For generations, working on a farm has been more than just a way of life in my family – it is part of our DNA. Growing up, it was my dream to take over my family farm and carry on the legacy started by my grandfather.
Over time, that dream has evolved from dairy to grain, vegetable and organic production, but I am proud to work on one of Maryland’s 12,429 farms, providing the foundation of a community that sustainably feeds, clothes and fuels our nation.
Agriculture is Maryland’s No. 1 industry, accounting for $19.66 billion in economic activity, 83,619 supported jobs, and $753 million in state and local tax revenue.
Like many farmers across our state, I look forward to upholding the legacy of my family farm when my father passes it down to me, and I hope one day that I can pass it on to my children.
Yet, a new proposal to repeal a fundamental tax provision called “stepped-up in basis” threatens the long-term viability of family farms like mine and would force multi-generational farmers to sell off their inheritance to cover the tax bill.
To pay for his new social programs, President Biden recently announced his support for Senate legislation called the STEP Act. This bill raises taxes by changing the way capital gains are assessed on estates, trusts and assets – including family-owned farms – by eliminating stepped-up in basis.
For more than 100 years, farmers have been using stepped-up in basis to minimize the impact of burdensome taxes on inherited farms.
For example, if someone purchased a farm and its equipment 30 years ago for $100,000, and it is worth $5 million at the time of their death, their descendants will inherit the farm as if they paid $5 million for it. They would not have to pay capital gains taxes on any appreciated value of the farm that accrued over the past 30 years.
If enacted, the STEP Act would impose a new tax on farmland and equipment that forces inheritors to retroactively pay taxes for purchases made decades ago. Imposing capital gains taxes when assets transfer ownership at death would force many family-owned farms, like mine, to liquidate assets to cover the tax burden.
This new tax would be imposed on top of any existing estate tax liability, creating a second tax at death, and piling on the financial burden. This tax would be in addition to the financial challenges of buying out any heirs that are not actively engaged in the farm business.
It is important to remember that farming is capital-intensive.
Farmland, buildings and machinery are highly illiquid assets. When either capital gains or estate taxes or the combination of the two on an agricultural business exceed cash and other liquid assets, surviving family partners will be forced to sell land, buildings or equipment needed to keep their business running. In the agricultural sector, this would go far beyond the much-touted “tax on the rich” and inflict a crushing blow on average-sized family farms.
Additionally, eliminating stepped-up in basis won’t just impact family farms – it will also devastate small family-owned businesses across Maryland and the thousands of jobs that depend on them.
According to a new economic analysis by the Family Business Estate Tax Coalition repealing stepped-up in basis on inherited assets would slash 80,000 jobs each year and cause a $10 billion annual decrease in national GDP. Increasing taxes on middle-class families would make investing in our local economies more expensive and punish small businesses who serve our communities.
Sadly, many families like mine will become victims of the STEP Act and will be forced to sell off their farms if this bill is signed into law.
The fact is most farm families are leveraged more than ever before and most cannot afford the additional financial burdens of the STEP Act. For many families there will be no possible way to keep the business from going under when it is passed down.
Simply put, my livelihood and the livelihoods of thousands of Maryland farmers are on the line.
It is difficult enough for farmers to navigate the challenges that come with running a successful business without facing the financial strain of taxes imposed at death.
It is critical that Maryland’s congressional delegation stand up for us and protect hardworking farmers across our state who want to pass their legacy on to the next generation.
The writer is a third-generation farmer in Kent County growing primarily field crops and vegetables. He is a member of the board of directors of Maryland Farm Bureau.
This opinion originally appeared in Maryland Matters.