John R. Block Reports from Washington April 2, 2021 “Estate Taxes”

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And now for today’s commentary –

This is Randy Russell sitting in for my good friend Jack Block. And now today’s commentary. This week the Biden Administration is rolling out their plans for infrastructure reinvestment. During the campaign, then-Candidate Joe Biden proposed a series of tax increases totaling $3 trillion, including raising tax rates for higher income individuals, increasing the corporate tax rate from 21% to 28% and treating capital gains as ordinary income. Some now are suggesting using these and other revenue raisers to pay for infrastructure, climate, and education initiatives.

Importantly for agriculture, proposals exist to significantly change existing estate tax laws. Currently, an exemption is provided for estates up to $11 million per individual and $22 million for couples. Under these proposals, this exemption could be reduced to as low as $3.5 million for individuals and $7 million for couples. Estates valued above that level would see their tax rate raised from 40 to 45%. There is also discussion of eliminating the so-called “stepped up basis.” When an heir inherits an asset—for example, a farm or other small business—they are allowed to value that asset at the time of the passing of the owner. This saves the heir from paying tax on the accumulated value of that business, property, or other asset since it was started.

According to USDA’s Economic Research Service, over 98% of our 2 million farms and ranches are family owned. In addition, USDA estimates that 82% of farm assets are in illiquid farm real estate.

So, what does this all mean for agriculture? The combination of potentially lowering the exemption, increasing the tax rate above the exemption, and eliminating the stepped-up basis would create significant tax liability for farms, ranches, and small businesses being passed onto the next generation.

Over my career in Washington, I have been a part of eight Farm Bills dating back to 1981. A basic premise of every one of these Farm Bills is to implement policies that protect the family farm. Increasing the tax liability for farmers and ranchers being transferred to the next generation directly conflicts with this objective.

More importantly, why do we have a death tax at all? Farms and other small businesses have been generating revenue for federal, state, and local governments every year they are in operation. Death taxes simply create yet another opportunity to generate revenue for federal and state governments from these same farmers and small business owners. Isn’t this double taxation?

Once again, this is Randy Russell sitting in for Jack Block.

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The views expressed in this editorial are those of the writer and not necessarily those of nor the Southern Farm Network.