Jacqui Fatka
Policy editor, Farm Futures
Biden to exempt farms in plan to eliminate stepped-up basis.
As proposed, broader tax code changes take into consideration important saving of
step-up basis for farmers. In his first address to Congress Wednesday night, President Joe Biden will unveil his American Families Plan which calls for changing the existing tax code handling of capital gains and eliminating stepped-up basis. However, his plan will offer protections for family-owned businesses and farms who pass on the entity to their heirs.
In a call with senior White House officials Tuesday evening ahead of the speech, one official notes the plan would address the loophole in the existing tax code that allows the wealthiest Americans to entirely avoid income taxes on their gains by holding assets for their entire lifetime and passing it on to their heirs. “This reform will be designed with explicit protections so that family-owned businesses and farms will not have to pay taxes when given to heirs who continue to run those businesses,” the senior official notes.
While offering details of the tax plan, the White House official adds, “The conceptual framework for equalizing the tax treatment of capital gains and ordinary income is neither new nor novel. It was a key feature of President Reagan’s tax reform where he increased the capital gains rate to match the personal income tax rate.” Under current federal law, an asset’s basis is the starting point for calculating capital gains taxes.
When an individual dies and passes on an asset, like a farm, to a family member, the basis of this asset is reset to the current fair market value, not the original purchase price.
Former Senate Finance Committee lead Republican Chuck Grassley of Iowa states he’s gearing up for a legislative battle over the issue of whether to allow a step-up in basis. “This tax policy helps asset-rich, cash-poor farming operations keep the family business going from one generation to the next rather than having to sell it to pay an unaffordable tax bill,” Grassley says.
When property is transferred from a deceased farmer to an heir, families use the stepped-up basis that “steps up” the current fair market value on the property to measure a capital gain and calculate tax liability. This step-up in basis reduces the capital gains tax liability on a farm passed down to the next generation because liability is based on the time of ownership of the heir, not throughout the ownership of the deceased.
Legislators hearing concerns
Commodity groups have been educating those on Capitol Hill about the potential
impact of eliminating step-up basis for farm families. In speaking to the North American Agricultural Journalists annual meeting on Tuesday, Sen. Tammy Baldwin, D-Wisc., says she continues to hear from those in the ag sector about the impact of step-up basis.
Although in her role as agriculture appropriations chair the issue doesn’t come
under her purview, she says she will be in conversation with her colleagues on the
Senate Finance Committee to make sure they’re aware of the “unique concerns raised
among farmers about this issue” by those she’s hearing from in the agriculture industry.
Sen. John Hoeven, R-N.D., who serves as the ranking member on the agriculture appropriations subcommittee, expressed concerns about the impact of estate tax and step-up basis changes. He adds it’s important to get young people into farming and ranching and allowing for the mindful passing of a farm onto the next generation.
Hoeven says it is important for farmers and ranchers to stay engaged in the discussion
as Congress also looks at the President’s proposal and whether it changes going forward.
Farmers and ranchers need to stay involved and talking about how important it is that they have that estate tax credit and the stepped up basis so that they can transfer the farm or ranch, because it’s not just the cost of your real estate in your land,” Hoeven says, as you also add in the incredible cost of equipment and operating costs. “So, there’s a real capital burden there, and that’s what impacts farmers and ranchers so significantly. They’ve expressed concern, and they need to stay involved as these discussions are going on.”
Negative impact
A new analysis by the American Soybean Association and the American Farm Bureau Federation also detailed the impact of the elimination of stepped-up basis. Scott Gerlt, ASA economist, and John Newton, Farm Bureau chief economist, explain that heirs facing higher taxes would incur steep costs after bringing the land to market, thereby increasing costs for everyone else in the marketplace. And, if an estate is passed on with debt, it may not be possible for the family to meet the tax obligation. Gerlt and Newton in their analysis offer perspective across the U.S. and give real examples of the damage stepped-up basis changes could cause.
“Assuming a very likely capital gains tax rate of 20%, without stepped-up basis, it’s estimated that the tax burden on farmers and ranchers inheriting cropland would be significantly larger than the cash rental income generated on the farmland.
In the case of most farm operations, the capital gains tax would take several
years of rental income to pay the tax obligation,” the analysis notes.
A new report released by EY, an economic consulting firm, finds that repealing the step-up in basis tax provision would damage the gross domestic product and significantly decrease job creation. The study was conducted for the Family Business Estate Tax Coalition, which includes almost 60 organizations representing family-owned businesses.
The EY study found middle-class, family-owned businesses would be particularly
hard hit by the repeal. Currently, when someone inherits assets, they aren’t taxed on the appreciation that happened before they inherited them. If family-owned farms, small businesses or manufacturers are forced to pay capital gains accrued by the prior owner, they would likely face large tax bills that put the future of their business at risk.
