Today, President Biden announced his next infrastructure package, but instead of roads and bridges, this package is focused on human infrastructure. This 1.8 trillion-dollar package includes provisions for childcare, education, and paid family leave. The question is – how are we going to pay for it? The American Families Plan outlines one way to finance the package: the elimination of step up in basis with capital gains due at death.
Under current law, stepped-up basis allows a farmer to pay capital gains taxes only on property’s increase in value since the date the land was inherited, not on the full increase in value since the date it was purchased by that farmer’s parents or grandparents. Eliminating the stepped-up basis would make continuing on the family farm extremely costly. The value of many farms is tied up in land and equipment, which are highly illiquid assets. Most farmers don’t have the cash on hand to pay large capital gains taxes imposed after the death of a loved one. The next generation could be forced to liquidate assets – or even sell the farm – just to pay the taxes.
Moreover, the American Families Plan’s outline for taxing capital gains at death would not be accompanied by repeal of the estate tax. Rather, both would be imposed at the same time, creating an unsustainably high tax burden. For example, with a potential estate tax rate of 40% and capital gains tax rate of 20%, this double taxation of gains could result in an overall 52% tax rate, assuming that the capital gains tax is deductible from the estate tax. This high tax burden can be especially problematic when the primary asset in the estate is a business, such as a farm, as there may be little cash available with which to pay estate and capital gains taxes.
Stepped-up basis encourages families to grow their business and pass it on to another generation. Without this incentive, it would be difficult to enter a business-like farming and ranching. An estate tax does just the opposite, making it more difficult for families to pass along their farms and ranches to their children and grandchildren. Imposing both of these tax burdens at the same time would mean disaster for family farms across the nation.
The good news is that Farm Bureau is working around the clock to ensure that stepped-up basis remains for farmers and ranchers. And now, Washington needs to hear from you: family farms should not bear the burden of paying for a new human infrastructure bill. To share why you support stepped-up basis, click here. And, to share why you support the repeal of the estate tax, click here.
Why Farmers Should Care About the New Human Infrastructure Package