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September 28, 2021
Dear Members of Congress,
In order to pay for a broad suite of policies and programs that align with President Biden’s “Build Back Better” agenda, lawmakers on Capitol Hill have contemplated several changes to the federal tax code that – despite misguided and ill-informed claims to the contrary – would have a devastating impact on family-owned businesses. Many of those family-owned businesses are the farms and ranches that put food on the table each day for millions of Americans and consumers across the globe and include the cattle producers the National Cattlemen’s Beef Association (NCBA) represents.
Most notably, President Biden has proposed changes to a longstanding provision of the federal tax code referred to as “stepped-up basis.” Under the plan, the President has proposed treating the transfer of inherited assets as a sale, meaning transfers of property at death may be subject to capital gains based on the untaxed appreciation (or gains) if certain assets exceed set exemption limits.
When cattle farmers and ranchers are planning for the next generation to take over the farm and build upon the years of economic and environmental contributions that have taken place, stepped-up basis is critical in ensuring that the operation can stay in production, instead of being crippled by a massive tax burden. Thankfully, and despite the push to eliminate stepped-up basis, there appears to be broad bi-partisan support for maintaining this tool for farm and ranch families already dealing with hurdle after hurdle to maintain business viability.
Despite this broad bi-partisan support, Secretary of Agriculture Tom Vilsack disappointingly came out in strong defense of the President’s plan in a recent Wall Street Journal op-ed and in multiple radio appearances. His argument is this: first, family-owned agricultural operations will not be impacted under this proposal because farmers and ranchers will be exempt from the transfer tax if they keep their operation in the family. Second, because of the Administration’s proposal to exempt up to $2.5 million (for couples) in gain from taxation, 95 percent of family-owned farms and ranches won’t face any new taxes.
The first fallacy of so-called protections for family operations is that all generational transfers can occur within the family. The federal tax code fails to take in account the complex structure of family-owned businesses as it narrowly defines “family” as only those related by lineal descent (i.e., grandparent, to parent, to child) and often imposes several strict parameters around material participation.
This misguided understanding of how land is transferred between generations makes agriculture a prohibitively expensive possibility for many first-generation producers. The narrow definition of family fails to account for situations where an operation could be passed on to a member of the extended family or family friend – a common occurrence in rural communities. Federal tax policy has the potential to make or break land access for the farmers and ranchers who often face the most challenges when it comes to finding and affording land – beginning, veteran, and minority producers.
Agricultural land has been lost and converted to urban and suburban development for decades. Keeping U.S. farmland in production – providing the food, fiber, and fuel our growing nation needs – is important, period.
Secretary Vilsack also claims that 95 percent of family-owned agricultural businesses will be protected by a $2.5 million exemption from capital gains on inherited assets.
Multiple academic institutions have confirmed what thousands of farmers, ranchers, small business owners, tax professionals, and local government leaders already understand – the supposed safety net that the Secretary has outlined and is defending on behalf of the Administration will not accomplish the intended goal of protecting our nation’s family-owned agricultural operations.
A nonpartisan study by the University of Kentucky found that of the 320 family-owned farms identified, 50 percent of those appear to have an average taxable amount of $3.08 million after the $2.5 million exclusion.
Another nonpartisan study by Texas A&M University’s Agricultural and Food Policy Center proved that even with the $2.5 million exclusion, 92 of 94 representative family-owned farms would be impacted with an average of $726,104 per farm in additional tax liability.
In addition, Iowa State University analyzed how the same transfer tax exclusion limits would impact farmers and ranch families in Iowa, the Secretary’s home state. They found that 53 percent of Iowa farmland is owned by someone who would be subject to the new transfer tax, and a full-time farmer who owns just 358 acres of farmland would see his or her tax liability from a lifetime sale increase from $475,248 to $860,572, or a staggering 81% increase.
To be clear, America’s agricultural producers understand the role of taxes in strengthening our infrastructure, supporting essential services, and keeping our nation safe. They are ready and willing to pay their share, but Secretary Vilsack’s oversimplified and misguided interpretation of the President’s proposed tax increases will hurt the very families he serves to protect as the Secretary of Agriculture, and cattle producers are pleased to see that a growing bipartisan majority of lawmakers recognize this simple fact.
Sincerely,
Ethan L. Lane
Vice President, Government Affairs
National Cattlemen’s Beef Association
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