The Impact of Biden's Tax Proposals on Agriculture, Small Businesses

Many parts of the economy in our great state of Nebraska are thriving.

However, the new slate of tax increase proposals coming from the Biden Administration will undermine the success of Nebraska, and states like it, by removing capital from family farms and small businesses at a time when we need to be encouraging economic growth. 

Among the most troubling tax proposals for family-owned businesses across the Third District, and the nation, is the repeal of stepped-up basis and taxation of capital gains when property is inherited at death. Under current law, our tax code recognizes that future generations of farmers, ranchers, and small business owners shouldn’t be penalized with taxes for gains in value of land, equipment, and other business assets. 

Likewise, our tax code doesn’t require marking to market – calculating and paying taxes on unrealized gains in value – for capital gains tax purposes because it would be so damaging to keeping business and agriculture assets in production. 

The Biden Administration’s plan to repeal stepped-up basis from the tax code and require capital gains taxes be paid at death are unworkable and unprecedented proposals. Because of this, I worked with Representative Michelle Fischbach of Minnesota to lead more than 130 of our colleagues in sending a letter to Speaker Nancy Pelosi and Republican Leader Kevin McCarthy opposing these tax proposals. Small businesses, farms, and ranches are the lifeblood of our country, they create jobs and economic opportunity across America. The alterations the administration wants to make to these critical pieces of tax policy will detrimentally impact those farmers, ranchers, and businesses owners rather than support them.

In response to these adjustments to the tax code, some of my Democrat colleagues sent a letter of their own to House leadership calling for an exemption to be included in the new tax policy for agriculture land and “some” small businesses. Exemptions to capital gains and death taxes for certain small business assets have been tried in the past and failed because of the difficulty in writing tax law which should or shouldn’t have qualified for the exemption.

I also have serious concerns about any attempt by government to determine which businesses are deserving or undeserving of an exemption. Our tax code should empower job creation and opportunity equally under the law, not pick winners and losers.

Another Biden tax proposal which could impact the ability of farmers and ranchers to keep capital in their families while managing their land assets is completely abolishing Section 1031 Like-Kind exchange. Under current law, Section 1031 can be used by farmers, ranchers, and other holders of commercial real property to move assets from one piece of real property to another within a certain amount of time, ensuring capital can remain in a “like” asset without penalty.

In the Tax Cuts and Jobs Act we eliminated many uses of 1031 such as equipment and vehicles because full expensing rendered it unnecessary, and many perceived abuses of 1031 like high-end artwork were previously repealed, making this proposal almost entirely an attack on owners of property like farmland, commercial real estate, and housing which we desperately need in our economy.

We need to be investing in real infrastructure with the goal of growing the economy of each and every state in our country, as well as rebuilding the overall economy of America. These new tax proposals would undermine any gains we have previously made. The new tax policy the Biden Administration is planning will not work for the American people.

Policy changes must result in support for the small businesses and agriculture communities who barely survived the pandemic, not make it harder for them to operate.

Adrian Smith represents the Third Nebraska District