U.S. Sens. John Thune (R-S.D.), Steve Daines (R-Mont.), and Mike Crapo (R-Idaho), members of the tax-writing Senate Finance Committee, and Mitch McConnell (R-Ky.) today led the entire Senate Republican caucus in urging President Biden to abandon his effort to impose a capital gains tax increase on family-owned businesses, farms, and ranches. Repealing this part of the tax code would have a devastating effect on multi-generation operations, which could lead to job losses, liquidation, or outright closure.
“These [proposed] changes are a significant tax increase that would hit family-owned businesses, farms, and ranches hard, particularly in rural communities,” the senators wrote. “These businesses consist largely of illiquid assets that will in many cases need to be sold or leveraged in order to pay the new tax burden. Making these changes could force business operators to sell property, lay off employees, or close their doors just to cover these new tax obligations. The complexity and administrative difficulty of tracking basis over multiple generations and of valuing assets that are not up for sale will lead to colossal implementation problems and could also lead to huge tax bills that do not accurately reflect any gains that might have accumulated over time. As you will recall, a proposal to reach a similar outcome by requiring an heir to ‘carry-over’ the decedent’s tax basis was tried before in 1976—and failed so spectacularly it never came into effect. It was postponed in 1978 and repealed in 1980.”
“Passing on the family farm to the next generation is a top priority for many farmers and ranchers,” said Zippy Duvall, president of the American Farm Bureau Federation. “Eliminating stepped-up basis and increasing capital gains taxes will make it much more difficult, or even impossible, for parents to pass on their farm or ranch to their children. This is a critical tool for America’s farmers and ranchers, and we urge all members of Congress to oppose efforts to eliminate it.”
“At a time when small businesses are working to recover from the COVID-19 pandemic, repealing stepped-up basis would be a devastating setback for family-owned businesses,” said Courtney Titus Brooks, senior manager of federal government relations at National Federation of Independent Business (NFIB). “The current proposal to eliminate stepped-up basis would cause significant job losses and would leave heavy tax burdens on future generations. Small businesses thank Senators Thune, Daines, and Crapo for advocating on behalf of family-owned businesses and urge Congress to keep this important policy in place.”
“We appreciate the efforts of Senators Thune, Daines, and Crapo to inform President Biden on the catastrophic impacts that the repeal of stepped-up basis would have on all family-owned businesses and are grateful to see so many in Congress are fighting to preserve the common-sense tax provisions so critical for U.S. cattle producers,” said Danielle Beck, senior executive director of government affairs of the National Cattlemen’s Beef Association. “The Biden Administration has made clear that bolstering the American economy is a top priority and recognized agricultural supply chain resiliency as a core component of that effort. Family-owned agricultural operations are the economic drivers of rural communities across the United States; therefore, it is imperative that this Administration understand that resiliency can only be achieved and maintained when new generations – whether their family has had a long history in agriculture, or they are breaking into the industry – can build upon the contributions of today’s farmers and ranchers.”
“Stepped-up basis has helped family-owned businesses and farms stay in the family for generations,” said the Family Business Estate Tax Coalition (FBETC) Steering Committee. “President Biden’s proposal to repeal this longstanding tax provision would saddle future generations with unsustainable tax burdens and make it that much harder to continue operating family-owned businesses and farms across the country. In addition to subjecting family-owned businesses and farms to a significant tax increase, repealing stepped-up basis also would lead to an estimated 800,000 job losses over the next decade. The FBETC appreciates Senators Thune, Daines, and Crapo for standing up for family-owned businesses and farms and we are hopeful that Congress will protect U.S. workers by preserving stepped-up basis.”
“If step-up in basis is eliminated it will be an economic disaster for family businesses, their employees, the local communities, and the national economy,” said Pat Soldano, president and CEO of the Policy and Taxation Group. “Family businesses create 59% of the workforce, 83.3 million jobs, and 54% of the GDP, $7.7 trillion. Elimination of step up and an increase in capital gains could result in an 81% tax on the business owner when he dies.”
Additional groups that support the senators’ effort include the Associated General Contractors of America, National Association of Manufacturers, and the U.S. Chamber of Commerce.
