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Thune, Daines, McConnell, Crapo Lead Entire Senate Republican Caucus in Urging Biden Administration to Drop Step-Up In Basis Tax-Hike Proposal

WASHINGTON — U.S. Sens. John Thune (R-S.D.), Steve Daines (R-Mont.), and Mike Crapo (R-Idaho), members of the tax-writing Senate Finance Committee, and Mitch McConnell (R-Ky.) today led the entire Senate Republican caucus in urging President Biden to abandon his effort to impose a capital gains tax increase on family-owned businesses, farms, and ranches. Repealing this part of the tax code would have a devastating effect on multi-generation operations, which could lead to job losses, liquidation, or outright closure.

“These [proposed] changes are a significant tax increase that would hit family-owned businesses, farms, and ranches hard, particularly in rural communities,” the senators wrote. “These businesses consist largely of illiquid assets that will in many cases need to be sold or leveraged in order to pay the new tax burden. Making these changes could force business operators to sell property, lay off employees, or close their doors just to cover these new tax obligations. The complexity and administrative difficulty of tracking basis over multiple generations and of valuing assets that are not up for sale will lead to colossal implementation problems and could also lead to huge tax bills that do not accurately reflect any gains that might have accumulated over time. As you will recall, a proposal to reach a similar outcome by requiring an heir to ‘carry-over’ the decedent’s tax basis was tried before in 1976—and failed so spectacularly it never came into effect. It was postponed in 1978 and repealed in 1980.”

“Passing on the family farm to the next generation is a top priority for many farmers and ranchers,” said Zippy Duvall, president of the American Farm Bureau Federation. “Eliminating stepped-up basis and increasing capital gains taxes will make it much more difficult, or even impossible, for parents to pass on their farm or ranch to their children. This is a critical tool for America’s farmers and ranchers, and we urge all members of Congress to oppose efforts to eliminate it.”

“At a time when small businesses are working to recover from the COVID-19 pandemic, repealing stepped-up basis would be a devastating setback for family-owned businesses,” said Courtney Titus Brooks, senior manager of federal government relations at National Federation of Independent Business (NFIB). “The current proposal to eliminate stepped-up basis would cause significant job losses and would leave heavy tax burdens on future generations. Small businesses thank Senators Thune, Daines, and Crapo for advocating on behalf of family-owned businesses and urge Congress to keep this important policy in place.”

“We appreciate the efforts of Senators Thune, Daines, and Crapo to inform President Biden on the catastrophic impacts that the repeal of stepped-up basis would have on all family-owned businesses and are grateful to see so many in Congress are fighting to preserve the common-sense tax provisions so critical for U.S. cattle producers,” said Danielle Beck, senior executive director of government affairs of the National Cattlemen’s Beef Association. “The Biden Administration has made clear that bolstering the American economy is a top priority and recognized agricultural supply chain resiliency as a core component of that effort. Family-owned agricultural operations are the economic drivers of rural communities across the United States; therefore, it is imperative that this Administration understand that resiliency can only be achieved and maintained when new generations – whether their family has had a long history in agriculture, or they are breaking into the industry – can build upon the contributions of today’s farmers and ranchers.”

“Stepped-up basis has helped family-owned businesses and farms stay in the family for generations,” said the Family Business Estate Tax Coalition (FBETC) Steering Committee. “President Biden’s proposal to repeal this longstanding tax provision would saddle future generations with unsustainable tax burdens and make it that much harder to continue operating family-owned businesses and farms across the country. In addition to subjecting family-owned businesses and farms to a significant tax increase, repealing stepped-up basis also would lead to an estimated 800,000 job losses over the next decade. The FBETC appreciates Senators Thune, Daines, and Crapo for standing up for family-owned businesses and farms and we are hopeful that Congress will protect U.S. workers by preserving stepped-up basis.”

“If step-up in basis is eliminated it will be an economic disaster for family businesses, their employees, the local communities, and the national economy,” said Pat Soldano, president and CEO of the Policy and Taxation Group. “Family businesses create 59% of the workforce, 83.3 million jobs, and 54% of the GDP, $7.7 trillion. Elimination of step up and an increase in capital gains could result in an 81% tax on the business owner when he dies.”

Additional groups that support the senators’ effort include the Associated General Contractors of America, National Association of Manufacturers, and the U.S. Chamber of Commerce.

