I don’t care who you voted for, or your thoughts on the election. Joe Biden is the President and as much as I try to stay out of politics, his proposed tax plan is now the greatest threat to destroy family owned farms and ranches that America has ever seen. According to Farm Progress Magazine, “Biden has two features in his(estate tax) plan, and one is unfortunate, but the other is disastrous for farmers.”
LAND RICH CASH POOR
Over the past 20 years agriculture land prices have skyrocketed. In my neighborhood, (southwest Iowa) farm ground has went from around $900 per acre in the 90s to well over $7,000 per acre now. Farms that were were a few hundred thousand, 25 years ago, are now worth millions. So farmers have found themselves in a unique position. If they own the land they work on, they can keep working for an unstable living that is always dependent on the weather and markets, or they could sell out and become multi-millionaires. For most people this seems like it would be an easy decision. For most farmers they don’t think twice about it…they stay, and keep working.
So why do they keep it? A big reason for keeping the farm has always been to pass it on. And now that there are fifth, sixth, and seventh generation farmers and ranchers around. Passing the farm down to the next generation has become a sacred tradition. The end goal of a life’s work. As Paul Harvey says at the end of his speech, turned commercial, “Somebody who’d bale a family together with the soft strong bonds of sharing, who would laugh, and then sigh, and then reply, with smiling eyes, when his son says he wants to spend his life ‘doing what dad does… So God made a farmer.”
UNFORTUNATE AND DISASTROUS
Unfortunate– The “unfortunate” part of Biden’s proposed tax plan is the elimination of the, stepped-up basis. The stepped-up basis has been used for all inheritance for generations. How it works, is when property is inherited, it doesn’t matter what the dead person paid for it, the value is stepped-up to what it is worth at the time of the death. This allows the person who is inheriting the property to show no gain in income from the inheritance.
Biden’s tax plan would remove the stepped-up basis. According to the Forbes article, Biden’s Tax Increase On Death That No One Is Talking About, “Biden’s tax plan calls for carrying over an asset’s tax basis from the the decedent to the next generation. No amount of estate tax exemption would help you, because this is a big income tax increase.” That income tax increase would destroy practically all small family run farms, because it would simply be too much to pay without selling out.
Example– Lets say you are the son or daughter of a farmer and have worked your whole life on your fathers farm with the hopes of taking it over when he kicks the bucket. Your Dad inherited a portion of the farm from Grandpa in the 1990’s, and he bought his brothers and sisters out for $900 per acre. His dreams have come true, and he now he owns a thousand acres that you guys farm together. Now that land prices have shot up, his farm is now worth $8,000 per acre. When Dad croaks, with the stepped up basis in place, the value of your farm is stepped up to current land values when you inherit it, and no gain in income is shown. Under Biden’s plan the stepped up basis is gone, and you are looking at showing a gain of income that is the difference between the price of the land when your Dad bought it and the price it is now. On 1,000 acres you are now showing a gain of $7.1 million dollars.
Disastrous– Right now you can only pay taxes on inherited property that you sell. The truly, “disastrous,” part of Biden’s the plan for farmers, and everyone else, is combining the removal of the stepped-up basis with taxing, “an asset’s unrealized appreciation at transfer,” meaning you will be taxed on the value of inherited property whether you sell it or not.
Multiple sources put this tax under capital gains, but the Forbes article cited above, calls it an, “income tax increase.” Either way, since Biden also plans to raise capital gains taxes to the highest income tax level, under his plan it would be taxed the same, 39.6%. So, using the above example, for a farm you were able to make a modest living on, you now owe the Federal Government $2,811,600. For most farmers there is only one way to pay that bill, and that’s to sell. Now in order to keep your farm, you will have to sell off 40% of it to pay the Government. What you are left with is a farm that can no longer support your family.
Consequences– Its hard to figure how big of an impact such a massive change would make. It seems obvious that large corporate farms would definitely get bigger and small family run farms would cease to exist. Last week it was reported that Bill Gates is the largest owner of farm land in the U.S. Amazon’s Jeff Bezos is also buying up land. Taxing farm families out of business, so tech nerds can buy it up seems like it would be unpopular politically, but since Biden is practically a lame duck because of his age, if that’s what he wants to do, what’s stopping him?
DEATH AND TAXES
I might be a little biased when it comes to this subject. At some point in my life, hopefully in the far distant future, I will probably inherit a portion of my parents farm. They bought it in the 80’s. They had saved their entire lives and purchased it long before they had inherited anything. Since buying the farm both of my parents have inherited portions of their parents farms. My father’s was started in 1874 by his Great Grandfather. My mother’s was purchased by her father after he returned from fighting in Japan in the late 40’s. For my entire life I have watched my Grandparents, parents, friends, and neighbors, work, care for, and build up farms, with the goal of passing them on to their children. At any point in the past 20 years my parents could have sold the farm and done anything in the world that they wanted to do, but they are right where they want to be.
Obviously its not just farmers who will be hit with this massive tax. Farming is what I know, but there are many small business owners that would be unable to pass their businesses on to the next generation. I suppose wanting to keep what my parents and grandparents have worked so hard for, might seem selfish to some. I’m guessing the politicians pushing this would call me privileged, but what kind of tax bill do they want to leave for their children? This country was built on working hard and improving life for the next generation. Where will it go if we can’t pass on what we work for?
And they are right, I am privileged. I can’t imagine a more privileged life. It has been an absolute privilege getting to work alongside my parents and grandparents, and watch them work their entire lives with the goal of passing their farm down. What kind of son would I be if I didn’t fight to keep it? What kind of father would I be if I didn’t fight for my children’s chance to farm? What kind of country would this be without small family owned farms? What kind of citizens are we if we stand by and allow them to be destroyed?