Political fight for tax relief for inherited farmland rocks congressional budget reconciliation bill
Farm groups and farm state lawmakers won a significant victory when House Democrats in the United States opted to leave significant tax relief on inherited property untouched, so far avoiding a confrontation.
But the opponents remain suspicious that the idea could be rekindled at any time as Democrats shape their massive $ 3.5 trillion budget reconciliation agenda and seek out ways to help fund the most significant expansion of the social safety net since the New Deal.
Farm lobbies and Republicans, as well as influential Democrats like House Agriculture Chairman David Scott of Georgia, have strongly opposed the tax changes proposed by President Joe Biden in his “Build Back Better” plan for farmland. and other assets passed down from one generation to the next.
Biden, along with Agriculture Secretary Tom Vilsack, wanted to end the “enhanced base” for determining capital gains taxes on these assets. Vilsack, the former governor of Iowa, took the pages of The Wall Street Journal and intervened at a White House press briefing to argue that closing such loopholes is necessary to ensure the rich pay their fair share.
Over the next decade, the administration’s plan to tax farmland estates could bring in up to $ 322 billion in new federal tax revenues.
But U.S. Representative Randy Feenstra, a Republican from Iowa, said farmers in his district have been complaining about the proposal since it was unveiled earlier this year. Farmers, he said, fear that a new tax regime will make it impossible to keep farms in the family.
âLet’s say a mom and dad bought their farm for $ 2,000 an acre and it’s now worth $ 12,000 an acre. If they want to give it to their son or daughter or whoever it is, [the heir] would have to pay taxes on the difference of that, âsaid Feenstra States Press Room in an interview.
âA son or daughter wouldn’t have this money, so they would have to sell the land to pay the tax,â he continued. The buyer would most likely be a large company, not a local farmer, he said. âThat’s why so many people fear it will destroy the family farm, literally destroy the family farm. “
Proponents of change say these concerns are exaggerated or easily addressed by political adjustments. But emotional appeals to save America’s small towns seem to have won this round.
Democrats on the House Ways and Means Committee, the group that handled the tax aspects of Biden’s economic stimulus package, left out the changes proposed by the president to the reinforced base when they approved their part of the reconciliation bill last week.
The idea could reappear later, as the package continues its journey through the House and Senate. But the committee’s decision reflects how politically radioactive the idea has become.
Many Democrats hesitated at the suggestion of Biden as well. Scott, Chairman of the House Agriculture Committee, writes the president in June, arguing that the strengthened base was “an essential tool allowing family farms to continue from generation to generation”.
âI have worked tirelessly to ensure that the hardened base is protected,â Scott said in a statement last week, âand I am very happy that the released package does not impact the operation of the advantage.”
But Vilsack, who owns 600 acres of farmland, argues the grossed-up base is really just a way for the wealthy to avoid paying taxes.
“This policy allowed the rich to amass large fortunes”, Vilsack wrote earlier this month at The Wall Street Journal.
âMillionaires and billionaires borrow against their assets, usually stocks or real estate, but also art and collectibles, really anything a bank will lend against. When these assets are transferred on death, their heirs can sell the property without being taxed to pay off the debt. It is one of the most popular ways for the wealthy to avoid tax, and it must stop. “
The agriculture secretary said Biden’s proposal included special protections for family farms.
First, the administration wanted to impose capital gains tax only when the heir sold the property. So, in Feenstra’s example, the son or daughter would not have to pay tax when he inherited the farm, only when he sold it.
Second, Vilsack said the Biden plan would exempt all capital gains up to $ 2.5 million. He said 95 percent of family farms should do nothing with this level of exemption.
An evidence ?
Marc Goldwein, senior vice president and senior policy director of the Committee for a Responsible Federal Budget, said House Democrats have so far not included changes to the reinforced base was a “point discouraging departure “.
Getting rid of politics, he said, should be a matter of course.
âYou want a tax policy that treats people in similar situations the same, that doesn’t create the wrong incentives and that gradually increases income,â he said. âThe reinforced base fails all three. “
It makes no sense, he argued, that a person who sold their property the day before their death would have to pay capital gains on it, but someone who inherited the same. property and sold it a day later would not have to pay.
The policy encourages people to hold onto their assets longer than they otherwise would, just to avoid taxation. And that disproportionately benefits wealthy taxpayers, Goldwein said.
The policy primarily affects people with assets other than farms, he said.
A 2014 US Treasury study, for example, found that farm assets were only 2% of the fair market value of assets protected by the policy. Stocks and bonds, on the other hand, accounted for more than half of the value of protected assets.
Consequences for farmers
But Dustin Sherer, director of congressional relations for the American Farm Bureau Federation, said the administration downplays the potential consequences for farmers if the strengthened base is removed. While Vilsack touted the administration’s proposed exemption from the first $ 2.5 million in capital gains, Sherer noted that this would not be enough to protect farmers with a typical 500-acre farm in the state of originally from Vilsack, Iowa.
There are over 18,000 farms in Iowa that are over 500 acres, Sherer said. “Specifically, if you’re trying to go after billionaires, why is $ 2.5 million your exemption level?”
And the administration’s proposal to impose capital gains tax when property is sold, rather than when it is inherited, still poses problems, Sherer said.
The persistent tax liability would, for example, make it more difficult for the new owner to take out a loan. “It completely changes the dynamics of the transfer,” he said.
Sherer said he was encouraged that the policy had yet to gain traction in the House, but was concerned it would become part of the deal later.
âAs long as DC politicians are looking for money to offset their expenses, it’s not over,â he said.
The reconciliation bill now goes to the House Budget Committee, which will consolidate the contributions of other House committees. President Nancy Pelosi has said she wants the entire chamber to vote on the package before the end of the month, but that deadline could slip.
Daniel C. Vock helps cover Washington for the States Newsroom Network.