Joining Thune, Daines, McConnell, and Crapo in signing the letter were U.S. Sens. John Boozman (R-Ark), Chuck Grassley (R-Iowa), John Cornyn (R-Texas), Richard Burr (R-N.C.), Rob Portman (R-Ohio.), Pat Toomey (R-Pa.), Tim Scott (R-S.C.), Bill Cassidy (R-La.), James Lankford (R-Okla.), Todd Young (R-Ind.), Ben Sasse (R-Neb.), John Barrasso (R-Wyo.), John Hoeven (R-N.D.), Joni Ernst (R-Iowa), Cindy Hyde-Smith (R-Miss.), Roger Marshall (R-Kan.), Tommy Tuberville (R-Ala.), Deb Fischer (R-Neb.), Mike Braun (R-Ind.), Marsha Blackburn (R-Tenn.), Roy Blunt (R-Mo.), Susan Collins (R-Maine), Tom Cotton (R-Ark.), Kevin Cramer (R-N.D.), Ted Cruz (R-Texas), Lindsey Graham (R-S.C.), Bill Hagerty (R-Tenn.), Josh Hawley (R-Mo.), Jim Inhofe (R-Okla.), Ron Johnson (R-Wis.), John Kennedy (R-La.), Mike Lee (R-Utah), Cynthia Lummis (R-Wyo.), Shelley Moore Capito (R-W.Va.), Jerry Moran (R-Kan.), Lisa Murkowski (R-Alaska), Rand Paul (R-Ky.), James Risch (R-Idaho), Mitt Romney (R-Utah), Mike Rounds (R-S.D.), Marco Rubio (R-Fla.), Rick Scott (R-Fla.), Richard Shelby (R-Ala.), Dan Sullivan (R-Alaska), Thom Tillis (R-N.C.), and Roger Wicker (R-Miss.). 

Full text of the letter below:

The Honorable Joseph Biden

President of the United States

1600 Pennsylvania Avenue NW

Washington, D.C. 20510

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-owned businesses, farms, and ranches across the country. We are concerned that your American Families Plan proposes to make drastic changes to the taxation of capital income, including a longstanding tax provision that prevents family-owned businesses, farms, and ranches from being hit with a crippling tax bill when a family member passes away.

Under current law, passing down a family business to the next generation does not impose a capital gains tax burden on the business or its new owners. Rather, the decedent’s tax basis in the business is “stepped-up” to fair market value, preventing a large capital gains tax bill on the growth in the business’s value. If the functional benefit of the step-up in basis were eliminated and transfers subject to the estate tax also become subject to income tax, as you have proposed, many businesses would be forced to pay tax on appreciated gains, including simple inflation, from prior generations of family owners—despite not receiving a penny of actual gain. These taxes would be added to any existing estate tax liability, creating a new backdoor death tax on Americans.

These changes are a significant tax increase that would hit family-owned businesses, farms, and ranches hard, particularly in rural communities. These businesses consist largely of illiquid assets that will in many cases need to be sold or leveraged in order to pay the new tax burden. Making these changes could force business operators to sell property, lay off employees, or close their doors just to cover these new tax obligations. The complexity and administrative difficulty of tracking basis over multiple generations and of valuing assets that are not up for sale will lead to colossal implementation problems and could also lead to huge tax bills that do not accurately reflect any gains that might have accumulated over time. As you will recall, a proposal to reach a similar outcome by requiring an heir to “carry-over” the decedent’s tax basis was tried before in 1976—and failed so spectacularly it never came into effect. It was postponed in 1978 and repealed in 1980.

Further, the proposed “protections” simply delay the tax liability—rather than provide any real tax relief—for those continuing to operate the business, farm, or ranch. In fact, these protections create new “lock-in” effects that could make any eventual changeover in operation or transfer of the business financially untenable. Imposing a tax increase on hardworking Americans would harm the economic recovery from COVID-19 and endanger American jobs. A recent study by E&Y found that eliminating the benefit of a step-up in basis would cost the U.S. economy 80,000 jobs each year over the next decade—and an additional 100,000 jobs per year in the long run. Additionally, for every $100 in revenue raised by this tax increase, $32 would come directly from the pockets of American workers. A study by the Texas A&M Agricultural and Food Policy Center reached equally unsettling conclusions, determining that 98 percent of the representative farms in its 30-state database would be impacted by a proposal to eliminate the benefit of the step-up in basis, with average additional tax liabilities totaling $726,104 per farm.

We respectfully urge you to reconsider your proposal to repeal this important part of the tax code. Preserving step-up in basis would save American jobs and ensure that small businesses, farms, and ranches across the country can stay in their families for generations to come.

