Newest Tax Proposal in Washington Won’t Impact Most Farmers Today, But Tax Expert Warns it Could Be a Trojan Horse for Higher Taxes

Senate Democrats are pushing for a new tax proposal this week in order to help fund two impending spending bills in Washington D.C. What’s being proposed is called The Billionaires Income Tax, and it will do just that: impose a tax on billionaires. One farm tax expert thinks the proposed tax changes tied to the plans could turn into a trojan horse for farmers. 

As Democratic leaders in the House work to secure a vote on the $1 trillion bipartisan infrastructure plan yet this week, legislators are also hoping to reach an agreement on Biden’s Build Back Better Act. In total, the spending package comes with a price tag of $2 trillion and includes everything from climate initiatives to social safety nets the Biden administration is trying to pass.

“In a package that’s supposed to be about giving everybody a shot to get ahead, it would be a big mistake, from both a policy and political perspective, not to ask billionaires to pay a fair share,” said Senate Finance Committee Chairman Ron Wyden, D-Ore.

Newest Tax Proposal Wouldn't Impact Most Farmers

Since spring, the issue with the massive spending plan is how to pay for it. The new proposal would impose a tax on unrealized capital gains and also hit the step up in basis.

“I wouldn't call that a wealth tax, but it would help get at capital gains, which are an extraordinarily large part of the incomes of the wealthiest individuals, and right now escape taxation until they're realized, and often they're unrealized in the death benefit from so-called step Up of basis. So, it's not a wealth tax but a tax on unrealized capital gains of exceptionally wealthy individuals,” says Treasury Secretary Janet Yellen

Eliminating the step up in basis is an idea many farmers have worried about since the Biden administration started floating around possible tax changes.

Farm CPA Paul Neiffer says as the tax proposal sits today, the majority of farmers won't be hit with the tax change since they have to bring in at least $100 million dollars of net farm income, for at least three consecutive years. 

“I'm not saying I think there's lots of things that will probably be in there would affect farmers, but strictly based on this proposal that Janet Yellen outlined, this proposal won’t impact the majority of farmers,” says Neiffer.

The Farm CPA says at this point, only farmers who are already billionaires would be included in the newest tax proposal.

“There might be a couple billionaires out there that are doing a lot of farming,” says Neiffer with CLA. “We know that there are some billionaires that have farm operations. So yes, it would impact those farmers. But for the rank and file farmers, as it's currently proposed, it would really not affect them, because they have to have at least $100 million in net income for at least three consecutive years, or they have to be worth at least a billion dollars.”

A Trojan Horse for Higher Taxes?

Neiffer says even though the proposal would impose capital gains tax on liquid assets, it’s only triggered when they sell those assets. However, he thinks it’s a proposal that opens the door for changes down the road that could end up impacting farm families.

“The issue is if they get this in place, it starts at $1 billion, and then suddenly, it's going to drop to $500 million. Then it's going to drop to $100 million, then it's going to drop to $50 million, and eventually, it's going to drop to $10 million. And then that's when it's really going to affect our farmers, especially if the income is going to drop down to $1 million or less. So, this is just sort of like the Trojan Horse. Let's get that Trojan horse into the gates, so to speak, and then we'll let the lower amounts drop, not in the next year or two, but within 10 years, and that’s when it will definitely affect farmers.”

AgDay reported Tuesday that The Wall Street Journal’s estimates show the proposal would likely only affect less than 1,000 of the nation's wealthiest citizens. Democrats are also eyeing a 15 percent corporate minimum tax. If progress is made this week, it puts the plan on track to be passed before surface transportation funding runs out on Oct. 31.

The Biden administration’s tax changes originally proposed earlier this year showed those tax changes could be costly for family farms. The report from Texas A&M University’s Agricultural & Food Policy Center (AFPC) showed the original proposal from the White House would have produced a significant tax liability across all the U.S. farms. In fact, the only farms that wouldn’t have seen impacts would have been ones that rent 100% of their ground.