Axne, Costa Lead Effort to Protect Family Farms from Inheritance Capital Gains Changes

May 6, 2021
Press Release
Letter to key House leaders signed by 13 farm district Democrats urges House leadership to exempt family farms from any changes to ‘stepped-up basis’

Today, Representatives Cindy Axne (IA-03) and Jim Costa (CA-14) led a group of thirteen House Democrats who represent farm districts in a letter to House leadership urging the exemption of family-owned farms from any potential changes to the stepped-up basis for capital gains in tax law.

The members raise concerns about the potential devastating impact that changes to capital gains taxes would have on family-owned farms. The changes would require immediate taxation of the property’s increase in value, which could force unaffordable tax burdens on longtime family farm operators, many of whom have farms that have been handed down over multiple generations.

“Iowa’s family farms have been a cornerstone part of my state’s economy for centuries, and I’ve heard concerns about this potential change directly from them – including from some whose land has been in their family since the Civil War,” said Rep. Axne. “While I believe that the wealthiest in this country should pay their fair share when it comes to paying for robust new infrastructure investments, a change to capital gains inheritance laws that eliminates stepped up basis could inadvertently force generations of family farms to sell parts of their land and livelihoods. With this letter, I hope House leadership recognizes that there are a significant number of Democrats who will want to see this exemption included in any bill that makes those changes.”

“Farmers responsibly pay taxes to contribute their fair share to our country,” said Rep. Costa, a third-generation family farmer. “They should not have to face tax burdens to pass their land from one generation to the next. This is how we keep generations of families farming. Therefore, we need to maintain protections to ensure the long-term success of family farms. They are the backbone of economic activity in rural areas, and we know the production of food and fiber is a national security issue.”

In their letter to House Ways and Means Committee Chairman Richie Neal, House Majority Leader Steny Hoyer, and Speaker of the House Nancy Pelosi, the members detail how a change ‘stepped-up basis’ could impact family farms.

“While the ability to simply sell a small part of an asset may work for those with shares of stocks, [a change] would force farmers to break up land that may have been in their family for decades and seriously impact their ability to remain economically viable,” the members wrote. “Farms, ranches, and some family businesses require strong protections from this tax change to ensure they are not forced to be liquidated or sold off for parts, and that need is even stronger for those farms that have been held for generations.”

The letter also highlights President Joe Biden’s reference to the need for such an exemption in his original outline of the American Families Plan, and emphasizes that no version of the plan should move forward without that exemption.

“We appreciate the President’s reference to this burden and the need to address it in the outline of the American Family Plan,” the members wrote. “As representatives for districts that would be directly impacted by that change, we hope you will see us as a resource as we work to make that exemption a reality… We would ask that you work closely with representatives of rural districts like us to ensure those protections are well executed.”

The letter was signed by Reps. Axne, Costa, Julia Brownley (CA-26), Cheri Bustos (IL-17), Salud Carbajal (CA-24), Angie Craig (MN-02), Antonio Delgado (NY-19), John Garamendi (CA-03), Josh Harder (CA-10), Kurt Schrader (OR-05), Abigail Spanberger (VA-07), Tom O’Halleran (AZ-01), and Kim Schrier (WA-08).

The full text of the letter can be found below:

Speaker Pelosi, Leader Hoyer, and Chairman Neal,

As you work to develop a comprehensive infrastructure package that prepares the American economy to grow and thrive over the coming years and decades, and expands support for American families, we write to express concern over the impact that certain tax changes enacted to pay for this package could have on our family farms and local economies. The repeal of stepped-up basis for capital gains and immediate taxation could especially hurt family farms, some of which have been in families for generations; therefore, we strongly urge you to provide full exemptions for these family farms and small businesses that are critical to our communities.

We support many of the concepts outlined in recent weeks in the American Jobs Plan and American Family Plan, including ensuring that the wealthiest Americans pay their fair share. And while the clear intention of making changes to stepped-up basis is to ensure vast fortunes worth tens or even hundreds of billions are not passed on without any income taxes paid at any point, we are concerned about the unintended burden this could place on farms and family businesses. We appreciate the President’s reference to this burden and the need to address it in the outline of the American Family Plan; and as representatives for districts that would be directly impacted by that change, we hope you will see us as a resource as we work to make that exemption a reality.

The requirement to recognize capital gains at death runs the risk of forcing farms and ranches to sell part, or all, of a farm that may have been passed down for several generations in order to pay the tax burden. While the ability to simply sell a small part of an asset may work for those with shares of stocks, it would force farmers to break up land that may have been in their family for decades and seriously impact their ability to remain economically viable. Additionally, eliminating stepped-up basis without an exemption for our farmers presents administrative difficulties. For example, shares of stock or many other assets are relatively simple to value, and taxing other assets when they’re sold gives a clear reference price for valuation, so capital gains taxes have thus far been relatively simple to administer. However, since farms, machinery, and some small businesses may be illiquid or difficult to value, the administrative difficulty is increased.

We look forward to working with you as we develop a full infrastructure package, and we again urge you to take additional care in considering changes to stepped-up basis for capital gains taxes. Farms, ranches, and some family businesses require strong protections from this tax change to ensure they are not forced to be liquidated or sold off for parts, and that need is even stronger for those farms that have been held for generations. We would ask that you work closely with representatives of rural districts like us to ensure those protections are well executed. Many of our constituents started working on their family’s farm when they were children, or built their farm with the intention of passing it on to their relatives, and we must ensure that their kids or grandkids are able to continue working that land for future generations. Thank you for your attention to this important matter.

Sincerely,