Joining Thune, Daines, McConnell, and Crapo in signing the letter were U.S. Sens. John Boozman (R-Ark), Chuck Grassley (R-Iowa), John Cornyn (R-Texas), Richard Burr (R-N.C.), Rob Portman (R-Ohio.), Pat Toomey (R-Pa.), Tim Scott (R-S.C.), Bill Cassidy (R-La.), James Lankford (R-Okla.), Todd Young (R-Ind.), Ben Sasse (R-Neb.), John Barrasso (R-Wyo.), John Hoeven (R-N.D.), Joni Ernst (R-Iowa), Cindy Hyde-Smith (R-Miss.), Roger Marshall (R-Kan.), Tommy Tuberville (R-Ala.), Deb Fischer (R-Neb.), Mike Braun (R-Ind.), Marsha Blackburn (R-Tenn.), Roy Blunt (R-Mo.), Susan Collins (R-Maine), Tom Cotton (R-Ark.), Kevin Cramer (R-N.D.), Ted Cruz (R-Texas), Lindsey Graham (R-S.C.), Bill Hagerty (R-Tenn.), Josh Hawley (R-Mo.), Jim Inhofe (R-Okla.), Ron Johnson (R-Wis.), John Kennedy (R-La.), Mike Lee (R-Utah), Cynthia Lummis (R-Wyo.), Shelley Moore Capito (R-W.Va.), Jerry Moran (R-Kan.), Lisa Murkowski (R-Alaska), Rand Paul (R-Ky.), James Risch (R-Idaho), Mitt Romney (R-Utah), Mike Rounds (R-S.D.), Marco Rubio (R-Fla.), Rick Scott (R-Fla.), Richard Shelby (R-Ala.), Dan Sullivan (R-Alaska), Thom Tillis (R-N.C.), and Roger Wicker (R-Miss.).
Full text of the letter below:
The Honorable Joseph Biden
President of the United States
1600 Pennsylvania Avenue NW
Washington, D.C. 20510
Dear President Biden,
We appreciate your efforts to address America’s infrastructure challenges, but the cost of these investments should not be borne by family-owned businesses, farms, and ranches across the country. We are concerned that your American Families Plan proposes to make drastic changes to the taxation of capital income, including a longstanding tax provision that prevents family-owned businesses, farms, and ranches from being hit with a crippling tax bill when a family member passes away.
Under current law, passing down a family business to the next generation does not impose a capital gains tax burden on the business or its new owners. Rather, the decedent’s tax basis in the business is “stepped-up” to fair market value, preventing a large capital gains tax bill on the growth in the business’s value. If the functional benefit of the step-up in basis were eliminated and transfers subject to the estate tax also become subject to income tax, as you have proposed, many businesses would be forced to pay tax on appreciated gains, including simple inflation, from prior generations of family owners—despite not receiving a penny of actual gain. These taxes would be added to any existing estate tax liability, creating a new backdoor death tax on Americans.
These changes are a significant tax increase that would hit family-owned businesses, farms, and ranches hard, particularly in rural communities. These businesses consist largely of illiquid assets that will in many cases need to be sold or leveraged in order to pay the new tax burden. Making these changes could force business operators to sell property, lay off employees, or close their doors just to cover these new tax obligations. The complexity and administrative difficulty of tracking basis over multiple generations and of valuing assets that are not up for sale will lead to colossal implementation problems and could also lead to huge tax bills that do not accurately reflect any gains that might have accumulated over time. As you will recall, a proposal to reach a similar outcome by requiring an heir to “carry-over” the decedent’s tax basis was tried before in 1976—and failed so spectacularly it never came into effect. It was postponed in 1978 and repealed in 1980.
Further, the proposed “protections” simply delay the tax liability—rather than provide any real tax relief—for those continuing to operate the business, farm, or ranch. In fact, these protections create new “lock-in” effects that could make any eventual changeover in operation or transfer of the business financially untenable. Imposing a tax increase on hardworking Americans would harm the economic recovery from COVID-19 and endanger American jobs. A recent study by E&Y found that eliminating the benefit of a step-up in basis would cost the U.S. economy 80,000 jobs each year over the next decade—and an additional 100,000 jobs per year in the long run. Additionally, for every $100 in revenue raised by this tax increase, $32 would come directly from the pockets of American workers. A study by the Texas A&M Agricultural and Food Policy Center reached equally unsettling conclusions, determining that 98 percent of the representative farms in its 30-state database would be impacted by a proposal to eliminate the benefit of the step-up in basis, with average additional tax liabilities totaling $726,104 per farm.
We respectfully urge you to reconsider your proposal to repeal this important part of the tax code. Preserving step-up in basis would save American jobs and ensure that small businesses, farms, and ranches across the country can stay in their families for generations to come.