Zombie Tax punishes farmers to fill DC coffers

There is a new tax proposal taking root in Washington that will be extremely damaging to our nation’s farmers and ranchers if it becomes part of the tax code.

After a painful year of unknowns due to the coronavirus epidemic, the last thing the agricultural sector needs is a punitive and retroactive tax that goes after one of America’s greatest legacies — multi-generational farming and ranching. 

Sens. Chris Van Hollen (D-Md.), Cory Booker (D-N.J.), Bernie Sanders (I-Vt.), Sheldon Whitehouse (D-R.I.) and Elizabeth Warren (D-Mass.), have proposed a new tax that would negatively implicate farmers for wanting to pass down the family business to their children. Rep. Bill Pascrell (D-N.J.) has introduced a similar bill in the House. Unfortunately, President Biden has embraced the idea and included it in his American Families Plan to help pay for the expansive $1.8 trillion program. 

The new tax, called the Sensible Taxation and Equity Promotion (STEP) Act, known by some as the “Zombie Tax,” would tax personal property including a house, land, or small business on its total appreciated value upon the death of the owner. The retroactive clause means that Washington would treat death like a sales event and tax a deceased family member’s property on all its increase in value while the deceased owned it — but send the bill to his or her living heir. This taxation after death proposal is truly haunting. Imagine laying a loved one to rest only to have to call lawyers and accountants to sort through piles of paperwork to figure out how much an asset appreciated over the last 30 or 40 years, long before you owned it. 

Currently, when a family operation is passed down upon the owner’s death, the value of the assets are “stepped-up” to current market value, which becomes the “stepped-up basis.” If the family ever decides to sell, they will pay taxes on any capital gains from the time they took ownership. But the Zombie Tax would change the law to create a fictional sale of the asset at the time of the owner’s death so taxes have to be paid on the appreciated value of the asset by the family members inheriting it, which is likely unconstitutional. For many asset-rich, cash-poor farming families, this could mean the sale of all or part of the farm. 

According to the last agricultural census, there were 1.97 million farms in the United States. Of that, 1.9 million were more than 50 percent owned by one producer’s household and/or extended family. However, there are also more than four times as many farmers and ranchers aged 65 and older as there are those under the age of 35. Many adult children are already questioning whether they will continue in their parents’ footsteps. The Zombie Tax could make the choice for them.

Thus, more than 40 agriculture groups across the board sent a letter to Congressional leaders expressing their concerns about the devastating impacts this new tax would have on American farmers and their offspring. Taxes owed for some will be enormous, especially if the farming operation has done well and has significantly grown in value. The bill’s drafters think that giving families 15 years to pay off such a tax burden would be enough to soften the blow — but politicians don’t understand that there is usually very little cash on hand for farmers and ranchers — every penny is usually invested right back into farm equipment and other operational expenses. If they plan to borrow money against the value of the farm to support operations or get through tough times, banks will require that they settle the tax debt in order to close the loan.

According to the United States Department of Agriculture, family farms account for 98 percent of all U.S. farms. Taxing these hard-working families upon their loved one’s death is an insult to the legacy of American farming — and a kick in the gut to our nation’s rebounding agricultural sector. Washington politicians shouldn’t make farming families suffer just to fill D.C. coffers.

Bob Young, former chief economist for the American Farm Bureau Federation, co-director of the Food and Agricultural Policy Research Institute and faculty member of the University of Missouri and past chief economist for the United States Senate Committee on Agriculture, Nutrition and Forestry.