Ag Secretary Tom Vilsack talks farm taxes in an Op-Ed
with The Wall Street Journal
Biden’s Tax Changes Won’t Hurt Family Farmers
Changes to the step-up in basis are needed to ensure that wealthy investors pay their fair share
By Tom Vilsack for the Wall Street Journal
President Biden is working with Congress to secure investments for programs like paid leave and an expanded child tax credit. One of the ways he has proposed to pay for these programs is through changing the way capital gains are taxed. These reforms aren’t just about raising money, they are about fundamentally reforming the tax system to ensure the wealthy pay their fair share.
President Biden has proposed changing the way property is taxed when it is passed on to heirs. Right now, when you sell a piece of property, you pay tax on the amount it increased in value since you purchased it. If you pass it on to an heir, that heir is treated as though they bought that property the day you died, so if they sell, they pay tax only on the increase in value during the time that they held the property.
That doesn’t sound so bad, but this policy has allowed the wealthy to amass large fortunes. Millionaires and billionaires borrow against their assets, usually stock or real estate, but also art and collectibles, really anything a bank will lend against. When those assets are transferred upon death, their heirs can sell the property without being taxed to pay off the debt. This is one of the most popular ways the rich avoid taxation, and it must end.
Folks ask me, what about farmers? Won’t this mean they have to sell the farm to pay the tax? No, because President Biden’s proposal includes special protections for family-owned business, including family farms. Under the proposal there are two key protections for farmers. First, if a farmer is passing along the farm to his or her children so that they can keep the farm going, no tax is due until they decide to stop farming or sell the farm. That is true for all other family businesses too.
Second, the proposal exempts up to the first $2.5 million in gain from taxation. So even if a farmer’s heirs decide to sell the farm, they only pay tax on any gain above that exemption. The $2.5 million exemption means that more than 95% of families won’t face any new tax.
When I was a practicing lawyer, I represented a client who owned a few thousand acres of land. Rather than pay me in cash for my work, he paid me with 600 acres of his land. In the early 1990s my land was worth $191,000. I paid taxes on that income then, as I did on all other income from my practice that year. I’m no farmer, I’m a lawyer and a public servant, but my wife and I decided to keep that land. Now it is worth almost $2 million.
When I die and leave that land to my children, no one will pay tax on the appreciation in its value unless we change the step-up in basis policy. My children could sell that land the day after my death tax-free. That isn’t fair.
Keeping step-up in basis doesn’t protect farmers, it protects investors. The people who are going to pay tax under the proposal have never plowed an acre. Don’t let lobbyists use American farmers as a smoke screen to keep a system that allows the rich to pass on their wealth tax-free.
Mr. Vilsack is U.S. Secretary of Agriculture.