A Tax Plan to Destroy Farms and Ranches
When owners die, their heirs depend on the step-up basis for capital gains.
During my service as a U.S. senator and ambassador to China, I was honored to represent the interests of America’s family farmers and ranchers. As part of a four-generation ranch family myself, I understand how these businesses help feed America and the unique challenges they face.
The global pandemic has added to those challenges. Despite our best efforts, the doors to 31% of America’s small businesses were closed as of May 2021 and our family-run farm and ranch operations struggled to find employees in the current labor market. Drought is causing many to cull their herds because of inadequate forage. Although Congress has passed relief bills, family-owned businesses are struggling to stay open and now are at risk of more financial hardship—this time at the hands of lawmakers.
To pay for Covid-19 recovery and rebuilding efforts, Congress is considering a provision that would hit family businesses with taxes they can’t pay. This proposal would eliminate the step-up in basis at death on capital gains of more than $1 million and $2.5 million for couples. That means family businesses would have to pay taxes on their appreciated value even if that value is still locked up in the business. Eliminating the step-up would force family businesses and ranchers to liquidate when an owner dies and to lay off employees while bringing in little revenue for Uncle Sam.
Lawmakers should know this is a mistake. In 1976 and again in 2010, Congress passed legislation eliminating the step-up in basis. Both times it had to be reinstated because of the devastating effects on family-owned businesses. Proponents try to temper criticism by suggesting carve-outs, but we’ve learned from experience that they are ineffective. Congress tried that in 1997 for inherited family-held businesses but the exceptions were too narrow to benefit anyone, and widening them would have been tantamount to repealing the estate tax altogether.
I’m not the only Democrat who feels this way. More than a dozen Democratic representatives from farm districts, led by Rep. Cindy Axne (D., Iowa), sent a letter in May to Speaker Nancy Pelosi, Majority Leader Steny Hoyer and Ways and Means Chairman Richard Neal urging them to reconsider any plans to eliminate the step-up in basis because it will hurt family businesses.
Eliminating the step-up would devastate family-owned businesses, ranches and farms. That’s why I call on Democrats to preserve the step-up as it is.
Mr. Baucus, a Democrat, served as a U.S. senator from Montana (1978-2014) and ambassador to China (2014-17).
