Would these be businesses that generate a significant profit, but can't secure a loan against their assets?
Possibly. Upon death, an appraisal is done (assuming a higher death tax transfer, in addition to any ongoing wealth tax such as the CA proposal). Most small businesses are worth more than their tangible assets, and are valued using a discounted cash flow/future projected earnings and perhaps a comparison to other businesses/market approach. Many business owners hold the vast majority of wealth through their businesses. Valuing a business that is ongoing using an asset approach is generally inappropriate. A large number of service based businesses have a high appraised value, with little underlying assets to secure a loan. Mezz debt, with very high interest is possible, with an even higher burden to a business. Even a 25% tax could raise havoc. I also like the idea of encouraging investment and growth. A large wealth tax can stifle that.
Assume a death wealth transfer tax of 50% with a bank that would lend 50% of a businesses appraisal, but projected excess cash flow will drive the amount of the loan. Most loans will be capped from a bank at 5 years assuming strong cash flow. Even with strong excess cash, this is a major burden to a business. Expect hiring freezes, lowered business expenses (restaurants are suffering now partially to halted in person business dinners. I have spent more on business dinners with referral sources and clients than I ever would for myself...). Also plan on reduced employee bonuses, reduced benefits, etc. Business owners generally share the burden. I see it frequently.
So if a new wealth and or estate tax is not carefully crafted, it could cause havoc. I am fine taxing billionaires to the point they will take it without fleeing the country or impacting middle class jobs. Countless jobs depend on the wealth of the ultra rich, and as much as I want everyone to pair their fair share, we need to consider potential economic fallout to ensure the result is more $ in the treasury collected, with little to no offset to the economy.
A minimum gross income tax on the ultra rich (on all earnings, including capital gains) would be a good start. Couple that with a 10% death tax on all wealth, with standardized appraisal standards subject to audit, payable in installments over 5-10 years, and that will be a decent burden shift. No spousaal exceptions, include gift transfers within 10 years of death.
I am open to fair tax for the ultra rich, I just don't trust our legislators promulgate regulations that will provide a net benefit.
