The letter below was sent to Congressional leadership this morning. Signed by 327 national, regional, and state trade associations, this effort sends an important message, especially given the House Ways & Means Committee is expected to begin marking up revenue-raising legislative proposals next week, as required under reconciliation and the FY22 budget resolution.
Dear Chairman Wyden, Chairman Neal, Ranking Member Crapo, and Ranking Member Brady:
On behalf of our nation’s farmers, ranchers, and family-owned agribusinesses, the undersigned organizations write to underscore that sound federal tax policy plays a critical role in supporting the viability of the family-owned entities that make up our respective industries. As you begin to draft legislation implementing President Biden’s Build Back Better agenda as required under the recently adopted Fiscal Year 2022 Budget Resolution, we respectfully request you do not alter or eliminate long-standing tax code provisions that are fundamental to the financial health of production agriculture and the businesses that supply its inputs, transport its products, market its commodities, and support the vibrancy of U.S. livestock and crop production.
There are more than four times as many farmers and ranchers aged 65 and older as there are those under the age of 35, and these individuals own more than 40 percent of agricultural land in the United States. With more than 370 million acres expected to change hands in the next two decades, the policies Congress enacts now will determine agricultural producers’ ability to secure affordable land to start or expand their operations. Regardless of whether a business has already been passed down through multiple generations or is just starting out, the key to its longevity is a continued ability to transition when a family member or business partner dies. For this reason, we firmly believe the current federal estate tax code provisions must be maintained.
Further, federal tax policy should help facilitate the transfer of agricultural land to family-owned operations, and especially those who face the greatest challenges in acquiring it: beginning, veteran and minority farmers and ranchers. Because assets in agriculture are typically held by one owner for several decades, resetting the basis on the value of the land, buildings, and livestock on the date of the owner’s death under a step-up in basis is important for surviving family members and business partners to ensure the future financial stability of the operation. Imposing a new capital gains tax at death would effectively establish a transfer tax with the potential to devastate our nation’s family-owned agribusinesses.
While it’s our understanding such changes may be accompanied by “protections so that family-owned businesses will not have to pay taxes when given to heirs who continue to run the business,” this obligation could still discourage the sale of farmland depending on its implementation – potentially increasing the cost and further limiting the availability of farmland. The implication of this proposed safeguard is that the protections will only be provided if the heirs continue to run the family business, which could greatly limit any potential transitions. Such unintended consequences could result in greater barriers to access for new, expanding, and underserved producers alike. Additionally, it’s important to note that due to the diverse complexity of ownership structures across family-owned agricultural entities, combined with the current tax code’s fairly restrictive definition of family, it would be virtually impossible to provide meaningful protections for those that need it most. Simply put, exemptions for family-owned farms, ranches, and agribusinesses are untenable. As such, we remain ardently opposed to repealing the step-up in basis and to imposing new capital gains taxes on family farms and ranches when there is a death in the family.
Farms and ranches, like all businesses, must constantly adapt and reinvest in their land, buildings, equipment, and animals to stay efficient and competitive in the marketplace. They must do this while dealing with cash flow challenges that come from thin profit margins and from having to pay ongoing operating expenses with uneven or seasonal income. These issues are compounded by a heavy tax burden that further reduces financial resources. Key to maintaining a reasonable level of taxation for pass-through businesses like farms and ranches is continuation of the Sec. 199A business income deduction. Eliminating or reducing this key business provision will result in a huge tax increase for farmers and ranchers at a time when they can ill afford it. Similarly, retaining like-kind exchanges, which allows businesses to buy and sell like assets without tax consequences, also helps farmers’ and ranchers’ cash flow and allows them to reinvest in their businesses.
As the economic backbone of nearly every county and rural community across the U.S., the importance of American agriculture and related industries cannot be overlooked. Farmers, ranchers, and family-owned agribusiness operators are responsible for producing the safe, affordable, and abundant food, fiber, and fuel supplies Americans enjoy every day. As the stewards of nearly 900 million acres of crop and rangeland, farmers, and ranchers play an important role in terms of natural resource and land conservation. For agricultural producers, carrying on the legacy of our predecessors and setting the next generation up for success is critically important. It is with this in mind that we urge you to preserve the federal tax provisions that have long-supported American agriculture.