Washington Insider -- Friday

Biden Tax Plans Continue to Worry Farmers

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Vilsack Acknowledges Carbon Bank May Need Congressional Action

USDA Secretary Tom Vilsack Wednesday at a White House press briefing acknowledged a USDA carbon bank will likely need some action from Congress to get off the ground. However, he also noted farmers expressed support and interest in the bank and USDA's broader climate-smart ag push during a session this week alongside Environmental Protection Agency (EPA) Administrator Michael Regan.

A reporter pressed Vilsack on whether a proposed USDA carbon bank would require congressional approval -- something Senate Ag Committee Ranking Member John Boozman, R-Ark., and others have asserted.

"Well, it needs congressional approval in the sense that you have resources in all of these programs that require funding," Vilsack responded. "We have a lot of flexibility already at USDA, and we're going to be utilizing that flexibility in a way that creates more, new and better markets," he added, though he did not elaborate on what specific flexibility he was referring to.

This indicates USDA's ability to establish and run a carbon bank using authority under the Commodity Credit Corporation (CCC) is not at all assured with Vilsack's indication that some congressional action will be needed.

USDA to Press on With Minority Farmer Debt Relief Plan

USDA Secretary Tom Vilsack was asked to weigh in on a legal challenge launched by a group of white farmers contesting USDA's debt relief efforts on behalf of Black farmers and other selected minorities.

The American Rescue Plan set aside $4 billion for the initiative, which provides unconditional USDA-held loan forgiveness for certain minority farmers along with extra funds to cover any potential taxes that arise.

The lawsuit, filed by the Wisconsin Institute for Law & Liberty, alleges the move violates equal protection rights because it excludes white farmers solely on the basis of race. Vilsack said the debt relief moves aim to address past USDA discrimination against socially disadvantaged farmers -- defined under the legislation as Black, Hispanic, Native American and other racial minorities.

"We have reimbursed people in the past for those acts of discrimination, but we've never absolutely dealt with the cumulative effect," he explained. Vilsack said USDA will press forward with the debt relief program, even with the pending litigation. "I understand that litigation is going to be what it is, and we'll obviously have the Department of Justice and others do what they do," he commented.

However, Vilsack said the legal actions will not affect ongoing implementation of the effort in the meantime.


Washington Insider: Biden Tax Plans Continue to Worry Farmers

President Joe Biden's plan proposing tax increases on the wealthy also contains potential tax changes many in U.S. agriculture are very concerned about.

The elimination of stepped-up basis is one of those provisions. That would end the current allowance that says when a farmer/landowner passes away, heirs receive the land based on its current value. If the stepped-up basis is done away, heirs would face capital gains taxes based on the value when it was originally acquired by the farmer/landowner.

When announcing the proposed changes, several officials including USDA Secretary Tom Vilsack, touted the fact their plan has an exemption for farms that remain family owned and operated after the owner passes. USDA said that would mean 98% of farms would be exempt from the decision.

But that has not yet eased concerns. That is evidenced by a bipartisan group of House members who wrote to House leaders and urged them when compiling the legislation to put Biden's plan in motion they make sure farms and small businesses are exempt from the Biden plan.

"The repeal of stepped-up basis for capital gains and immediate taxation could especially hurt family farms, some of which have been in families for generations; therefore, we strongly urge you to provide full exemptions for these family farms and small businesses that are critical to our communities," the Democratic lawmakers wrote.

The use of the phrase that the exemption would apply to land that remained family owned and operated has also raised questions about whether that would apply to land inherited by those who do not farm the land. That is another potential worry point for agriculture where a rising number of landowners potentially have no heirs that are actively farming the ground, and that has those wondering if the loss of stepped-up basis and higher capital gains taxes would still apply in those situations.

Another component of the Biden plan would end another tool farmers have already seen reduced -- 1031 exchanges. The tax package approved in 2017 narrowed the use of the Section 1031 exchanges to apply only to real estate. Previously, 1031 exchanges were allowed on personal property such as farm equipment and livestock. It allowed farmers to exchange their old tractors and upgrade to new ones without being taxed on their traded-in equipment.

The 2017 tax law kept Section 1031 exchanges in place for real estate. That allows a farmer to sell land that perhaps would be located near an expanding city and take the resulting money and purchase land further out without paying capital gains on the sold farm ground. Similarly, some have used it sell an operation in one area with more-stringent regulations on farm practices and purchase ground in another location with fewer restrictions.

The Biden plan would cap the level of profits that can be deferred tax-wise to $500,000, a limit that could effectively eliminate the 1031 exchanges on farm ground.

The administration already had shelved another possibility that would also have set off alarm bells for agriculture. The initial talk was that the Biden plan was going to include an increase in the estate tax. Ag interests have led a successful campaign over the years to keep the estate tax from being increased. While they have also succeeded in raising the exemption level that determines when the estate tax kicks in, they have yet to see success in totally eliminating what they label the "death tax."

So, we shall see. The Biden team has gone to great lengths to insist farmers would not be affected by the changes relative to capital gains and stepped-up basis. But the effort by a group of Democratic lawmakers makes clear they want more than just assurances; rather they want it in legislative language. And the 1031 issue also could remove another tool farm farmers' tax toolbox. All are items that bear watching for a sector that is asset-rich but at times, cash-poor, Washington Insider believes.


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