Rebuild better, don’t tear it down (Editorial)
National agriculture groups breathed a measured sigh of relief when tax provisions included in the monstrous $3.5 trillion budget reconciliation legislative package — part of President Joe Biden’s “Build Back Better” agenda before Congress — preserved the so-called stepped-up basis set for passing down farmland to a younger generation.
The groups’ advocacy played a big role, but the job is not done. According to the American Farm Bureau Federation, the draft bill in the House Ways and Means Committee still includes several provisions impacting family farms, including lowering the current estate tax exemption.
The stepped-up basis allows a farmer to pay capital gains taxes only on the property’s increase in value since the land was inherited, not on the full increase in value since it was purchased by that farmer’s parents or grandparents. Without it, farmers and ranchers are worried their children and grandchildren will struggle too much with capital gains taxes to continue the family business.
When initial proposals did away with the stepped-up basis, farmers mobilized to tell legislators how devasting it would be to keeping their family farm in their family.
A call to action from Farm Bureau generated 18,000 messages from farmers and ranchers to their representatives and senators, explaining how their families and farms would be hurt by the elimination of stepped-up basis. Earlier this summer, all 50 Senate Republicans wrote to Biden, urging him to drop the elimination of stepped-up basis from his American Families Plan proposal.
“If the functional benefit of the step-up in basis were eliminated and transfers subject to the estate tax also become subject to income tax, as you have proposed, many businesses would be forced to pay tax on appreciated gains, including simple inflation, from prior generations of family owners — despite not receiving a penny of actual gain. These taxes would be added to any existing estate tax liability, creating a new backdoor death tax on Americans,” the senators said in the letter.
The American Farm Bureau Federation, along with 46 state Farm Bureaus and 280 organizations representing family-owned agribusinesses, sent a letter today to congressional leaders urging them to leave important tax policies in place as they draft legislation implementing President Biden’s “Build Back Better” agenda.
The letter addressed key tax provisions that make it possible for farmers and ranchers to survive and pass their businesses on to the next generation. The stepped-up basis was one, but also included were reducing the estate tax, continuing the 199A small business deduction and retaining like-kind exchanges.
“The policies Congress enacts now will determine agricultural producers’ ability to secure affordable land to start or expand their operations,” the letter said. “Regardless of whether a business has already been passed down through multiple generations or is just starting out, the key to their longevity is a continued ability to transition when a family member or business partner dies. For this reason, we firmly believe the current federal estate tax code provisions must be maintained.”
The farming groups who flooded congressional offices with letters earlier, pledged to continue the effort as the bill moves through the federal channels.
These tools are as crucial as ever in preserving farms and farmers of the future. Farmers 65 and older outnumber those 35 and under by a four-to-one margin. More than 370 million acres are expected to change hands in the next two decades. Taking these tools away will ensure fewer farms and farmers can continue, further consolidating the industry pushing our remaining food producers to the margins of society.
If President Biden wants to “build back better” a good way to do that is to let the next generation of agriculture build upon the foundation generations before them have created, not help in tearing it down.