Republicans waging war against President Biden‘s proposed tax increases are increasingly focusing their opposition on one floated change to capital gains.
Biden has called for taxing capital gains at death as a way to raise taxes on the wealthy and help pay for his social spending proposals. GOP lawmakers, along with business groups and conservative organizations, argue such a move would hurt family-owned businesses and farms.
It’s unclear how effective the GOP attacks will be, given that Democrats plan to include protections for family farms and small businesses in legislation based on Biden’s plans. But Republicans think their messaging could be effective, given that some Democrats representing rural areas have also raised concerns about the proposal.
“I think rural and even suburban Democrats are understanding just how dangerous that proposal is,” Rep. Kevin Brady (Texas), the top Republican on the House Ways and Means Committee, told The Hill on Thursday.
He added that Republicans have launched an “all-out effort” to prevent Biden’s proposal from becoming law.
Currently, capital gains are not taxed at death. Additionally, when heirs sell an asset, they have to pay capital gains taxes on the difference between the value of the asset when it was sold and the value of the asset when they received it, not on the difference between the value of the asset when it was sold and the value of the asset when it was initially purchased. This concept is known as “stepped-up basis.”
Biden is proposing to end stepped-up basis for capital gains in excess of $1 million per person and tax those gains at death.
The administration is seeking to prevent owners of family businesses and farms from being hurt by the proposal by providing that taxes on the appreciation of these businesses would not have to be paid until they are sold or stop being family owned and operated.
Congressional Democrats plan later this year to pursue a social spending package based on Biden’s plan, and they have said they won’t increase taxes on small businesses and family farms as part of the measure.
“Our reforms are about raising taxes on the very richest Americans who are able to entirely eliminate taxes on their fortunes, but these reforms are designed with protections so that family-owned businesses and farms will not have to pay income taxes when given to heirs who continue to run the business,” a White House official said.
The Agriculture Department says that estimates have found that 98 percent of farms wouldn’t owe taxes when they are transferred, as long as they stay in the family.
But Republicans argue that family farms and small businesses would be burdened by the proposal and that the administration’s proposed protections wouldn’t be sufficient.
The entire Senate Republican caucus sent a letter to Biden on Wednesday urging him to reconsider his proposal.
“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,” the GOP senators wrote.
They argued that Biden’s proposed protections for family farms would merely amount to a delay in tax liability instead of providing “any real tax relief.”
They also highlighted opposition to the repeal of stepped-up basis from groups such as the American Farm Bureau Federation and the 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,” Courtney Titus Brooks, senior manager of federal government relations at NFIB, said in a statement that Senate Republicans promoted along with their letter.
They also highlighted their opposition to Biden’s proposal during a press conference Wednesday on Democrats’ spending and tax proposals.
“We call this the farm-to-table tax,” said Sen. Joni Ernst (R-Iowa), who argued that the proposal could lead to higher food prices.
While Republicans oppose all of Biden’s proposals to raise taxes, they have zeroed in on this one in recent days.
Ryan Ellis, president of the conservative Center for a Free Economy, said that Republicans’ focus on this issue dovetails with their long-standing opposition to the federal estate tax.
“Republicans are never so comfortable talking about tax policy then when we’re talking about the death tax,” Ellis said.
The GOP’s growing focus on Biden’s stepped-up basis proposal comes after several Democrats involved in agriculture issues have also raised concerns about the impact of the proposal on family farms.
A group of 13 House Democrats from rural districts, including Rep. Cindy Axne (Iowa), wrote a letter in May to the party’s leaders in the chamber urging them to include exemptions for family farms and small businesses in legislation based on Biden’s plans.
Additionally, House Agriculture Committee Chairman David Scott (D-Ga.) wrote a letter to Biden last month expressing concerns that the president’s proposed protections for family farms “could still result in significant tax burdens on many family farming operations.”
Republicans see the letters as a sign that their arguments against Biden’s proposal could resonate with Democrats.
Rep. Adrian Smith (R-Neb.), a senior Ways and Means Committee member, said that he hopes the Democrats who have expressed concerns “stand firm.”
“This would be such an assault on agriculture and small businesses, family businesses,” Smith said.
Still, Republicans could find it challenging to convince Democrats to fully abandon Biden’s proposal. Democrats across the ideological spectrum are interested in raising taxes on the wealthy.
Axne said in a statement to The Hill that she thinks that lawmakers may be able to design a policy that both protects family farmers and small businesses and “ensures the wealthiest in this country pay their fair share in funding the investments in infrastructure that Iowa desperately needs.”
Supporters of Biden’s proposal argue that ProPublica’s recent reporting detailing how prominent U.S. billionaires pay little in taxes compared with their wealth gains demonstrates the need for reform.
“Any opponent of taxing capital gains at death should have to explain not only why the richest people should not pay income taxes while they’re alive but be allowed to have their tax bill erased when they die,” said Chuck Marr, senior director of federal tax policy at the left-leaning Center for Budget and Policy Priorities.
Senate Finance Committee Chairman Ron Wyden (D-Ore.) said that Democrats are not going to accept Republicans’ arguments that tax increases on the wealthy are synonymous with increases on small businesses.
“We’re not going to buy this idea that megamillionaires or billionaires can somehow run out and call themselves small businesses,” he told reporters.
Via The Hill
