By Jennifer Whitlock
Field Editor

Farmers and ranchers from across Texas’ 8th Congressional District recently shared concerns on the Biden administration’s proposed tax increases with Congressman Kevin Brady.

At a forum discussion in Porter hosted by Texas Farm Bureau (TFB), Brady candidly discussed President Joe Biden’s proposal to increase some taxes and reverse portions of the 2017 Tax Cuts and Jobs Act.

“We know from the Family Business Estate Tax Coalition that repealing this one provision, the [step-up in basis tax] provision will cost over a million U.S. jobs in the first 12 years and a whopping 100,000 every year after,” he said. “And it doesn’t stop there. Paychecks go down and the U.S. economy shrinks because of this. It’s unfair. It’s wrong, and it punishes the wrong people for working their whole lifetimes.”

Farmers such as Charles Ring, who grows cotton, sorghum and corn, relayed stories of how retroactive changes to capital gains taxes in 2021 and eliminating the step-up in tax basis of property could have devastating effects on their business.

Currently, Ring said, he owns older cotton pickers that he’d like to trade in and purchase new machines. But when he asked his CPA if he would have to pay capital gains taxes on the “income” from the trade-ins, the accountant was unsure.

“The money I receive from the old pickers is ‘ordinary income’ under the current rules, but we’ve got stepped-up basis and [Section] 179 to counteract that,” he said. “But if we lose any of that, I could come up with a ton of income that’s not even related to production.”

Eliminating the stepped-up tax basis and taxing unrealized capital gains at death would affect not only current farmers and ranchers, but future generations, TFB District 11 State Director Allen Kaminski told Brady.

“We’ve had an operation in our family for over 125 years, and I’m 58 years old,” he said. “My two daughters, my six grandchildren…where I’m located, outside of Houston, I’m not sure they can afford to keep the operation going when we pass if these tax changes come into play. I’d like this land to stay in my family.”

Death taxes don’t just impact the wealthy, Brady responded. He said farmers, ranchers and small business owners receive the brunt of tax increases with the elimination of stepped-up basis.

But he urged those in attendance to keep sharing their stories and concerns with legislators on both sides of the aisle. Getting those in favor of increasing taxes and eliminating certain provisions to change their minds may be difficult, but it can be done if their constituents speak up.

“I think [the lawmakers pushing for changes] expect to get these changes because they don’t talk about you. They talk about the wealthy, so there’s no sympathy for you,” Brady said. “But the minute you start talking about family-owned farm businesses, everything changes. If we do our job correctly, we will stop this.”

Changes to capital gains tax policy that eliminate or scale back stepped-up basis could result in massive tax burdens for farmers and ranchers, noted TFB National Legislative Director Laramie Adams. Under current tax law, transfers at death are not treated as a “sale” and capital gain is not taxed. Those inheriting farmland may also increase the tax basis of the property to fair market value without paying capital gains tax. The property is instead “stepped up” to current value, so capital gains taxes are only paid on appreciation since the property was inherited.

Many farms’ value lies in the land and equipment, Adams explained. So, eliminating that stepped-up basis would make passing down family farms and ranches more difficult because capital gains taxes would likely exceed the farm’s net income.

“As our members discussed with Congressman Brady, the step up in basis is a tax tool farmers and ranchers routinely use in passing operations and land from one generation to the next. If stepped-up basis is taken away from them, taxes would likely significantly exceed annual income generated by the land, which means they would probably have to liquidate to pay the taxes and lose their family land and livelihood,” Adams said. “That’s not fair to those families who are working to preserve that operation for the next generation, and that’s not how things are done in this country. We don’t reward hard work by effectively taking away their children’s right to inherit.”

He repeated Brady’s warning that repealing stepped-up basis will also damage the U.S. economy.

In a recent report for the Family Business Estate Tax Coalition, the conductors of the study found middle-class, family-owned businesses would be hardest hit by the repeal, Adams noted. The gross domestic product relative to the U.S. economy in 2021 would be reduced by about $10 billion over 10 years, with farmers, ranchers and other small businesses bearing the weight of the economic downturn.

“American Farm Bureau Federation and Texas Farm Bureau are working diligently with our lawmakers to make sure everyone is aware of how detrimental these changes could really be for family farms and ranches,” Adams said. “We are encouraging our members to reach out and share their concerns with us and their legislators, because this is a very real, very urgent issue, and family legacies are at stake. The difference in being able to pass your farm or ranch down to your children or grandchildren hangs in the balance, so this is definitely something we need all our members to engage in and act upon.”

TFB is planning more tax forum discussions across the state. If you are interested in participating, please contact Adams at 254.751.2654 or by email at ladams@txfb.org.

“We’ve done close to 45 farm tours since January with our congressional delegation. This tax issue is one of the top issues we hear about,” Adams said. “We have the stories, we just need to make sure they’re shared. When you can put it in your own words, raw video, anything you can send us that Farm Bureau and other agricultural organizations can share and help amplify that message…well, it seems simple, but real people sharing their real concerns is very powerful.”

More information on the topic is also available here.