Back in 2012, when Tom & Lorrie Belew sold their Little Rock, Arkansas Home Instead franchise, they were able to keep 85% of their investment gain, a just reward for the blood, sweat and tears of building a successful, meaningful business that enabled seniors to age at home with dignity and grace. Had they waited a year, they would have kept only 80% of their investment gain due to President Obama increasing the capital gain tax rate from 15% to 20%. Were President Biden’s so called “American Families Plan” to pass and had the Belew’s waited nine years to sell, they would have been severely penalized by only keeping less than 60% of their investment gain.
Think about that for a minute. A founder builds a successful business from scratch through risk taking, sacrifice, hard work and ingenuity. Yet when the founder is ready to retire, she pays 43 cents on every dollar of the investment gain to the federal government. In fact, under Biden’s proposed plan, the capital gain tax rate would exceed the ordinary income tax rate for households that sell their businesses for more than $1M. As such, the founder would be paying a higher effective tax rate on the investment gain than the corporate executive that lacked the fortitude to strike out on his own. In other words, under Biden’s proposed plan, the capital gain tax rate on the sale of a business would be higher than the tax rate when a corporate executive cashes in incentive stock options. This is a perverse disincentive that undermines the entrepreneurship that fuels the engine of capitalism on which our great nation was built.
If you are an owner of a top performing home care company, there’s a tax target on your back under the current administration. If the $1.8 Trillion American Families Plan were to pass, your audacity to build a great company that contributes to the greater good would be severely penalized, the antithesis of The American Dream and the Mother of all success penalties.
