A Republican group’s TV ad falsely claims that President Joe Biden’s tax plans would force the sale of family farms passed on to children due to burdensome taxes.
The policy proposed by Biden would tax heirs on the gain in value for assets such as farm land (the current value minus its original purchase price). But Biden’s plan would defer such taxes unless or until a farm is sold or no longer operated by the family. So no family would have to sell a family farm to pay the tax.
Moreover, it is not at all clear that Biden’s proposal is still in play. It was not included in tax legislation advanced by the House.
At issue is the value of capital gains passed on to an heir. Under current law, a person who inherits stock, for example, and later sells it would pay capital gains taxes on the increase in value of the stock compared with its value at the time it was inherited — known as step-up in basis or stepped-up basis — not compared with the value when it was originally purchased. (“This is called a “step-up in basis” because the basis of the decedent’s asset is stepped up to market value,” as the Tax Policy Center explains.)
“For example, if a person buys a stock for $10, passes it on at $29, and then it is sold for $30, capital gains taxes only apply to $1 of gains; $19 of gains escape taxation altogether,” the Committee for a Responsible Federal Budget wrote in a blog post.
According to a White House fact sheet on Biden’s plan, the president “would eliminate the loophole that allows the wealthiest Americans to entirely escape tax on their wealth by passing it down to heirs. Today, our tax laws allow these accumulated gains to be passed down across generations untaxed, exacerbating inequality.”
Biden would eliminate “the practice of ‘stepping-up’ the basis for gains in excess of $1 million” (or “$2.5 million per couple when combined with existing real estate exemptions”), making sure “the gains are taxed if the property is not donated to charity.”
In other words, Biden’s proposal would tax the unrealized gains when a person dies, with some exceptions.
But the White House fact sheet assured that the bill would be “designed with protections so that family-owned businesses and farms will not have to pay taxes when given to heirs who continue to run the business,” and the Treasury Department later provided details on the exemptions for family-owned farms and other businesses.
Still, some Republicans and Democrats have continued to express concerns that Biden’s plan could saddle the heirs of a family farm — whose parents or grandparents bought land for a fraction of its present value — with a tax bill that would require them to sell the farm.
That’s the gist of an ad running in Montana from Building America’s Future, a group headed by Marc Short, who was former Vice President Mike Pence’s chief of staff. (Not to be confused with a bipartisan advocacy group of the same name that fully supports the Biden infrastructure policy.)
Misplaced Criticism of Biden’s Plan
The ad features Montana rancher Jake Feddes, who says, “This ranch has been in our family for four generations, and I want to pass it down to my children, but Joe Biden’s tax increases would make that impossible.”
“Biden’s liberal plan would force many family farms and ranches to be sold off to pay his higher capital gains taxes, but don’t just take my word for it,” Feddes says. “Former Democratic Senator Max Baucus says Biden’s plan would destroy family farms and ranches. Tell Senator Jon Tester to oppose Biden’s tax hikes.”
But tax experts say the Biden proposal, as presented by the White House, wouldn’t force heirs to sell family farms to pay taxes.
According to a detailed 107-page document from the Treasury Department outlining the revenue proposals to pay for Biden’s ambitious, $3.5 trillion “human infrastructure” plans: “Payment of tax on the appreciation of certain family-owned and -operated businesses would not be due until the interest in the business is sold or the business ceases to be family-owned and operated.” That is consistent with the White House fact sheet released a month earlier that said the tax plan would make sure “family-owned businesses and farms will not have to pay taxes when given to heirs who continue to run the business.”
“Those who criticize Biden’s plan for imposing an unfair burden on family businesses and farms are ignoring what Biden actually proposed,” Howard Gleckman, a senior fellow in the Urban-Brookings Tax Policy Center, told us via email. “They are attacking a plan that does not exist.”
The exclusion for the first $1 million in gains ($2.5 million for couples) means that “very few” farms and small businesses would be subject to the tax, Gleckman said. In addition, “Family owned business (including farms) are entirely excluded from the realization at death provision. In those cases, tax is not owed until the asset is sold and passes from the family’s hands.”
Nonetheless, the Biden proposal has met with opposition not just from Republicans, but also from Democrats from rural areas concerned about its impact on farmers. A Wall Street Journal op-ed from former Democratic Sen. Max Baucus — referenced in the ad — warns: “Eliminating the step-up would force family businesses and ranchers to liquidate when an owner dies and to lay off employees while bringing in little revenue for Uncle Sam.” Baucus said past attempts to create “carve-outs” for farmers have proven “ineffective.” We were unable to reach Baucus for further clarification.
Notably, one of the leading voices in opposition to the proposal to eliminate the step-up has been Democratic Sen. Jon Tester of Montana, the very person targeted in the ad.
“I’m a small farmer in eastern Montana, and it would have significant effects on me,” Tester told the Wall Street Journal in June. A month earlier, he called the Biden provision a “non-starter.”
Tester has consistently maintained opposition to that tax provision.
The proposal “would have a negative impact on Montana’s family farms, ranches, and small businesses, and he [Tester] is going to keep fighting to defend those folks from shortsighted policies that put their continued operation in jeopardy,” Roy Loewenstein, a spokesman for Tester, told the New York Times on Sept. 10.
The point may now be moot. Biden’s proposal to eliminate the stepped-up basis was nowhere to be found in a package of proposed tax hikes outlined by the House Ways and Means Committee in mid-September. A spokeswoman for the committee confirmed to us that it was not included in the legislation advanced by House Democrats.
“The House did not include the proposal in its bill,” Marc Goldwein, senior vice president and senior policy director of the Committee for a Responsible Federal Budget, told us. “The Senate we don’t know about because we haven’t seen a bill. But as of now, there is no legislative proposal that includes it.”
Some experts speculated that Democrats stripped that provision from the bill due to concerns about its possible impact on farms (or the possibility of being attacked in ads just like the one here).
We spoke by phone with Feddes, the rancher featured in the ad. He said the ad was filmed more than a month ago, before it became clear the House did not include the provision in its legislation.
Feddes said he’s still concerned about inheritance tax changes and how they might affect family farms. The 2017 tax bill championed by then-President Donald Trump doubled the estate tax exemption to $11.2 million ($22.4 million for couples). But even when it was half that, very few farms and closely held businesses, about 80 of them in 2017, had to pay any estate tax at all on inherited assets, according to the Tax Policy Center. (A misleading talking point on the impact of the estate tax, however, remained in Trump’s speeches.)
Although Biden has not proposed directly altering the estate tax, his plan to tax unrealized gains at death would “effectively” lower the estate tax threshold, Gleckman wrote in June. Even still, certain family-owned and -operated businesses, including farms, would be protected, so long as they stay in the family.
“In recorded history, we’ve never even seen a family that’s lost their farm because of an estate tax,” Steven Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center, told CNBC. “It just does not happen.”
“But that doesn’t hurt the imaginations of all these politicians who want to use the family farm as a straw man,” he said.
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