Tax reform has been at the center of political debate for years, and the Biden Administration has made it known that radical tax reform is one of their top priorities.
While many Democrats claim that wealthiest 1% are the target of these changes, the reality is that their careless policy-making decisions will have a wide-ranging impact on everyday Americans, especially our farmers.
For decades, several provisions in the tax code have protected farmers from burdensome tax liabilities. For example, current law exempts $11.7 million per individual from estate taxes.
Furthermore, stepped-up basis allows them to pay capital gains taxes only on a property’s increase in value since it was inherited, instead of paying tax on the full increase in value since it was purchased by the original owner.
For years, these important tools have been crucial for hardworking families to continue their multi-generational family farms.
Unfortunately, that could all change. Democrats have recently introduced legislation that threatens to remove these critical exemptions, something that should be especially concerning for farmers and their families.
If signed into law, the For the 99.5 Percent Act (99.5% Act) and the Sensible Taxation and Equity Promotion (STEP) Act would dramatically change the inheritance tax code to the detriment of many farmers.
Specifically, the 99.5% Act would significantly reduce the estate tax exemption, and the STEP Act would eliminate stepped-up basis altogether.
A recent study by researchers at the Texas A&M Agricultural and Food Policy Center (AFPC) analyzed the potential impact of these bills on family farms and confirmed what many agricultural producers feared. Not only would these proposed policies dramatically increase farmers’ tax burden, but they could threaten the existence of many family farms across the country.
AFPC researchers analyzed several scenarios in the case of a generational transfer. Under current law, only 2% of farms would be impacted by an event triggering a generational transfer. In contrast, under the STEP Act, nearly 98% of farms would be impacted with an average additional tax liability of over $700 thousand per farm.
If both the STEP Act and 99.5% Act were enacted simultaneously, 98% of farms would be impacted with an average additional tax liability of over $1.4 million.
Because much of their net worth is tied up in land and equipment, these proposed changes to inheritance tax laws could force many small- and medium-sized family farms to liquidate important assets to cover their tax liabilities, ultimately harming the viability of the business moving forward.
The simple truth is that these proposals will have a devastating impact on the Americans who provide invaluable services and products to this nation.
Passing legislation that forces farmers to give up land they have owned for years in order to afford costly taxes is too high of a price to pay. I will continue to advocate on behalf of Hoosiers and farmers across this nation until this threat to their land is neutralized.