By Terri Jo Neff |

Proposed changes to how federal capital gains and inheritances are taxed would cost Arizona families billions of dollars in lost economic output and investment income over the next decade, not to mention kill thousands of jobs, according to an economic impact analysis released last week.

The report issued Sept. 9 by Committee to Unleash Prosperity examined the direct effects federal legislative proposals like the Sensible Taxation and Equity Promotion (STEP) Act put forth by the Biden Administration would have on financing costs, labor productivity, costs to small and family-owned businesses and farms, and federal non-military spending of new revenue.

U.S. Senator Chris Van Hollen (D-Maryland) is joined by Sens. Cory Booker, Bernie Sanders, Sheldon Whitehouse, and Elizabeth Warren in supporting the STEP Act and other proposed federal legislation also seek to make death a tax realization event and to increase the tax liability of trusts commonly utilized by small businesses, family- and privately-owned enterprises, farm and ranch operations, and others.

And the result over the next decade would hit thousands of Arizonans hard, according to the analysis conducted by Regional Economic Models, Inc. (REMI). The results would include sustained annual job losses in the state from 8,000 to nearly 20,000. That translates to 80,000 to almost 200,000 fewer job-year equivalents over 10 years, the report states.

In addition, the Biden-supported STEP Act and similar legislation would increase the top capital gains tax rate to 39.6 percent, which becomes 43.4 percent if the taxpayer is also subjected to a 3.8 percent net investment income tax (NIIT).

The changes would create $12 billion in private investment losses for Arizonans, a $120 million decline in research & development spending, and a 10-year loss in personal income of about $20 billion in Arizona, the analysis showed. The analysis does not address any further effect attributed to state capital gains, estate, or inheritance taxes.

The negative impact of changing federal tax law is driven by several factors, including increased capital and tax liability costs faced by businesses and farms. In turn, that translates into higher prices for consumer goods and services and makes the domestic private sector less hospitable for new and existing businesses, especially small and family-owned businesses and farms that are often less resilient to economic shocks.

“Higher prices mean that consumers are able to make fewer purchases, slowing demand throughout the economy from retailers to manufacturers to service providers,” the report states. “A less hospitable private sector means that prospective businesses may choose not to open, existing businesses may be forced to downsize or close altogether, and export-focused businesses lose market share to international competitors.”

And despite likely increased federal non-military spending to provide a direct boost to the economy, REMI found the negative impacts “dominate” in the end in Arizona.

Stephen Moore, the Committee to Unleash Prosperity’s co-founder, calls the proposed federal legislation a tax scheme that is “an assault on the American tradition of family-owned and operated businesses being passed on” from one generation to the next.

“Many families will literally have to sell the farm to pay the Biden taxes,” Moore said. “The damage to jobs and the economy would be multiple times larger than any revenue gained for the government from this unfair tax proposal.”