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Inside Missouri officials’ fight against the federal ‘death tax’

Missouri officials gathered in the Missouri Farm Bureau Building at the State Fair last week to discuss agricultural issues, covering everything from the meatpacking industry to rural broadband. One topic speakers warned could have drastic impacts on Missouri farmers in the future was reforms to what is commonly known as the “death tax.”

The conversation has picked up across the country as lawmakers on Capitol Hill consider changes to the country’s budget and tax code, with agriculture groups and legislators sounding off in opposition to proposals. Here’s a look at the controversial tax, from what it is to what may come next. 

What is the death tax?

The federal “stepped-up basis” rule sees the government adjust appreciated values of a house or stock portfolio when passed down to the next generation as an inheritance. The rule protects heirs of properties under an $11.7 million threshold from paying what is commonly known in agricultural circles as the “death tax” — a tax on the transfer of property after someone’s death.  

The federal government estimated about $40 billion was kept in heirs’ pockets in 2020 under the rule. 

President Joe Biden proposed the elimination of the rule earlier this year, seeking to direct those monies to his $1.8 trillion American Families Plan which aims to increase federal spending for health care, community colleges, and child care. 

“Is it more important to keep these tax loopholes for millionaires — who are good people; they’re not bad folks — or would we rather put $7,200 in the pockets of working moms and dads every year if they have two children,” Biden said in remarks earlier this year

“It’s not an inheritance tax,” Biden said. “It was a tax [that] was owed two seconds earlier. But that’s what ‘stepped-up basis’ means. It’s [when] a person passes away and leaves the stock … to their son or daughter; son or daughter won’t have to pay anything on that multimillion-dollar gain when they sell that stock. And that’s worth a lot of money.”

A study conducted on behalf of the American Farm Bureau Federation (AFBF) found the changes would reduce the country’s GDP by $100 billion over the next decade. A separate analysis found the change would raise taxes by $498 per acre on average in Missouri for farms owned by families since 1997 while families with longer ownership histories were expected to see larger impacts. 

Moreover, Biden proposed an increase to the capital gains tax, which is paid upon the sale of an asset that has increased in value. The administration suggested a top federal rate of nearly 40 percent on long-term gains, a 10 percent leap from where rates stand now. 

What’s going on in Congress?

Much of Missouri’s GOP congressional delegation has presented a unified front in opposition to the change, with U.S. House Budget Committee Republican Leader Jason Smith at the forefront. Smith co-sponsored the Death Tax Repeal Act this year, seeking to eliminate the controversial tax. The measure has 147 co-sponsors from both parties, including Missouri Congressmen Billy Long, Blaine Luetkemeyer, Sam Graves, and Congresswomen Ann Wagner and Vicky Hartzler. 

“The fight that we have right now is, I think, the most important fight that I have ever seen in public service,” Smith said during a press event last week. “Upping the capital gains tax and what they want to do with the death tax — any time one of your family members dies, guess who inherits 61 percent? The federal government.”

“I think it’s the most criminal tax that we have,” Hartzler said. “If that happens, there will be no more ability to pass on the family farm. It would be the death of our rural communities, and we cannot allow that to happen.”

The U.S. Senate version also had the backing of Senators Roy Blunt and Josh Hawley. Both versions were referred to committees in March. 

“So many people where I work are so disconnected from farms and agricultural America that they think if you’ve got a farm over 40 or 50 acres, you’re no longer a family farmer, you’re some sort of big corporate farmer,” Blunt said. “We all know that’s not right. We’re in an important fight here.”

How is the Missouri Farm Bureau responding?

Missouri Farm Bureau President Garrett Hawkins sent a letter to the president in May, opposing the resulting increased taxes for farm families and saying the elimination of the stepped-up basis rule would cause immense economic harm to farmers hoping to pass on their operations.

“As a farmer myself, I am always looking ahead to the future and preparing to pass the farm down to the next generation. That planning is put in jeopardy when federal tax codes are changed by people thousands of miles away who don’t understand the impact on farmers,” Hawkins told The Missouri Times. “It’s an issue I hear about every day as I travel the state.”

With no official response from the administration and conversations continuing on Capitol Hill, the Farm Bureau has launched a media campaign, filming testimonials with the state’s agriculture workers. Farmers were also encouraged to share their stories with lawmakers in Washington, D.C.