The American Farm Bureau Federation (AFBF) and the Family Business Estate Tax Coalition recently released a study showing the damaging impact of eliminating the stepped-up basis tax provision. AFBF Economist Veronica Nigh said doing so will hurt jobs and the economy.
“A study that we had commissioned by Ernst and Young found that overall, in the economy, the elimination of stepped-up basis would lead to a decline of 80,000 jobs each year for ten years, and in the long run, a 100,000 job decrease each year,” she said. “It would also cause a $10 billion decrease in GDP each year, which again, over a ten-year budget window is $100 billion.”
Nigh noted the increased tax burden would lead to less investment in things like machinery or farmland.
“The elimination of stepped-up basis would increase taxes, of course. That increase in taxes makes each project a potential investor might complete all the more expensive. That means that there’s probably going to be a decline in investment,” Nigh said.
For farmers and ranchers, the elimination would make passing on the family farm to the next generation more challenging.
To minimize the impact of burdensome capital gains taxes, farmers and ranchers use stepped-up basis, which provides a reset for the asset value basis during intergenerational transfers. The magnitude of the tax burden that would be felt if basis is taken away or reduced would likely significantly exceed the annual income generated by the assets, something that has American farmers concerned.
“A long standing provision of U.S. tax law is that a capital gains tax is not imposed when assets are transferred at death to an heir,” Nigh said. “Furthermore, tax law allows the heir to increase their basis in the asset to fair market value without paying capital gains tax. This is referred to as a step up in basis. By eliminating step up in basis, it means more capital gains taxes have to be paid, which makes it all the more challenging to get that business to be viable for your heirs.”
Learn more about the impacts of eliminating stepped-up basis in AFBF’s Market Intel report.
Thumbs down on eliminating the stepped-up cost basis and on any politician promoting it.
Notify your Congressman and Senator you are against this and make sure you vote for the right person in future elections. Also let them know you are against HR1 For The People Act. We need voting integrity! No stacking of The Supreme Court!