Small business owners overwhelmingly oppose the Democrat plan to retroactively impose capital gains taxes on family owned businesses by repealing step-up in basis, according to a survey recently released by the SBE Council. As this survey, which was released on August 11 notes, 78 percent of respondents said it would have “crippling consequences” for small businesses, their employees, and their communities.

President Biden and Congressional Democrats want to include repeal of step-up in basis in their $3.5 trillion tax-and-spend package. This would create a second death tax by imposing the capital gains tax on the unrealized gains of every asset owned by a taxpayer when they die. This would be imposed in addition to the existing 40 percent Death Tax and would force many family-owned businesses to downsize and liquidate assets, leading to fewer jobs, lower wages, and reduced GDP. It would also create new complexity for many taxpayers including family-owned businesses.   

The SBE Council survey found that small business owners were extremely concerned about this tax hike.  For instance: 

  • 78 percent of small business owners say this tax increase would have crippling consequences for small businesses, their employees and communities.   
  • 70 percent of small business owners said that this tax increase would make it easier for large businesses to buy up smaller, local businesses at low prices.   
  • 68 percent believe that family members and beneficiaries would be forced to borrow money to keep businesses afloat.   
  • 67 percent responded that fewer small businesses and family enterprises would survive.   
  • 50 percent of respondents said the proposal would hurt their ability to carry on the business. 


Despite having pledged not to raise taxes on small businesses during his campaign, President Biden is pushing this tax increase on family owned businesses.

As noted by the Ernst and Young study, repealing step-up basis would increase the cost of capital and discourage new investment. This negative economic impact will cost 80,000 jobs each year for the first ten years, increasing to 100,000 jobs each year thereafter. One third of the tax will also fall on American workers in the form of lower wages.   

Repealing step-up in basis has already been tried and failed. In 1976 Congress eliminated stepped-up basis, but it was so complicated and unworkable it was repealed in 1980 before it took effect.   

As noted in a July 3, 1979 New York Times article, it was “impossibly unworkable”:

Almost immediately, however, the new law touched off a flood of complaints as unfair and impossibly unworkable. So many, in fact, that last year Congress retroactively delayed the law’s effective date until 1980 while it struggled again with the issue.

As noted by the NYT, intense voter blowback ensued:

Not only were there protests from people who expected the tax to fall on them — family businesses and farms, in particular — bankers and estate lawyers also complained that the rule was a nightmare of paperwork.

In addition to the creation of this Second Death Tax, small businesses will also be hit by other tax hikes in Biden’s plan. 

The White House tried to downplay this by asserting Biden’s increase in the top marginal income tax rate would “only” hit three percent of small businesses. Three percent of 31.7 million small businesses is 951,000 small businesses. Further, over one million small businesses are organized as C-corporations; thus, raising the corporate income tax rate to 28 percent, which is also part of Biden’s plan, would hit those small businesses. In other words, at least two million small businesses will be hit by Biden’s tax increases. 

President Biden and congressional Democrats must stop pretending like this package will be paid for solely on the backs of billionaires. This is far from reality.