Potential changes in tax laws could harm U.S. farmers

Since assuming office, President Joe Biden has made it clear that his top domestic priority – after combating the COVID-19 pandemic – would be massive new investments in infrastructure. This is reflected in two plans released by the White House in early 2021.

The first, dubbed the “American Jobs Plan,” served as the administration’s blueprint for what the president wanted to see in a legislative proposal. This plan focused on traditional infrastructure such as highways, bridges, locks and dams. A month later, he announced the “American Families Plan.” This second, less-traditional infrastructure package focused on “human” infrastructure and included proposals on issues such as universal pre-K, paid family leave and increased food assistance.

However, tucked into the bowels of the American Families Plan are proposals that could pose a very real threat to American agriculture. As part of the second, “soft” infrastructure proposal, there are major tax changes that may be included to finance these sweeping human infrastructure programs.

Under the proposal, unrealized capital gains (those that have never been previously taxed) would be taxed at death above $1 million in gains for an individual, or $2 million per couple. Capital gains tax liability would be deferred if the farm continues to remain family owned and operated under the proposal, which has met swift pushback from Republicans and ag-state Democrats.

In early August, the Senate passed a bipartisan infrastructure package, providing much-needed updates to our nation’s highways, bridges, locks and dams. Immediately after, it passed a budget resolution on a party-line vote: this is the framework that lays out the procedures and parameters for a reconciliation package, which is how the Democratic majority intends to pass a human infrastructure package. This budget resolution process also allows the reconciliation package to be passed by a simple majority.

After passing its budget resolution and setting the stage for reconciliation, the House of Representatives returned to Washington, D.C., to begin crafting legislative text that would encompass the sweeping human infrastructure package. With a price tag possibly as high as $3.5 trillion, Democratic leadership is looking at myriad proposals to finance the package. This includes potential changes to stepped-up basis for capital gains taxes, the limitation of 1031 like-kind exchanges, and revisions to the 199A business deduction.

These proposals are extremely concerning to ASA and, should they be incorporated into a reconciliation package, threaten the future viability of family soybean farms. It should be noted, however, the margins in Congress are extremely narrow. The Senate is evenly split 50-50, and margins in the House favor Democrats by only three votes. Coupled with continued in-party squabbles amongst the Democrats over the size of the infrastructure and reconciliation packages, the only certainty is that nothing is certain.

In September, ASA and each of ASA’s 26 state affiliates – along with 300 other U.S. agriculture groups – signed a letter to Congress urging it to protect these important tax provisions. As the situation progresses, ASA will continue urging passage of the bipartisan infrastructure package on its own merits and educating members of Congress about the negative impacts a change in stepped-up basis would have on the ability of farming operations to remain in the family and stay competitive.