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Tax change fears keeping farmers up at night

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Legislators offer assurances that drastic changes on stepped up basis may not be targeted at farmers.

Farmers from all over come to the Farm Progress Show every year, including many of the high-profile leaders of commodity groups. This year a consistent theme from many on hand at this year’s show included concerns on the Biden administration and Congressional proposals on tax policy including changes to stepped up basis.

Zippy Duvall, president of the American Farm Bureau Federation, says, “There’s a lot of things that keep me up at night, but right now it’s the proposal to do away with our stepped-up basis and making capital gains paid at death interfering with our estate tax exemptions that really keeps me up at night.”

Maintaining step-up in basis allows a farmer or rancher to pay capital gains taxes only on the property’s increase in value after inheritance, rather than on the full increase in value since it was initially purchased by a parent or grandparent. Farm assets including land, equipment, and livestock are subject to stepped-up basis. 

Duvall shares any changes will really impact the next generation of agriculture. “If we fail on that front, agriculture won’t look like it looks because we’ll have a family selling land just to pay the inheritance tax or pay the capital gains tax.”

And who’s going to buy it? Corporate farms or possibly even foreign ownership, Duvall warns. “None of us in agriculture and rural America wants that to happen.”

Family farms control a huge number of farms across America. Family farms remain a key part of U.S. agriculture, making up 98% of all farms and providing 88% of production, according to USDA’s latest data.

John Linder, of Edison, Ohio, serves as president of the National Corn Growers Association, also expressed concern about the proposed tax changes. He currently operates his farm with his wife and brother as a partnership, and his daughter and son-in-law are involved as well as his youngest daughter in farming.

He says the tax proposal is counterintuitive to preserving family farms, as he too sees it as something that will accelerate the size of operations.

Related: Tax proposal nightmares may not occur

If it helps you sleep better, at least Rep. Cheri Bustos, D-Ill., offered strong assurances that under her watch she doesn’t plan to let tax policy changes negatively impact farmers. With just a three vote margin for democrats in the House, every vote matters on whether draconian changes are coming.

“I would say that I will fight tooth and nail to make sure that we have a carve out for our family farmers and our small business owners,” Bustos says. “We need to attract the next generation to agriculture, not force them out. And, I also think that President Biden understands that now.”

Bustos says this is the top topic that’s come up on nearly every one of the farm families she’s visited in recent weeks over the August recess.

“I think we're going to end up in a good place. I think our family farmers will not be subject to harm when they're passing their family farm from one generation to the next,” Bustos says.

While imposing a new capital gains tax at death with protections so that family-owned businesses will not have to pay taxes when given to heirs who continue to run the business may be well-intentioned, this obligation could still discourage the sale of farmland depending on its implementation – potentially increasing the cost and further limiting the availability of farmland.

For all those in agriculture, here’s hoping a carve out does not bring unintended consequences for family farms. With more than 370 million acres expected to change hands in the next two decades, the policies Congress enacts now will determine the future outlook of the family farm.

TAGS: Farm Policy
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