McKinsey Small Business Report Shows Need for Indexing Cap Gains Amid $5 Trillion in Ownership Transfer - Americans for Tax Reform

May 6, 2026 - 21:52

A new report from the McKinsey Institute for Economic Mobility has drawn attention to an unprecedented wave of small-business ownership transitions. According to the analysis, roughly 6 million small businesses are expected to change hands by 2035, representing an estimated $5 trillion in total value. This massive transfer of assets is raising concerns among policymakers about the tax burden that could fall on retiring business owners and their families.

The report underscores a growing problem: under current tax law, capital gains are not adjusted for inflation. This means that when a business owner sells a company they have built over decades, they are taxed on the nominal gain, which includes years of inflation. For many, the real economic gain is far smaller than the tax bill suggests. Advocates for tax reform argue that indexing capital gains to inflation would prevent the government from taxing phantom profits.

Americans for Tax Reform has pointed to the McKinsey findings as evidence that Congress needs to act. Without indexing, the group warns, many family-owned businesses and small enterprises could be forced into distressed sales simply to cover the tax liability. The result, they say, would be fewer local businesses and a concentration of ownership among large corporations.

Supporters of indexing argue that it would allow retiring owners to pass on their life's work to the next generation or to employees without a crippling tax hit. Critics, however, contend that such a change would primarily benefit the wealthy and reduce federal revenue. As the 2035 deadline approaches, the debate over how to handle this historic ownership shift is only expected to intensify.