June 28, 2021

Letter Sent to USDA for Clarification on Tax Policy Impact on Farmers

Letter Sent to USDA for Clarification on Tax Policy Impact on Farmers

President Joe Biden released his American Families Plan, designed to grow the middle class, expand the benefits of economic growth to all Americans, and leave the United States more competitive. The plan also includes noteworthy tax changes. The plan has 3 main aspects. First, it would eliminate the step-up in basis above $1 million per individual or $2 million per couple. Second, the plan would increase the capital gains tax to as much as 43.4% for individuals with an income over $1 million. Finally, the plan would place a cap on the use of like-kind exchanges.

Several Republican lawmakers sent a letter to the United States Department of Agriculture (USDA) Secretary of Agriculture Tom Vilsack, expressing their concerns about how the USDA reached the specific number of 98% of farm estates not owing any tax at transfer after death if the farm stays within the family. “We are deeply concerned about the impact of these proposed tax policy changes on America’s family farms and ranchers,” the letter states.

“The proposed tax impacts are dependent on a number of factors, including but not limited to appreciation in farmland assets prior to a property owner's death, size of the farm operation and associated assets, income of the heirs, and the farm's ownership structure. Given these factors, we are writing to seek a detailed explanation and supporting economic analysis clarifying how these tax provisions will affect farm estates, including specifically how USDA arrived at the conclusion that fewer than 2% of farm estates will be impacted by the proposed tax changes,” the senators wrote.

The letter also cites a recent study from Purdue University, which indicates 95% of respondents are either somewhat or very concerned that changes in tax policy will make it more difficult to pass their farms on to the next generation, and 87%  expect capital gains rates to rise over the next five years. Three-fourths said they are “very concerned” about the possible elimination of the step-up in cost basis for farmland in inherited estates, and 68% of respondents said they are “very concerned” about a possible reduction in the estate tax exemption for inherited estates.

“The difference in producers’ short- versus long-term expectations could be an indication that they are concerned that the rapid rise in farmland values we’re seeing may not be sustainable over the long run,” James Mintert, the Ag Economy Barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture stated.

One of the authors of the letter Senator John Boozman (R-AR)  wrote an Op-Ed for Fox News, stating “farmers are land rich and cash poor,” and “the American Families Plan proposes to place an undue burden on these farm and ranch families by placing a disproportionate tax as high as over 50% on the appreciation in family farm assets.”

Read the American Families Plan Fact Sheet and the lawmaker’s letter to the USDA.