U.S. Tax Policy Proposals: Revenue Generation or Social Engineering Farm Sizes?

In 2021 President Biden proposed new spending on infrastructure in the United States.  Two proposals were introduced to provide offsets for the new spending.  The Sensible Taxation and Equity Promotion Act proposed to eliminate stepped-up basis upon death of the owner. The For the 99.5 Percent Act would decrease the estate tax exemption to $3.5 million ($7 million per couple).  At the same time, there are many in Washington D.C. pointing to the fact that farms in the U.S. continue getting larger.  While the tax proposals would generate a new revenue source, a related question is whether it would also slow the growth in farm size.  

This analysis examines the impact of the proposals on 94 representative farms and ranches located across the U.S. maintained by the Agricultural and Food Policy Center (AFPC) at Texas A&M University.

Under current tax law, only 2 of the 94 farms would be impacted by an event triggering a generational transfer. Under the STEP Act, 92 of the 94 representative farms would be impacted.  Under the 99.5% Act, 41 of the 92 representative farms would be impacted.  The proposals could lead to a farms selling land to pay taxes.

Keywords: tax policy, estate taxes, capital gains, farm policy, farm size, cash flows