GOP Lawmakers Say Stepped-Up Basis Repeal Would Burden Taxpayers

Smith, Fischbach Lead Over 130 House Colleagues In Opposing Stepped-Up Basis Repeal and Capital Gains Death Tax

May 5, 2021

Washington, D.C. — Representatives Adrian Smith (R-NE) and Michelle Fischbach (R-MN) today led more than 130 of their House of Representatives colleagues in sending a letter to Speaker Nancy Pelosi and Republican Leader Kevin McCarthy opposing the Biden Administration's proposal to repeal stepped-up basis from the tax code and require payment of capital gains taxes at death.

Read the full letter here.

“Small businesses, farms, and ranches are the lifeblood of America, creating jobs and economic opportunity across our country,” said Rep. Smith. “Protecting stepped-up basis across generations and ensuring capital gains taxes are only collected upon the sale of an asset are vital to ensuring local, family-owned businesses remain local, family-owned businesses, supporting and creating jobs in their home communities. Our focus should be on tax policies which encourage small businesses to create jobs; not on punitive taxes which could force families out of business.”

“President Biden's plan to eliminate stepped-up basis and assess capital gains taxes at death would be devastating for the agricultural economy and would have a disproportionate effect on rural districts like the one I represent,” said Rep. Fischbach. “Without a step-up in basis, the next generation of farmers and ranchers will absorb massive tax increases just to continue their family farm. I cannot and will not support a tax plan that pads the federal coffers at the expense of America's farmers, and I urge President Biden and House Democrats to reconsider his proposal.”

“America's farmers and ranchers rely on the stepped-up basis tax provision to pass their farms on to their children,” said Zippy Duvall, President of the American Farm Bureau Federation. “Eliminating it could force families to take out costly loans or sell their land bit by bit just to pay the taxes. We urge Congress to leave the stepped-up basis tax provision untouched to ensure a lifetime of hard work and sacrifice helps the next generation of farmers to thrive.”

“Nebraska's farm and ranch families truly appreciate the efforts of Congressman Smith, Congresswoman Fischbach, and the over 130 members of the House who signed onto this important letter clearly stating their support for continuing stepped-up basis,” said Mark McHargue, President of the Nebraska Farm Bureau Federation. “The elimination of this important tax provision is simply another attempt to make death a taxable event. No farmer, rancher, business owner, or family should be forced to sell parts of their business or any asset just to pay the federal government. We believe this sends a powerful message to all of those in Washington who are pushing for tax increases that will harm family farms, ranches, and businesses which provide jobs and support Nebraska communities.”

“Minnesota Farm Bureau greatly appreciates Representatives Fischbach and Smith's leadership on raising concerns with any attempt to repeal stepped up basis and taxing capital gains at death,” said Kevin Paap, President of the Minnesota Farm Bureau. “Eliminating the stepped-up basis would lead to more consolidation of agriculture and several family-owned farms would be forced out of business because of the increased tax liability. Stepped-up basis helps pass family farms on to the next generation and should be preserved.”

“ASA has long advocated for needed improvements to infrastructure vital to agriculture's success in the years ahead,” said Kevin Scott, President of the American Soybean Association and farmer from South Dakota. “Yet, progress cannot come at the very expense of those trying to abettor our American economy — the farmers who work every day to assure our crops stay competitive on the global market. We have grave concerns over elimination of stepped up basis or any changes to the basis process that are not thoughtful as to the real repercussions on our U.S. farm families.”

“Repealing stepped-up basis is not a free lunch for those looking to generate tax revenue and would have significant consequences in the multifamily marketplace,” said Doug Bibby, President of the National Multifamily Housing Council. “Absent stepped-up basis, heirs could inherit an apartment property with a small amount basis and possibly sizeable debt. If they are taxed immediately, the resulting depreciation recapture and capital gains taxes could exceed their ability to pay without selling the asset. Even if funds to pay tax are available, heirs may have little left over to invest in and maintain the property, which could negatively impact the available affordable housing stock.”

Under current law, when a home, small business, or farm is passed on to the next generation, our tax code allows for stepped-up basis, ensuring the inheritor is only responsible for the increased value of an asset from the time they acquired it and not for gains which benefited a previous generation. The tax code also recognizes the only appropriate time to tax capital gains is upon the sale of an asset, as any effort to tax unrealized gains would necessitate the sale of assets which would otherwise continue to be utilized to create jobs and economic opportunity.

The Honorable Nancy Pelosi
Speaker of the House
H-232, The Capitol
Washington, DC 20515

The Honorable Kevin McCarthy
Republican Leader
H-204, The Capitol
Washington, DC 20515

Dear Speaker Pelosi and Leader McCarthy:

We support bipartisan efforts to defeat COVID-19, reopen our businesses and schools, and reconnect the unemployed with economic opportunity by connecting them with the employers across the country who continue to need workers to fill good-paying jobs. Likewise, we believe efforts to improve and further build out key infrastructure like roads, bridges, water management, and broadband internet are critical to growing a strong economy moving forward. While we share these goals, we write to express our opposition to the use of two tax provisions which could be offered as pay-fors for such initiatives, and which would undermine the financial security of the same American families, small businesses, farmers, and ranchers we are all working hard to rebuild our economy for — the elimination of stepped-up basis allowances from the tax code and the taxation of capital gains at death. A recent EY study found that these two changes to the tax code had the potential to reduce wages by $32 for every $100 in new taxes collected, and to eliminate 80,000 jobs per year right now, and up to 100,000 per year by 2030.

As you know, the allowance for stepped-up basis applies uniformly to all taxpayers, protecting all families from unnecessary economic and administrative burdens upon the death of a loved one. Likewise, since its inception, our system of capital gains taxation has recognized that the appropriate time to tax gains on an asset is when that asset is sold.

Unlike the estate tax, repealing stepped-up basis and applying capital gains at death, even with an exemption threshold, would create a massive new administrative burden for nearly every American family, farm, and small businesses. Depending on how long an asset has been held, where it is located, and the number of generations it has passed through, properly valuing appreciation to determine a capital gain could prove to be both expensive and difficult. Comparatively, when a gain is realized from the time it was acquired by its current owner, value at and time of acquisition are much easier to determine and calculate. Deviating from this longtime standard would effectively require the family of every decedent who owns a home, operates a small businesses, or farms or ranches, regardless of the size of the operation, to conduct a thorough appraisal to determine tax liability upon death.

In addition to the administrative burden, we are concerned about the potential detriment applying this new tax would have on employment at a time when our economy is working to rebound from the COVID-19 pandemic. Because assets such as manufacturing equipment and farm land are not liquid and can be difficult to unwind, we are concerned a likely outcome of this new tax would be the sale or closure of farms and small businesses in order to pay it at a time when small business jobs are most needed. We are also concerned that if value at the time of purchase or acquisition cannot be determined, that capital gains tax would be due on the value of an entire estate or property, a phantom gain which would certainly be detrimental to both housing access and the continuity of small businesses and the jobs they create.

Thank you again for your work to reopen our economy and rebuild our infrastructure. We agree 21^st century transportation networks, utilities, and broadband are vital to economic growth as we rebuild our economy and get Americans back to work. We also believe repealing stepped up basis and taxing capital gains at death would be counterproductive to these goals. We oppose their inclusion in any legislation and we look forward to working with you on ways to responsibly fund the improvements needed to ensure America's farms, ranches, and small businesses fully benefit and can continue serving their customers here and around the world.

Sincerely,

ADRIAN SMITH
Member of Congress

MICHELLE FISCHBACH
Member of Congress