Farm Groups Push Back on Tax Plans

Ag Groups Detail Firm and Ardent Opposition to Changes in Capital Gains and Stepped-up Basis

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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The House Ways and Means Committee will start debating tax policies Thursday for the $3.5 trillion budget reconciliation plan. At least 330 agricultural groups on Wednesday sent a letter to Congress opposing changes in tax policies, including any adjustment to estate taxes or basis for inheritance. (DTN file photo)

OMAHA (DTN) -- The battle lines are being drawn over tax proposals in Congress as 330 national and state farm and livestock organizations wrote congressional leaders on Wednesday, calling on lawmakers to "not alter or eliminate longstanding tax code provisions that are fundamental to the financial health of production agriculture" and related businesses.

With a $3.5 trillion reconciliation plan under the President Joe Biden's "Build Back Better" agenda, the tax-writing committees in Congress are looking at proposals that would raise taxes on wealthy individuals and corporations. Farm groups spell out that they are "firmly" and "ardently" opposed to proposed changes in capital gains or stepped-up basis for heirs that Democratic leaders are considering using to pay for their new programs.

With billions of dollars in tax breaks at stake, the lobbying over tax plans and their impact has ramped up dramatically. The New York Times cited former North Dakota Sen. Heidi Heitkamp, a Democrat, helping opposition to the president's tax plan. Heitkamp argues that the tax plans for capital gains would hurt the Democratic party in rural America.

The letter included the American Farm Bureau Federation, National Cattlemen's Beef Association, and their state affiliates, along with state and national groups representing agribusinesses, retailers, corn, soybeans, milk, cotton, rice, sugarbeets, nursery growers, sorghum, pulse crops, peanut growers and poultry producers.

The letter cites that there are four times as many farmers and ranchers age 65 and older than there are under the age of 35, and these older farmers own more than 40% of agricultural land in the country. With 370 million acres expected to change hands in the next two decades, the tax policies being debated by Congress "will determine agricultural producers' ability to secure affordable land to start or expand their operations."

Underlined and italicized in the letter, the farm groups add, "For this reason, we firmly believe the current federal estate tax code provisions must be maintained."

The president's tax plan for budget reconciliation is that it would tax unrealized capital gains at death at 43.4% -- up from 23.8% after including the Medicare surtax. The plan would exempt $1 million in assets for an individual, $2 million per couple. This would effectively repeal the stepped-up basis carryover that heirs receive from estates.

Biden's proposal also would increase income taxes for people making over $1 million in income annually from 37% to 39.6%.

In the debate over stepped-up bases, the farm groups stated the transfer of farmland in family-owned operations would become more problematic if farmers had to determine the potential capital gains on farmland and other farm assets rather than affording heirs the traditional stepped-up basis they have received when inheriting a farm or business.

Last week, the White House sent out an analysis by the liberal think tank, the Center for American Progress, stating that the president's plan has protections so that family-owned businesses and farmers will not have to pay taxes when given to heirs who continue to run the business. Those who sell the farm or family business would be impacted by those tax changes. (https://www.dtnpf.com/…)

Addressing the protections cited by the White House, the farm groups stated that the provision protecting heirs from paying capital-gains taxes when they sell a farm or business "could still discourage the sale of farmland, depending on its implementation -- potentially increasing the cost and further limiting the availability of farmland." The letter added, "Such unintended consequences could result in greater barriers to access for new, expanding and underserved producers alike."

Added to that, the "diverse complexity of ownership structures across family-owned agricultural entities," along with the current tax code definition of family, means "it would be virtually impossible to provide meaningful protections for those that need it most. Simply put, exemptions for family-owned farms, ranches and agribusinesses are untenable."

Again, italicized and underlined, "As such, we remain ardently opposed to repealing the stepped-up basis and to imposing new capital gains taxes on family farms and ranches when there is a death in the family."

The farm groups also oppose a change that would eliminate the Section 199A income deduction for pass-through businesses such as farms and ranches. Eliminating or reducing Section 199A "will result in a huge tax increase for farmers and ranchers at a time when they can ill afford it." Added to that, the farm groups seek to maintain like-kind exchanges for real estate as well, citing that like-kind exchanges help businesses buy or sell assets without tax consequences, which also helps farmers and ranchers cash flow their operations and reinvest in their businesses.

The U.S. Senate, when it passed its budget resolution in early August, included language that would ensure privately held businesses, farms and ranches would see their stepped-up basis preserved, as well as see extended tax relief.

The push back against tax proposals comes as federal aid to farmers also has gotten more expensive. USDA's farm income forecast released last week showed government payments are forecast at $28 billion for 2021, coming down from $45.7 billion in 2020 as Congress has continued to provide ad-hoc aid to deal with pandemic losses. In 2019, direct aid to farmers was dramatically boosted with $14.2 billion in trade-aid payments from the Trump administration.

The higher government payments continue to boost net farm cash income, which USDA reported last week is forecast at $134.7 billion in 2021, a level not reached since 2013 when net farm cash income was $136 billion.

The American Farm Bureau wrote a separate letter to congressional leaders on Tuesday. Farm Bureau criticized the overall price tax of the reconciliation package, the proposed tax increases and the lack of stakeholder engagement on these proposals.

Read more about the budget pushback here:

https://www.dtnpf.com/…

Chris Clayton can be reached at Chris.Clayton@dtn.com

Follow him on Twitter @ChrisClaytonDTN

Chris Clayton