President Joe Biden says his American Families Plan will support children, teachers, and working families in rural America.
The $1.8 trillion proposal was unveiled during the president’s address to Congress at the end of April.
In rural parts of the nation, the proposal and its price tag are receiving mixed reviews which is why Secretary of Agriculture Tom Vilsack has been stumping on behalf of President Biden’s plan.
During an exclusive MTN interview with the Montana Ag Networks Lane Nordlund, Sec. Vilsack called the proposal, “a generation-defining investment in rural America.”
“Even before the pandemic, a lot of families, middle-class families, working families were having a very difficult time making ends meet,” said Vilsack. “The American Families Plan is designed to do two very important things. First, to provide help and assistance to families so they can, in fact, make it. Secondly, creating the opportunity for us to have an economy that is competitive and able to meet the challenges of the future."
Among other things, the $1.8 trillion package proposes to expand child nutrition assistance, offer free community college, universal pre-K, paid family and medical leave, and extend Affordable Care Act subsidies. In order to pay for the nearly $2 trillion plan, the Biden Administration is planning to impose higher taxes on corporations, high-income earners, and capital gains taxes on inherited assets.
It’s the capital gains tax and possible elimination of the stepped-up basis that has family farmers and ranchers concerned. Capital gains taxes are based on the change in the value of an asset, such as farmland, livestock, or timber, when that asset is sold.
Currently, the top capital gains tax rate is 20%. To reduce the capital gains tax, farmers and ranchers use a stepped-up basis, which provides a reset for the basis during intergenerational transfers. In effect, upon the transfer of assets following a death, the basis is reset to the market value at the date of death.
Following the adjustment, taxes can be levied only on gains realized by the individual during his or her ownership, not on gains realized prior to the step-up in basis. Proposed legislation in Congress would tax capital gains at death and eliminate stepped-up basis as a way to raise revenue for government spending.
The American Farm Bureau Federation (AFBF) said this would be devastating to American agriculture.
“Funding the government should not come from targeting hardworking families who have spent a lifetime building businesses and creating jobs,” AFBF said in a statement. “Farmers have endured weather disasters, trade wars and COVID-19 – immense burdens that would destroy less resilient industries.”
“Farms are often kept in the family for many years,” AFBF added. “Tracking the appreciation of land and equipment over a period of decades would be extremely complex, and the value of land is likely to have increased so much that without stepped-up basis the next generation of farmers and ranchers could be forced to sell the land just to pay the taxes.
Sec. of Agriculture Vilsack said he has made a promise to the nation’s agriculturists that they will be protected from any changes to capital gains taxes that regarding the American Families Plan.
“If you are a farm family, and mom and dad pass away and they passed the farm on to their children, and their children continue to own the farm and operate the farm, then there is no impact of stepped-up basis,” explained Vilsack. “There's no capital gains that needs to be collected at that point in time. It's just business as usual.”
It is a different scenario for those that sell the land they inherit. “If the children decide to sell the farm, then the stepped-up basis does get triggered,” said Vilsack. “However, there is a $1 million per person exemption.”
Vilsack added that a large majority of farms and ranches will not be impacted by proposal.
“We've calculated between those two issues of being able to operate the farm without having any tax implication and the million-dollar per person exemption if they sell the land,” said Vilsack. “That calculation shows that 98.5% of farms and ranches in this country will not be impacted or affected by this at all.”
Even with that assurance, many in rural America have said a promise made by USDA is different than actual legislation passed by politicians. That’s why the American Farm Bureau Federation said they will remain committed to preserving family farms and advocating for tools like the stepped-up basis.
“Assuming a very likely capital gains tax rate of 20%, without stepped-up basis, it’s estimated that the tax burden on farmers and ranchers inheriting cropland would be significantly larger than the cash rental income generated on the farmland,” said the Farm Bureau. “In the case of most farm operations, the capital gains tax would take several years of rental income to pay the tax obligation. Heirs facing these taxes would incur steep costs from selling the land, thereby increasing costs for everyone in the marketplace. If an estate is passed on with debt, it may not be possible for the family to meet the tax obligation.”