Republican ag committee leaders announce study that shows negative impact of potential tax policy changes

Republican ag committee leaders say a new study shows the potential “devastating impact” of inheritance tax changes on family farms.   

Senator John Boozman, ranking member of the Senate Ag Committee, and Congressman Glenn GT Thompson, ranking member of the House Ag Committee, asked the Agricultural and Food Policy Center at Texas A&M University to analyze legislation introduced in the Senate that would change tax liabilities of transitioning farm and ranch estates.

Thompson says the report shows clear and significant tax increases for farmers.

“Together, the Sensible Taxation and Equity Promotion Act (STEP Act) and the For the 99.5 Percent Act (99.5 Percent Act) would raise taxes an average of $1.4 million dollars on 98 percent of farmers,” he says. “But, this analysis should really not come as a surprise as agriculture producers have been talking about this and warning about the impacts of changes to stepped up basis and the estate tax for years. The big takeaway here is that there’s no free lunch when it comes to raising taxes. Democrats can’t propose massive changes to tax polices and avoid impacting small businesses and family farms.”

The study says that under current tax law, two of 94 representative farms would be impacted, while 92 of 94 farms would be impacted if both the STEP Act and the 99.5 Percent Act were implemented. The STEP Act proposes eliminating the stepped-up basis upon death of the owner and the 99.5 Percent Act would decrease the estate tax exemption.

Boozman says the administration has said that family farms will be protected, but “I think there is need to worry in the sense I was really surprised at the results of the study. I knew tax changes would have an impact but not to the degree that we’re seeing from the study.”

Ag Secretary Tom Vilsack told reporters in Michigan Friday that family farms will be protected.

Joe Outlaw, with the Agricultural and Food Policy Center, says the study shows that many farmers “would not be able to pay taxes off immediately and would have to set up loans and pay them out over time to stay in business or sell off land.”

Outlaw says the center has completed studies for both parties of the Ag Committees for 36 years. AFPC maintains a database of 94 representative farms in 30 different states. That data, in conjunction with a farm-level policy simulation model, allows the center to analyze policy changes on farms and ranches across the country.

AFPC says that under current law, when the owner of a farm or ranch dies, the estate is subjected to federal estate taxes. As of 2021, $11.7 million per individual and $23.4 million per couple in assets are exempted from the estate tax, protecting most farms from the estate tax. When a decedent passes farm assets to an heir, the heir can take fair market values as their basis in the property, avoiding capital gains taxes.

The study has found that eliminating stepped-up basis in the STEP Act, even with the $1 million exclusion, would impact 92 of 94 representative farms, including all of the ranches and dairies, with an additional tax liability incurred of $726,104 per farm. Imposing lower estate tax exemption levels from the 99.5 Percent Act would impact 41 farms (26 of 64 crop farms, 5 of 10 ranches and 10 of 20 dairies) with an average additional tax liability incurred of nearly $2.2 million per farm.

Thompson, Boozman, and Outlaw spoke with reporters about the study today.

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