...To pay for Covid-19 recovery and rebuilding efforts, Congress is considering a provision that would hit family businesses with taxes they can’t pay. This proposal would eliminate the step-up in basis at death on capital gains of more than $1 million and $2.5 million for couples. That means family businesses would have to pay taxes on their appreciated value even if that value is still locked up in the business. Eliminating the step-up would force family businesses and ranchers to liquidate when an owner dies and to lay off employees while bringing in little revenue for Uncle Sam.
Lawmakers should know this is a mistake. In 1976 and again in 2010, Congress passed legislation eliminating the step-up in basis. Both times it had to be reinstated because of the devastating effects on family-owned businesses. Proponents try to temper criticism by suggesting carve-outs, but we’ve learned from experience that they are ineffective. Congress tried that in 1997 for inherited family-held businesses but the exceptions were too narrow to benefit anyone, and widening them would have been tantamount to repealing the estate tax altogether.
I’m not the only Democrat who feels this way. More than a dozen Democratic representatives from farm districts, led by Rep. Cindy Axne (D., Iowa), sent a letter in May to Speaker Nancy Pelosi, Majority Leader Steny Hoyer and Ways and Means Chairman Richard Neal urging them to reconsider any plans to eliminate the step-up in basis because it will hurt family businesses.