Roy Prosterman's and Tim Hanstad's conclusion that estate taxes should be raised to fight the budget deficit {op-ed, Sept. 5} is shortsighted and dangerous to the future of our nation's small-business community.

Estate taxes have a particularly devastating effect on family businesses that they do not have on other types of assets. This is because a family business is not a liquid asset. The children of a small-business owner cannot just sell off 55 percent of the business and expect that the business will be in any condition for them to continue operating it. Selling off enough of the business to pay estate taxes will almost invariably lead to the children losing ownership of the business.

Liquidity is not the only problem faced by small-business owners who want to pass their businesses on to their children. When the owner of a family business dies the value of the business (including land, buildings, machinery and inventory) are added to his estate. The "value" of the business can be very high even if the return on that business is relatively low. In other words, a business worth $1 million may only make a profit of $50,000 a year. Low return on the taxable "value" of a business can make it nearly impossible for children of the owner to both pay the estate taxes and continue running the business. Usually, their only option is to sell a sizable part of the business to pay the estate taxes.

A National Federation of Independent Business Foundation study found that one of the primary motivating factors for those starting a new business is providing for their children. Increasing estate taxes by the amount recommended by Messrs. Prosterman and Hanstad would make it almost impossible for a small, family business to survive the transition from one generation to the next.

The federal government has been generally supportive of individuals attempting to start and maintain their own businesses. It would be extremely counterproductive for Congress to get caught up in a headlong rush to raise new revenue and lose sight of the important role small, family businesses play in our economy.

In addition to objecting to raising estate taxes on family businesses, I also object to the article's characterization of estate taxes as "a tax that can target the relatively wealthy and that deprives heirs only of money that they have not earned." I remind Messrs. Prosterman and Hanstad that the federal government has not earned that money either. I do not think that it is unreasonable that a small-business owner be given the opportunity to give the family business to whomever he desires. Every penny in a small-business owner's estate has already been subject to federal taxation at least once (some corporations pay tax on profits twice), and allowing owners to pass the business on to their children in one piece is not an unreasonable request.

JOHN SLOAN JR. President and Chief Executive Officer National Federation of Independent Business Washington