Biden tax plan will kill family farms, businesses
Proposed change is not a tax on the rich but the death of the backbone of our economy
The backbone of the U.S. economy is a family-run business. Family businesses employ most Americans and produce the majority of the Gross Domestic Product.
Likewise, family farms and ranches produce most of our food. In New Mexico they account for 97% of all farms, and approximately 98% of all New Mexico businesses are considered small (fewer than 100 employees).
The Revenue Act of 1923 recognized how important family businesses are to the well-being of our economy by providing a provision to allow for heirs to inherit the business without having to pay capital gains taxes. The Biden proposal would eliminate this 100-year-old clause and thus the ability of an heir to inherit a business without a heavy tax burden resulting in the death of family farms and businesses.
The provision in question is called stepup basis and it works this way: a farm (or indeed any business) that was originally purchased for $500,000 and then appreciated to $4 million would be stepped up in value to $4 million when passed to the heirs — but no capital gains tax would be owed on the $3.5 million capital gain. So, the farmer — or business owner — could leave the business to a child, the business could be kept in the family and continue uninterrupted without a heavy tax burden.
Under the Biden proposal the step-up in basis would be eliminated and the capital gains rate will be nearly doubled. Along with other federal taxes, the federal government would impose a 43.4% tax on $3 million of the appreciated value (the first $1 million would be exempted).
While $4 million may sound like a lot of money, there is an old saying in farming, “Land rich and cash poor.” This refers to the reality that much of the value of a farm is in the land and that many, even most, family farms are not sitting on a lot of cash that could be used to pay a potentially unexpected new tax bill (in the example, the tax bill would be $1,302,000!).
The elimination of the step-up in basis provision is not a tax on the rich but the death of the backbone of our economy — family farms and businesses.
Family farms, ranches and other businesses are too important to New Mexicans to lose. Hopefully our representatives in Washington will fight to preserve the 100-year-old step-up in basis provision that has helped keep family farms and businesses as the mainstay of New Mexico’s economy.