09.23.21

Boozman: USDA Report on Impact of Proposed Changes to Stepped-up Basis Disproves Administration’s Claims

WASHINGTON—U.S. Senator John Boozman (R-AR), ranking member of the U.S. Senate Committee on Agriculture, Nutrition, and Forestry, welcomed the U.S. Department of Agriculture’s (USDA) long-awaited analysis of changes to stepped-up basis as it disproves the Biden administration’s claim that only two percent of family farms would be affected by its proposed changes. In fact, the report shows that changes would create a new tax burden on family farmers and ranchers who produce the majority of America’s food and fiber. 

“For months, Republicans have been calling on the Biden administration to provide substance to back up its claims. Those who really understand farming, ranching and rural America tell us that the talking points officials are using simply do not add up. This report, which the department understandably released with little fanfare, proves their math was beyond fuzzy—it was outright wrong,” Boozman said. “By its own account, USDA now shows changes in stepped-up basis will saddle many family farms with millions of dollars in taxable gains that could be subject to capital gains tax rates as high as 43.4 percent. According to USDA, family farmers and ranchers who would have an additional tax liability with the elimination of stepped-up basis, through either immediate or deferred taxes, are responsible for 65 percent of our nation’s agricultural production. Put simply, USDA’s own economists have shown that the administration’s plans pose a threat to rural America.”

Background

Following the release of the American Families Plan (AFP), USDA issued a statement indicating that 98 percent of farm estates will not owe any tax at transfer, provided the farm stays in the family. At that point in time, USDA did not release any information supporting their claim that only two percent of family farms would be affected by proposed tax changes. 

After the Biden administration failed to back up this talking point, Republican members of the Senate agriculture committee called on USDA to make public a detailed explanation and any supporting economic analyses that clarify how the Biden administration’s proposed tax increases will affect farm estates.

USDA finally provided its data in a report entitled The Effect on Family Farms of Changing Capital Gains Taxation at Death. The report used mortality estimates from the Social Security Administration to simulate the probability of a person’s death to generate an estimate of the number of farm estates that would be created as a result. Then using farm-level survey data, USDA estimated the impact of AFP tax proposals on family farmers and ranchers. 

The additional taxable gain on farm assets across all affected estates averaged $1.8 million per farm family. The percentage of affected farmers is nearly ten times higher than the administration’s claim that only two percent of family farms would be affected. According to USDA’s analysis, 17 percent of small farms, 66 percent of midsized farms, 80 percent of large farms, and 96 percent of very large farm operations would have a new tax burden with the elimination of stepped-up basis.

When one takes into consideration the value of farm production, family farmers and ranchers producing 65 percent of U.S. agriculture commodities would have an additional tax liability with the elimination of stepped-up basis.