According to the study’s findings, repealing the step-up in basis would result in: 80,000 fewer jobs in each of the first ten years; 100,000 fewer jobs each year thereafter; and
a $32 reduction in workers’ wages for every $100 raised by taxing capital gains at death.
To reveal the impact stepped-up basis repeal would have on family-owned farms
and ranches, EY developed a case-study based on a theoretical family-owned cow-calf operation. In this scenario—one where the stepped-up basis is no longer a tool for family-owned business to utilize when generational transfer occurs — gains are taxed at death and would result in an immediate one-time tax liability equivalent to 280% of the farm’s annual income.
National Cattlemen’s Beef Association Senior Executive Director of Government Affairs Danielle Beck says, “The EY study sheds light on the facts that we at NCBA—among others in the agricultural community—have long known. Simply put, the repeal of the stepped-up basis would have catastrophic impacts on the ability of farmers and ranchers to transfer their operations to the next generation.”
American Farm Bureau Federation President Zippy Duvall adds, “The value of many farms is tied up in land and equipment. Cash flow on most farms is much too small to pay large capital gains taxes. These taxes would cause further consolidation in agriculture with small farms more likely to be forced out of business by the tax liability.”
Lynn Donaldson/Bloomberg via Getty Images
Biden’s quiet attack on rural America smells just as bad as manure
Opinion by Randy Feenstra •
Big Horn County had just two outposts for health care: an 18-bed critical
access hospital and a clinic for the Crow and Northern Cheyenne tribal reservations.
Covid-19’s sweep across rural America is forcing small regional hospitals and facilities
like these to combat a virus that has stressed even the world’s biggest health-care systems.
Rural America was the backbone of the American economy.
Our farmers feed and fuel our country, act as good stewards of our land, and have represented the American identity for generations. They value hard work, live within their means, and support our communities. They never ask for recognition, but the result of their hard work is on display in every grocery store and meat counter across the country.
However, since the beginning of his administration, President Biden has enacted radical policies and imposed ridiculous mandates that would devastate our rural way of life and inject Washington bureaucracy into the heartland. Frankly, it should come as no surprise to the president that his poll numbers have plummeted in the Midwest, with 64 percent
of Iowans alone disapproving of his performance.
He attacks everything that makes our rural communities thrive.
In late 2022, on the eve of the new year, the Biden administration quietly
published an expanded version of President Obama’s controversial and
destructive “Waters of the United States” (WOTUS) rule.
With no warning whatsoever, Biden and his radical Environmental Protection Agency
subjected 97 percent of Iowa land and millions of hardworking American farmers to
arduous bureaucratic red tape, mountains of paperwork & unnecessary headaches.
Ironically, for someone who claims to advocate for all Americans,
Biden’s abysmal record of targeting America’s family farmers begs otherwise.
As the second-largest agriculture-producing district in the nation,
I represent thousands of families who have farmed the same land for generations, providing for themselves, and also preserving their farmland, and living the American Dream. These same families – who are the best conservationists – also support clean water and take steps every day to protect our rivers, lakes, ponds, and streams in Iowa. From installing buffer strips and bioreactors to planting cover crops, our farmers exercise common sense conservation practices – that the federal government intentionally ignores – to keep our water clean and drinkable.
Regrettably, when he had the chance to reverse course and stand up for our farmers, President Biden turned his back on the heartland, opting instead to veto a bipartisan resolution offered by House Republicans that would ease WOTUS regulations, eliminate red tape for our producers, and return local control of American farmland to our farmers. President Biden also promised that he would never raise taxes on American families making less than $400,000 a year.
This, of course, was another lie.
In his nearly $7-trillion annual budget, he proposes eliminating vital tax provisions – including step-up basis – that our farmers rely on to pass their farms on to the next generation.
John Thune Worries Removing Step-Up Basis Tax Will Hurt Middle Class Americans.
Step-up basis, which protects family farmers from accruing massive tax bills in the
tragic event of the owner’s passing, is vital to our rural communities and farm economy. This is the crux of President Biden’s failed tax policies. With one hand raised vowing to never raise taxes on the middle class, he’s signing family farmers’ foreclosure papers with the other.
President Biden’s veto of a bipartisan resolution to overturn his invasive
WOTUS rule and his absurd plans to tax our farmers out of existence represent
clear examples of his callous disregard for Rural America. Born, raised in rural Iowa,
I know the devastating consequences of federal overreach of higher taxes on communities.
It’s a playbook that D.C. bureaucrats use to bully American farmers and impose their Green New Deal agenda on our country. Songbird Farm, Maine – Search (bing.com)
Until President Biden recognizes these same consequences and abandons this failed schtick, his reputation will smell just as bad as the legislative manure he’s imposing on Rural America. Farmers, ranchers slam Biden ‘attack on farmers’ with EPA water rule: ‘Complete example of govt. overreach’ | Fox News
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