Capital gains tax for family businesses, farms and ranches opposed by the GOP

U.S. Senators Roger Wicker (R-Miss.) And Cindy Hyde-Smith (R-Miss.) Joined the entire Republican Senate caucus this week to urge President Biden to abandon his efforts to impose a hike in capital gains tax on family businesses, farms and ranches.

Senators sent Biden a letter stressing that repealing this part of the tax code would have a devastating effect on multigenerational operations, which could result in job losses, liquidation or outright shutdown.

“Those [proposed] the changes are a significant tax increase that would hit family businesses, farms and ranches hard, especially in rural communities, ”the senators wrote. “These businesses are largely made up of illiquid assets that will in many cases need to be sold or operated in order to pay the new tax burden. Making these changes could force business operators to sell goods, lay off employees, or close their doors just to cover these new tax obligations. ”

“As you will recall, a proposal to achieve a similar result by forcing an heir to ‘carry over’ the deceased’s tax base was already attempted in 1976 – and failed so dramatically that it never came into being. in force, ”the letter reads.

American Farm Bureau Federation, National Federation of Independent Business, National Cattlemen’s Beef Association, Associated General Contractors of America, National Association of Manufacturers and the United States Chamber of Commerce support senators’ efforts to convince the Biden administration and Democrats to Congress to abandon plans to raise tax rates on capital gains that hurt family farms.

The proposed tax hikes are part of Democrats’ efforts to identify revenue sources to pay for the US presidential plan for multibillion-dollar families.

Read the letter below:

Dear President Biden,

We appreciate your efforts to address America’s infrastructure challenges, but the cost of these investments should not be borne by family businesses, farms, and ranches across the country. We are concerned that your U.S. Plan for Families proposes to make drastic changes to the taxation of capital income, including a long-standing tax provision that prevents family businesses, farms and ranches from being hit with a crippling tax bill when a family member dies. .

Under current law, passing a family business to the next generation does not impose a capital gains tax burden on the business or its new owners. Rather, the deceased’s tax base in the business is “boosted” to fair market value, which avoids a large capital gains tax bill on the growth in value of the business. If the functional benefit of the base increase were removed and transfers subject to inheritance tax also became subject to income tax, as you have proposed, many companies would be forced to pay. taxes on appreciated capital gains, including inflation generations of family owners, although they did not receive a penny of real gain. These taxes would be in addition to any existing estate taxes, creating a new backdoor death tax for Americans.

These changes are a significant tax increase that would hit family businesses, farms and ranches hard, especially in rural communities. These businesses are made up largely of illiquid assets that will in many cases need to be sold or operated in order to pay the new tax burden. Making these changes could force traders to sell goods, lay off employees, or close their doors just to cover these new tax obligations. The complexity and administrative difficulty of monitoring the database over several generations and valuing assets that are not for sale will lead to colossal implementation problems and could also lead to huge tax bills that do not accurately reflect the gains that may have accrued over time. As you will recall, a proposal to achieve a similar result by requiring an heir to “carry over” the tax base of the deceased was already attempted in 1976 – and failed so spectacularly that it never came into being. in force. It was postponed in 1978 and repealed in 1980.

Further, the proposed “protections” simply delay tax liability – rather than providing real tax relief – for those who continue to operate the business, farm or ranch. In fact, these protections create new “lock-in” effects that could make any eventual change of operations or business transfer financially untenable. Imposing a tax hike on hard-working Americans would hurt the economic recovery from COVID-19 and put American jobs at risk. A recent E&Y study found that eliminating the benefit of a base increase would cost the U.S. economy 80,000 jobs every year over the next decade, and 100,000 more jobs per year in the long run. . In addition, for every $ 100 in income generated by this tax increase, $ 32 would come directly out of the pockets of working Americans. A study by the Texas A&M Agricultural and Food Policy Center came to equally disturbing conclusions, determining that 98 percent of representative farms in its 30-state database would be impacted by a proposal to eliminate the benefit of the base increase, with an average additional tax debt totaling $ 726,104 per farm.

We respectfully urge you to reconsider your proposal to repeal this important part of the tax code. Preserving the increase in the base would save jobs in the United States and ensure that small businesses, farms and ranches across the country can stay with their families for generations to come.