Estate Taxes

ISSUE BRIEF: Federal Estate Taxes

April 2011

Issue:

Equipment rental business owners were pleased when Congress passed extensions of several tax provisions at the end of the 111th Congress. Among those provisions were amendments to the Federal Estate Tax that create a $5 million exemption per taxpayer with a 35 percent rate for estates above the exemption level. However, this provision expires on December 31, 2012 after which the estate tax will return to 2001 levels with an exemption of $1 million and a rate of 55 percent. While the relief provided by Congress is a step in the right direction, this situation continues to create unwarranted uncertainty for business owners who have a significant portion of their net worth invested in their equipment and buildings.  
 

Background:

All equipment rental businesses require significant capitalization. Many rental businesses are multi-generational enterprises. Estate taxes create a costly burden on rental businesses because estate taxes force them to either make large expenditures for insurance and estate planning or pay the resulting estate taxes upon the death of the owner. In some cases, rental businesses cannot continue to operate because heirs are forced to liquidate the business’ assets in order to pay the estate taxes. Eliminating a significant amount of the estate taxes for small businesses will create incentives to invest more in the business, increase available cash to hire workers and invest in productive assets rather than paying for insurance and estate planning, and allow businesses to survive intergenerational change. 

The estate tax provision contained in current law, while helpful, does not provide equipment rental business owners with the certainty they need to plan for the future and to make their businesses grow and create jobs.
 

Action Requested:

ARA supports making permanent the $5 million per taxpayer estate tax exemption with a 35 percent rate on estates that exceed the exemption.