New Mexico is home to a vibrant community of over 21,000 family farmers. These hard-working New Mexicans, who produce everything from chile to pecans to beef, make up a large slice of the state’s $3 billion in annual agricultural output. Even before the COVID-19 pandemic engulfed the United States, the sector played a key role in keeping the state’s economy moving. While other industries were forced to shut down last year because of the virus, the men and woman who tend to New Mexico’s farmland pressed on.
Unfortunately, politicians in Washington want to make it more difficult for these family businesses to pass their farms down from generation to generation. The Sensible Taxation and Equity Promotion (STEP) Act – a bill introduced by Maryland Sen. Chris Van Hollen, would institute a retroactive tax on the appreciation of inherited assets valued over $1 million. The bill sets no limit on how far back the government can reach to tax transfers of inheritance. This “zombie tax,” as some have called it, marks an unprecedented change in the way capital gains on inherited assets are taxed.
For example: an individual who inherited a cattle ranch valued at $2 million from their grandfather, who originally spent $100,000 to buy the ranch in 1989, would have to pay taxes on the $900,000 in accrued capital gains. This differs from the current standard, whereas inherited assets are appraised and taxed on a “stepped-up basis.” Currently, the heir would only have to pay taxes if they sold the ranch and only on any gains incurred after the previous owner’s death. This allows cash-poor heirs to avoid sky-high capital gains tax liabilities. If the statute is eliminated, heirs who do not have the cash on hand to pay the tax could be forced to sell valuable farming equipment or possibly even their entire operation.
In addition, under this new tax, if a farmer applies for a loan, any retroactive taxes unpaid will be seen as a lien or a tax liability on their books. This raises additional “access to capital” concerns for farmers, who struggle to get financial support from banks as it is.
When President Biden was first elected to office, he made a promise not to raise taxes on middle-class Americans. To get people back on their feet following the pandemic, he pledged to increase federal government spending on everything from education to health care. These ambitious goals, he said, would be fully funded by having wealthy Americans “pay their fair share.”
Well, there is no group of Americans who better represent our country’s middle class than family farmers and ranchers. By severely limiting the ability of these folks to pass down their multi-generational operations, President Biden is explicitly reneging on one of his signature campaign promises. America’s wealthiest families have the resources to burden these kind of tax laws, so the STEP Act would do very little to close the income inequality gap. Instead, it would simply harm everyday American families.
Join me in calling on New Mexico’s congressional delegation to stand firm against the Biden administration’s plan to repeal step-up basis and implement the zombie tax. Too many New Mexicans stand to lose from this misguided policy for it to be seriously considered. Instead, our elected leaders should focus on pro-growth policies that will lift New Mexico’s struggling small businesses out of the pandemic-induced recession.