The Effect of Death Tax on Small Business in America

This paper explores the effect of the “death tax” on small businesses in the United States. The term “death tax" is often used interchangeably with the federal estate tax or state estate tax or state inheritance tax. The estate tax and inheritance tax both have unique aspects revolving around taxation upon death. Since small business makes up 99.9% of today's workforce, understanding the tax effects is essential. This paper reviews the history, structure, and purposes of the death tax, including its role in social reform, revenue generation, and monopoly prevention. Family-owned businesses are a key aspect of this paper, and it observes how the tax may affect entrepreneurial incentive, liquidity constraints, and the freedom of bequest, and how that affects the people's right to private property. Some literature argues for its perceived benefits, like social reform and economic equality, while other literature highlights its potential negative effects on small businesses, such as liquidity problems and growth. According to the literature, there are numerous costs and benefits associated with the death tax, but much of the literature is outdated, with only one available source of quantitative data made over 20 years ago. This paper identifies gaps in the current research and highlights a need for new quantitative data in order to figure out the true current effect of the death tax.