Columbia Standard

President Joe Biden’s proposal to raise the capital gains tax would be damaging to family farms said Ronnie Summers, president of South Carolina Advocates for Agriculture.

And that includes almost all farms in America, Summers said in an interview with the Columbia Standard.

Under Biden’s proposed “American Families Plan,” taxes on inheritance will increase, because the plan would eliminate a provision allowing heirs to report the value of assets at the time of inheritance. This allows heirs to avoid gains taxes completely if they sell the assets immediately. 

The new plan would require heirs to pay capital gains taxes on the increase in value of their inheritance during the lifetime of the deceased. The tax is intended to target very wealthy heirs inheriting their parents’ fortune. 

The tax would apply to inheritances valued at more than $1 million, which would include the value of plots of land necessary to continue the operations of the farm.

The tax would also have a big impact on farmers passing down the family farm to their heirs. Farmers around the country have said it will create a big tax burden on heirs, because of how much farms can increase in value throughout the lifetime of the previous owner.

Chris Hagenow, vice president of Iowans for Tax Relief, warned in a The Center Square article, “When it comes to passing down a family farm to a niece or a nephew, the tax liability can result in selling the whole farm or significant pieces of the farm off simply to pay the tax bill. There is no question that an inheritance tax is a significant burden on families' farms and their continuity.”

Summers, meanwhile, noted that about 96% of U.S. farms are family owned with the definition being that the producer or family relations of the producer own the farm being operated.

“The South Carolina percent is about the same and by some accounts is slightly higher at 97%,” he said.

There are 25,266 farms in South Carolina encompassing 4,971,244 acres, according to the online farmers' advocacy group and blog, We are SC Farmers. The average size of a farm is 197 acres, and there are 9,285 farms (36.7%) that are smaller than 50 acres in the state, according to the group, and small farms are more likely to be family farms.

“Higher capital gains tax rates would be especially difficult for agribusinesses, those operating farms and forestry operations, as most of these agribusinesses are capital-intense businesses,” Summers said. “Land, improvements on land and equipment are typically significant investments for farmers and forestry operations and to tax the sale of these capital assets at future higher tax rates would prove harmful to these businesses which are already operating at times on thin profit margins or at deficits. 

“Higher tax rates for family-owned farms and forestry operations could very well lead to family owned operations having to consider capital asset sales in order to pay any associated tax.”

Summers added that the potential decrease in estate tax exemptions and the possibility of no longer allowing for stepped-up basis at the death of an agribusiness owner with capital assets “would be very challenging for farmers and forestry operations which own fixed assets such as land, land improvements, timber and equipment,” he said. 

"And, yes such changes could very well lead to family farms being sold to pay the tax burden presented by such changes in tax law,” he added.

U.S. Rep. Kevin Brady (R-Texas), the former chair and current minority leader of the House of Representatives Ways and Means Committee, echoed Summers' assessment that Biden’s proposal could be devastating for many farms.

“Democrats have pledged to repeal ‘stepped-up basis,’ which is what makes it possible for a family business — like a farm — to pass from one generation to the next without being forced to sell off assets to pay an enormous tax bill to Washington,” Brady told The Center Square.

Other critics of the reform said the plan fits in with the general vision of the Democratic tax plans, in that it doesn’t make financial sense, according to U.S. Rep. Adrian Smith (R-Nebraska).

“Democrats’ proposal to repeal stepped-up basis encapsulates everything wrong with their entire tax agenda,” Smith said in The Center Square piece. “They have proposed doubling the capital gains rate to nearly 40% in the name of so-called ‘fairness,’ rather than prioritizing economic growth or even revenue.”

A group of 13 Democrats also opposed the measure, in a rare bipartisan move against the majority agenda.

An April study by The Family Business Estate Tax Coalition revealed that the proposed changes to the inheritance tax would cost more than 80,000 jobs annually and reduce the GDP by $10 million each year. 

The report also pointed out that laborers would share a burden of the cost because it will decrease wages “given that about 1/3 of the burden of the tax increase is shifted onto labor because the tax-induced reduction in investment makes labor less productive.”

The Republican Senate delegation, including both South Carolina’s senators, also sent a letter opposing the tax changes.

“We are concerned that your American Families Plan proposes to make drastic changes to the taxation of capital income, including a longstanding tax provision that prevents family-owned businesses, farms and ranches from being hit with a crippling tax bill when a family member passes away,” the July 21 letter stated.

Summers said farmers and others involved in agriculture are paying close attention to this proposal.

“The issues you raise are absolutely concerning to the farm and forestry community, and we are receiving feedback from agribusiness groups and other trade organizations, which are similar to our organization representing farms and forestry operations, as to the significant challenges such changes would present,” he said.