Policy Documents

Squeezing Entrepreneurs: The Economic Impact of an Enterprise Value Tax in New Jersey

J. Scott Moody –

Partnerships are an important segment of America’s economic and business landscape. According to business data from the United States Internal Revenue Service (IRS), in 2009 there were 3.169 million partnerships consisting of 21.1 million partners with $18.8 trillion in assets and nearly $9.7 trillion of equity. By 2012, the IRS estimates the number of partnerships will swell to 4 million, of which 171,900 will be owned by New Jersey residents.

According to the United States Department of Treasury, the original intention of a capital gains tax was to take into account that an entrepreneur’s income is not guaranteed but rather it is subjected to certain risks that the individual must bear.3 The President’s Plan for Economic Growth and Deficit Reduction containing the EVT would no longer take into account this entrepreneurial risk and would significantly increase the tax burden on most partnerships when they are sold. The EVT provision is written so broadly that it would sweep up partnerships and most family businesses, many of which are unaware they are facing a potentially large, new tax on the accumulated value of their working careers.

This study examines the nature of the EVT, its tax impact nationally, as well as its magnified effect in New Jersey. This study also explores the EVT’s fiscal federalism impact on the states. Finally, the study provides a methodological discussion of the model used to estimate the tax impact of the EVT.