Across the United States, small businesses are opening their doors once again and serving the needs of our communities. Yet here in Illinois, our unemployment rate is still lagging behind the rest of the country. We have the highest jobless rate of any Midwestern state with 433,000 Illinoisans still looking for work.
For Illinois to get back on track, our elected leaders must focus on supporting the state’s top economic drivers — the 1.2 million Illinois small businesses that account for 45 percent of the state’s total employees. These small businesses helped get us through the pandemic, and now they are going to lead us to recovery. However, a new proposal introduced by President Joe Biden threatens to undermine these middle-class job creators who are fueling the president’s “build back better” agenda.
In April, President Biden unveiled his American Families Plan, an expansive $1.8 trillion program aimed at boosting child care and paid family leave. To pay for this new program, the president has endorsed a bill, known as the STEP Act, that increases the tax burden on estates and trusts left by deceased relatives for the next generation. This new tax could be a small business or farm “killer.”
Currently, when the owner of a property — such as a small manufacturer — passes away and transfers the company to an heir, the inheritors are not required to pay capital gains taxes on any increased value of the property while the original owner was alive. This is known as “stepped-up in basis” and has helped generations of family-owned businesses continue in operation.
The proposed STEP Act has earned the name the “zombie tax” since it retroactively imposes a new tax on the inherited company. Never in our history have inheriting taxpayers been forced to go back in time and correctly assess the original value of assets that could be decades old. And if the heirs of a small business or farm do not have the cash to pay this new zombie tax, they could be forced to cut wages, reduce workers’ hours or even sell off parts of the business or farm to cover this new “zombie” bill.
This proposal, if enacted, is going to undercut middle-class families, farmers and taxpayers while disincentivizing entrepreneurship and job growth. A recent study conducted for the Family Business Estate Tax Coalition, which includes almost 60 organizations representing family-owned businesses, warns of the harmful impact of a zombie tax. The study shows that the STEP Act would cost Americans 800,000 jobs over the next 10 years and reduce workers’ wages by $32 for every $100 raised by taxing capital gains at death.
Instead of creating new tax burdens that put small business at risk, we should be removing obstacles that are keeping our state’s unemployment rate high. Our leaders in Congress, including Senators Richard Durbin and Tammy Duckworth, need to stand up for common sense and tell President Biden that punishing small businesses is not going to help America to build back better.
• Steve Rauschenberger is president of the Technology & Manufacturing Association, , a Schaumburg-based agency that acts as a comprehensive resource for Midwest manufacturers.