The Fight is On

Since the last week in July, the U.S. Senate has focused on getting an infrastructure bill written and, ultimately, passed. There are other bills waiting for more discussion, but not much interest is generated – except for two bills that affect agriculture.  

One of these bills would raise the inheritance tax, and the other would lower the estate tax exemption. Both of these bills pose a threat to those in a family business, especially an agricultural family business. By Aug. 4, the entirety of Republican Senate members had given floor speeches, released press releases and delivered a letter to President Biden on the Democrat’s spending, as well as their stance on raising capital gains taxes and eliminating the stepped-up basis for inherited assets – all actions that stand to hurt family businesses. 

U.S. Department of Agriculture Secretary Tom Vilsack and Democratic Senators are saying 98 percent of family farms and ranches would not be affected by the plans to raise taxes on people making more than $400,000 a year. Secretary Vilsack also said farmers, ranchers and other family-owned businesses would not be affected by proposed increases in capital gains or the elimination of stepped-up basis, as long as heirs continue to operate the farm or ranch.  

We are told the tax hikes would only affect families who end up selling the farm or ranch. Republican Senators have asked Secretary Vilsack for proof of his statements, but he has not answered their request.  

The Democrats are in a hurry this week to pass the infrastructure bill before the Senate takes its traditional August recess. 

Behind this bill, the Democrats have a larger bill they want passed soon. This bill contains social issues Republicans have cut from the infrastructure bill, such as immigration reform. The bill could also include tax hikes and reforms, including eliminating the stepped-up basis for capital gains taxes. There is no telling what else would be thrown into the bill. 

Democrats hope to pass this bill through reconciliation, which they can do if every Democrat Senator votes “yes” and the vice president votes to break the tie. The only thing saving agriculture is some Democratic Senators from agricultural and rural states may vote against the bill or have amendments in the bill passed to exempt farms and ranches, but not other family businesses as I see it. 

The president’s tax plan would tax unrealized capital gains at death at 43.4 percent, up from 23.8 percent after including the Medicare surtax. The plan would exempt $1 million in assets for an individual and $2 million for a couple. This action would repeal the stepped-up basis carryover heirs receive from their estates. 

As one could guess, Republicans are fighting the president’s plan and the bills I mentioned.  

A Texas A&M Agricultural and Food Policy Center study released in July stated just two of 94 representative farmers are affected by current tax policy which exempts $11.7 million in assets for individual heirs in an estate, or $23.4 million per couple. Under the planned bill to eliminate stepped-up basis, 92 percent of the 94 representative farms would carry tax liability averaging $726,104 per farm.  

On another bill that would roll back estate tax exemptions to $3.5 million for an individual or $7 million per couple, combined with dropping the stepped-up basis, the tax liability is roughly $2.17 million per farm. This is why the fight is on. 

The difference between a taxidermist and high taxes is that a taxidermist takes only your skin, not your family farm, ranch or other family business.