By Richard Rubin
WASHINGTON -- Rural Democrats issued a warning Thursday about
the Biden administration's plan to tax unrealized capital gains at
death, saying they are worried about the potential impact on family
In a letter to House leaders, 13 members said they appreciated
the administration's proposal so far to let family-owned farms and
businesses defer the taxes if they stay in family control and
operation. They said they would push to ensure strong protections
for farms as the plan advances and details get written.
"I'm all in support of the Jeff Bezoses of the world paying
their darn fair share because they can afford it and we need it,"
Rep. Cindy Axne (D., Iowa), the letter's lead author, said
Thursday. "But we can't create an unintended outcome of losing
Other signers include Rep. Jim Costa (D., Calif.), Abigail
Spanberger (D., Va.) and Kurt Schrader (D., Ore.).
The Democrats' letter doesn't draw any red lines, unlike a
Republican letter this week that raised similar concerns and
opposed any change to capital-gains rules. But with Democrats
enjoying a slim 218-212 advantage in the House, just a handful of
Democrats could hold up President Biden's broader plans to raise
taxes and use the money for preschool, child tax credits and other
"I'm laying down the marker, and I've got 13 colleagues who say
we agree, " Ms. Axne said. "And many of us come from really
President Biden's tax plan would raise the top capital-gains tax
rate to 43.4% from 23.8%. It would also alter what happens when
people die with unrealized gains in stocks, land, businesses or
Currently, no capital-gains tax is due upon death, and heirs
have to pay the tax only if they sell the asset and then only on
the increase in value since the prior owner's death. The estate tax
is separate, applying to net worth upon death and only above an
$11.7 million per-person exemption that spares almost all
Democrats say today's rules offer an unjustified break to a
handful of very wealthy people, letting enormous asset appreciation
escape the income tax. Under the Biden proposal, capital gains
would be taxed as if sold at death, with a $1 million per-person
exemption and existing exclusions for principal residences.
The plan also includes a special rule for farms and family-owned
businesses: Heirs who continue to own and operate the business
could defer the tax payment until they sell or stop running the
The U.S. Department of Agriculture says these rules mean that
more than 98% of farms won't owe tax if the farm stays in the
family, with the remainder paying because of their nonfarm
"No one should have to sell a family farm they inherit to pay
taxes and the president's tax reform guarantees that," the
department said in an April 28 statement.
These proposals come in addition to Mr. Biden's proposal to
limit real-estate investors' ability to defer capital gains when
exchanging property, a change that could affect many farmers.
The American Farm Bureau Federation will be fighting any efforts
to change capital-gains taxes, said Pat Wolff, the group's senior
director of congressional relations. She said the administration's
idea about deferring taxes for family-owned and operated businesses
still needs work to protect farmers who are land-rich and
"That's a very simple statement, and the way that farms transfer
from one generation to the next is very complicated," she said.
"The administration was unable to provide a lot of details."
There also could be administrative challenges in determining the
cost basis for assets purchased long ago. Similar concerns helped
doom a previous attempt to change capital-gains tax rules in the
Beyond that, the leading congressional proposals for changing
capital-gains rules at death so far don't offer specific farm
exemptions, though they do allow payments tied to illiquid assets
to be spread over 15 years in the Senate version and seven years in
the House version.
Rep. Bill Pascrell (D., N.J.), the lead House author, said
current tax rules that allow unrealized gains to escape income
taxation are a prime cause of inequality. The current rules reduce
federal revenue by more than $40 billion a year.
"Of course we would be open to discussing ways to strengthen our
legislation to reform our tax system," he said. "But ultimately our
main focus remains on sealing this loophole because its abuse by
the super wealthy must end."
Designing rules that satisfy farm-district Democrats without
leaving gaps for others to exploit could prove difficult. Wealthy
non-farmers have long found ways to get agricultural tax breaks.
For example, former President Donald Trump put goats on his New
Jersey golf courses to reduce property tax bills.
"The more of those nuances you write in, the more estate
planners try to shove other assets into family businesses in order
to protect them," said Jennifer Bird-Pollan, a tax law professor at
the University of Kentucky. "A lot of this is a political question
rather than an actual tax-consequence-for-real-people
Canada, which has taxed capital gains at death for nearly 50
years, has no general exemption, but it does have a special
exemption for farming and fishing property, along with deferred
payments if those businesses stay within families. Canada has no
J.R. Peterson farms soybeans and corn on 700 acres in northern
Iowa that has been in his wife's family for three generations and
is concerned about the potential changes. Even if there is a
carve-out for farms that stay within a family, he worries that his
children would be faced with a tax bill in the millions if they
chose to sell the family's land after inheriting it.
"We don't consider ourselves wealthy, we scrape and claw for
everything, " Mr. Peterson said. "If something like this would go
through, there are a lot of people responsible for putting safe and
healthy food on people's tables that are going to be massively
--Rachel Louise Ensign contributed to this article.
Write to Richard Rubin at firstname.lastname@example.org
(END) Dow Jones Newswires
May 06, 2021 12:57 ET (16:57 GMT)
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