Sincerely,

President Biden signed Executive Order (EO)

Last week President Biden signed an Executive Order (EO), some of which pertains to agriculture and livestock markets. In the Order, the President:

· Directs USDA to consider issuing new rules under the Packers and Stockyards Act making it easier for farmers to bring and win claims, stopping chicken processors from exploiting and underpaying chicken farmers, and adopting anti-retaliation protections for farmers who speak out about bad practices.

· Directs USDA to consider issuing new rules defining when meat can bear “Product of USA” labels, so that consumers have accurate, transparent labels that enable them to choose products made here.

· Directs USDA to develop a plan to increase opportunities for farmers to access markets and receive a fair return, including supporting alternative food distribution systems like farmers markets and developing standards and labels so that consumers can choose to buy products that treat farmers fairly.

· Encourages the FTC to limit powerful equipment manufacturers from restricting people’s ability to use independent repair shops or do DIY repairs—such as when tractor companies block farmers from repairing their own tractors.

Since that time there have been many questions, and the Biden Administration is making efforts to make these initiatives clearer. 

On Tuesday of this week SDSGA participated in a zoom meeting with USDA Secretary Tom Vilsack as well as Sen. Chuck Grassley (R-IA), and Sen. John Tester (D-MT) to clarify and unpack the EO. During that meeting Sec. Vilsack emphasized that in addition to the EO, they will be authorizing $500 Million from the American Rescue Act for a grant loan program to expand processing in beef, poultry, and pork. He also highlighted from the EO

                 •          Strengthening Packers and Stockyards Act (PSA)

                 •          Taking a strategic look at labeling: specifically “Product of U.S.A”

•          Focus on existing processing facilities, especially small and large, to help them comply with existing federal and state regulations 

He stated “the big problem is that 90% of farms don’t generate income.”

Sen. Grassley agreed with the EO and spoke about beefing up anti-trust enforcement and the PSA as well as expanding market transparency. He believes the cattle market needs reformed through legislation. Senator Tester said the EO as a giant step forward and praised Sec. Vilsack for being a leader for rural America and Sen. Grassley for being a fighter since day one. He highlighted the lack of competition in the marketplace that needs to work for consumers, cow-calf producers, and feeders.

During the Q&A session, Sec. Vilsack spoke about having more data, more information, and more price discovery. Sen. Tester agreed this is an important step. Sec. Vilsack also made clear they are going to do a comprehensive review on labeling and will focus on getting this done quickly. MCOOL was not specifically mentioned by the administration. 

During the EO proclamation President Biden stated “Consolidation also limits farmers’ and ranchers’ options for selling their products. That means they get less when they sell their produce and meat—even as prices rise at the grocery store. For example, four large meat-packing companies dominate over 80% of the beef market and, over the last five years, farmers’ share of the price of beef has dropped by more than a quarter—from 51.5% to 37.3%—while the price of beef has risen.” He also said, “American farmers and ranchers are also getting squeezed by foreign corporations importing meat from overseas with labels that mislead customers about its origin. Under current labeling rules, meat can be labeled “Product of USA” if it is only processed here—including when meat is raised overseas and then merely processed into cuts of meat here. For example, most grass-fed beef labeled “Product of USA” is actually imported. That makes it hard or impossible for consumers to know where their food comes from and to choose to support American farmers and ranchers.”

Friday the Whitehouse’s outreach efforts continued as SDSGA Executive Director James Halverson participated in a closed WH briefing on the issue with National Economic Council Deputy Director, Bharat Ramamurti, on President Biden’s Competition Executive Order. During the briefing Ramamurti reiterated the reason for the EO is a reaction to increasing concentration in many sectors of agriculture leading to higher prices for consumers and lower profits for producers. He also touched on there being fewer innovations because of the lack of competition and fewer choices for end-consumers. He informed folks the EO spells out 72 specific actions that will be taken across all federal agencies. The first action he referred to was bolstering competition within meat packing. 

Mau Wu, Deputy Undersecretary for Marketing and Regulatory programs at USDA spoke about the Administration’s desire to form a better, more resilient food system. She said USDA is implementing a Request for Information from producers and other stakeholders to get a better feel for the needs of Rural America. Andy Green, USDA’s Senior Advisor for Fair and Competitive Markets also joined the meeting. Mr. Green said there will be a series of official rule making processes undergone to revitalize the Packers and Stockyards Act that turns 100 years old this year. In addition to emphasizing an entire Department review of the “Product of USA” label, he also said they will be working intensely with the Department of Commerce on seed and other input costs ensuring competition in that arena as well as working with the Fair Trade Commission on looking at monopolies in the retail space sector.  During the Q&A session Deputy Director Ramamurti again emphasized their efforts to enhance and enforce antitrust violations and that they are committed to working in a bipartisan way with Congress on this issue.