. Family-owned business and successful individuals generate 54 percent of the U.S. GDP or $7.7 trillion, and, with 83.3 million employees, it is the country’s largest private employer, according to research. Given our size, one would think this is a priority, a slam-dunk. Sadly, no.

Research from our latest Family Enterprise USA Family Business 2024 Survey shows that business will take these savings and invest them into expanding their businesses, buying equipment, creating better paying jobs, as well as more support for their communities.

We asked executives about this, about how they would invest money saved from the Death Tax, our survey found 52% of respondents would “Invest more in my business” while the next highest response, 30%, would “Pay employees more.”

Money to Invest

When we were last on Capitol Hill we asked five family business executives a similar question: “If you paid less in taxes, what would you do with the extra funds?”

The family business leaders’ responses were unified: money saved from better tax policies will go directly into business investment, payroll improvement, and local communities.

Here’s what they said:

“Any additional funds or savings we might get from an improved tax policies will be re-invested back into the business and into employee development,” said Matt Nielsen, Vice President, Strategic Initiatives, Massy-Nielsen Vanillas based outside of Chicago. “We want to make sure our employees have upward movement, and we also want to donate to our local charities,” he said.

Robert Loggins, Director of External Affairs, Bush Brothers, the Chestnut Hill, Tenn-based bean company, said: “The additional funds from taxes savings would allow us to pour more capital assets into the business to fuel our growth, buy new equipment, increase our brand development, and make company acquisitions. This will help build the company and build the community.”

Any savings we would get would be “re-invested back into our employees and specifically into research and development,” said Ron Nash, President, COO, Laticrete International, based in Bethany, Conn. “We would do this in order to continue our investment into the future,” he said. “The stark reality,” said Nash, is “America needs to start inventing again.”

Re-investing funds back into Southern California-based Golden Star Technologies is also of primary interest to its second-generation CEO, Dennis Wang.

“I would re-invest back into the business,” Wang said. “I would hire more people, give them skills training, buy more equipment, and expand.”

Plan Now

If the amount of wealth you want to leave to your family either exceeds or is projected to exceed the federal exemption in the future, then you still have time for proactive lifetime gifting, and other transition planning. Remember, the federal estate tax exemption is in place until the end of 2025, so there is time to make decisions, but not much.

It’s clear that Congressmen Arrington understands the economic burden the estate tax imposes on family-owned businesses of all shapes and sizes. But he also understands the clock is ticking. He understands the estate tax is an unreasonably high double tax that often forces future generations of business owners to breakup their family businesses.

We must thank Rep. Arrington, and the 42 members of the Congressional Family Business Caucus, for getting the ball rolling. We also must thank the three other Caucus co-chairs, Brad Schneider (D-IL), Claudia Tenney (R-NY), and Rep. Henry Cuellar (D-TX), for getting behind the Congressional Family Business Caucus, and for listening to our concerns.

Ready or not, time is marching on and few in Washington, D.C., seem to understand the urgency of this bill. We urge all family businesses, successful entrepreneurs, and allied businesses to join us in this important fight, and to move H.R. Bill 7993 from the floor of the House to the desk of the President.

Pat Soldano, President of Family Enterprise USA , and the Policy Taxation Group , both are non-partisan organizations advocating for family businesses of all sizes and are the organizers of the Family Enterprise USA Annual Family Business Survey.

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