RELEASE: New Study Shows Economic Impact of Proposed Federal Tax Hikes on Small Businesses

The Maine Heritage Policy Center (MHPC) today released a new study analyzing the Enterprise Value Tax (EVT), legislation proposed in the U.S. Congress to more than double taxation on the sale of many businesses, and the impact EVT would have on Maine’s economy and recovery efforts.

The report, The Economic Impact of an Enterprise Value Tax on Maine, written by MHPC Chief Economist Scott Moody, asserts the enactment of an EVT may extract about $55 million every year from the Maine economy by raising capital gains taxes on the sale of certain types of businesses.

Specifically, under the proposed EVT legislation, entrepreneurs, and family members owning small businesses, other than family farms, would no longer qualify for the 15 percent capital gains tax rate upon the sale of their business if the entity held any form of partnership interest, interest income, investment real estate or securities.  Instead, such business sales would be taxed under ordinary income tax rates, severely weakening entrepreneurs’ ability to help grow the Maine economy.

“Policymakers at all levels of government should be very concerned that an Enterprise Value Tax may be lurking in the shadows,” Moody said.  “An EVT would devastate Maine’s ability to achieve economic recovery, job growth and long-term financial security, and will further contribute to the capital flight crisis Maine continues to struggle with.”

According to the report, between 1995 and 2007, 11,799 Mainers relocated to lower-tax Florida, taking with them almost $600 million in income.  With the enactment of an EVT, the combined state and federal capital gains tax burden will likely cause thousands more Mainers to relocate to tax-friendly states, where their net tax burden will be much smaller.

Although many U.S. Senators have voiced opposition to any new taxes on small businesses, including Maine’s Olympia Snowe and Susan Collins, the release of the latest MHPC report should serve as a warning to pro-growth lawmakers to be extra cautious of an Enterprise Value Tax sneaking through the Senate during the Lame Duck session that began yesterday.  An EVT already passed in the U.S. House of Representatives in May as part of the American Jobs and Closing Tax Loopholes Act of 2010.

“This legislation would be a crushing blow to Maine’s economy and literally chase entrepreneurs out-of-state,” Moody explained.  “Passage of an EVT would mean higher taxes, less jobs, a shrinking population, and an even longer economic slump.  From a public policy perspective, enacting an Enterprise Value Tax is about the worst thing Congress can do.”

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CLICK HERE TO READ THE FULL REPORT