False.
Any business in good financial condition can obtain loans easily, especially in the current economy.
And why would the need to "liquidate the business" be bad? The seller still gets the value of the business plus the flexibility of investing that value forward.
This is why estate planning exists. Any business that actually plans for estate taxes will not have this problem at all.
There is also no "estate planning" for various other incidents of the same issue, e.g. employees cashing out stock options.
By that argument, all taxation is bad because it diverts funds from other purposes. Yet we must pay for government services. Government is an investment; what you are saying, in effect, is that there are opportunity costs to the investment - a truth of every investment.
If the government took 30% of the shares of the company in lieu of the same amount in cash, the issue would be completely resolved. There would be no reason not to invest in the business - the government takes 30% (or whatever the rate is) of shares regardless.
The problem is that turning illiquid assets into cash costs extra money.
https://news.ycombinator.com/item?id=9993417
> if you inherit a $10M business, the only way to pay your tax bill is to liquidate the business.
I've never heard of a business being liquidated to pay estate taxes, and I've heard of many businesses being passed from generation to generation. For one thing, doesn't this valuable business have revenues?
https://www.cbo.gov/sites/default/files/07-06-estatetax.pdf
See also these survey results, which suggest estate taxes limit business growth and shrink businesses: http://coles.kennesaw.edu/centers/cox-family-enterprise/cox-...
This probably underestimates the nature of the issue, since as noted, a business with an aging owner will engage in estate planning and will liquidate sufficiently over time as to not enter the 5%. This, in turn, diverts cash from investment into unnecessary liquidity.
Note also that this isn't an anti-estate tax argument. This is an argument against demanding cash tax payments for in-kind transfers. It applies to more than just estates, e.g. startup employees exercising their options, and does not apply to estates which are comprised of highly liquid assets (cash, SPY). There is no need to spout pro-taxation talking points, I'm discussing a technical detail of payment methods.
I thought it was interesting where the survey referenced 'paying off taxes will involve selling all/part of the business". This was around 40% positive across the categories. While firstly I'd take results with a pinch of salt as the people answering likely have an agenda to push, and a survey is not always reality. But having to sell some of a business is not a bad thing from a community POV. It keeps capital circulating in an economy. This offsets one on the main weaknesses of capitalism, that capital keeps concentrating. This conversation is about an equal society, so in that context I feel this is a good result, stopping people forever accumulating assets without having to release them. Hence it would be an easy argument liquidity problems from estate taxes could be a good thing for ensuring an equal society.
The way to resolve (1) is if the IRS allows you to pay taxes on in-kind receipts with in-kind payments. I.e., if you get a business that the IRS claims is worth $10M, and you owe $3M in taxes on it, you can pay your tax bill by handing the IRS $3M worth of shares.
(This would also fix a major problem that startup employees have, namely that if they quit their job, they need to exercise options and incur a huge tax bill. But they can't actually sell the shares to get money to pay the taxes. Not a problem if they can give the IRS some of their shares.)