Remember Jed Clampett from The Beverly Hillbillies? His hardscrabble farm produced little more than a moonshine, until one day, when the hymn sounded, “he shot some food and bubbling crude oil came over the ground. Oil, that is, black gold, Texas tea. “
Jed then sold his land for $ 200 million in today’s dollars – more than enough to move into the Beverly Hills mansion and desecrate his smart neighbors.
Under the current rules, Jed would have owed Uncle Sam only 20% of the substantial capital gains he pocketed by selling his property. This is much lower than the upper tax rate of 37% on income from work.
Do you think this is unfair? Well, change the scenario a little and it will get worse.
If Jed had died before selling the oil-rich land, his daughter Elly May could have sold it without paying income tax at all about its increased value. This is how the rule known as the ‘enhanced basis’ works. If someone inherits property, the capital gain on that property is reset from the time of the first purchase of the deceased family member.
Fictional Clampetts has thousands of real-world colleagues today who make it rich by selling land that has increased in value due to the discovery of mineral resources or developmental pressures. Although everyone loves the story of rags, these incidental income should be taxed fairly.
An even bigger problem is how rich family dynasties have used the enhanced base loophole to pass on property from generation to generation without paying capital tax. Instead of selling their property, an ultrarich can simply borrow it at a low interest rate if they ever need extra money.
It’s just a scare, because farmers who love their country life and have no intention of selling should not pay the IRS a premium.
President Joe Biden wants to put an end to this wealthy tax evasion while protecting ordinary families. According to his proposal, someone who inherits real estate should owe taxes for the full increase in its value from the first purchase of their family member, but the first million dollars (or $ 2 million if inherited from married parents) would be exempt. Heirs can also defer payment of tax for up to 15 years.
Exempt family farms and businesses
The protection would be even greater for family farmers and small business owners. Under the President’s proposal, these families may defer the payment of inherited property taxes indefinitely, even for several generations if they continue to use the property for agricultural or commercial purposes.
So if you are Elly May Clampett and you are selling inherited real estate that has grown in value over a million dollars, you would pay more in taxes. And if you are a heir billionaire farmland owner like Jeff Bezos, you would pay a lot more.
But if you’re more like a humble Ingalls family from another 1970s TV show, “A small house on the prairie, ”you would have nothing to worry about.
Ordinary families would also benefit from public infrastructure, education and improved health care, which could be financed by tax revenue to close the wealth gap. Together with the proposed increase in the capital gains tax rate for people earning more than $ 1 million a year, Biden would change the enhanced base rule earn more than $ 300 billion over ten years.
But powerful lobby groups and politicians are sending a completely different, ominous message. For example, Senator Chuck Grassley recently called The Wall Street Journal Biden’s proposal a “death breaker” for family farms and small businesses..
The Iowa Republican Op is part of a massive disinformation campaign aimed at intimidating families into thinking they have to sell their inherited land in order to pay a huge new “death toll”. It’s just a scare, because farmers who love their country life and have no intention of selling should not pay the IRS a premium.
A misinformation campaign to help the rich
Grassley and other opponents of Biden’s plan are simply using family farms in the face of a PR campaign that really aims to keep huge tax breaks for the rich.
If their deceptive propaganda succeeds, hard-working family farmers and ranchers will not win. An elite that has falsified the tax system in its own interests will win another victory. And the Ingallians and the rest of us are between the bill.
Bob Lord, a fellow at the Institute for Policy Studies, is involved in tax claims for Americans to ensure tax justice. Sarah Anderson leads the Global Economics Project at the Institute for Policy Studies and co-edits Inequality.org.