A new study shows the impact of eliminating the stepped-up basis tax provision. Micheal Clements shares the results of the study.
Clements: The American Farm Bureau Federation and the Family Business Estate Tax Coalition just released a study showing the damaging impact of eliminating the stepped-up basis tax provision. Farm Bureau economist Veronica Nigh says doing so will hurt jobs and the economy.
Nigh: A study that we had commissioned by Ernst and Young found that overall, in the economy, the elimination of stepped-up basis would lead to a decline of 80,000 jobs each year for ten years, and in the long run, a 100,000 job decrease each year. It would also cause a $10 billion decrease in GDP each year, which again, over a ten-year budget window is $100 billion.
Clements: Nigh says the increased tax burden would lead to less investment in things like machinery or farmland.
Nigh: The elimination of stepped-up basis would increase taxes, of course. That increase in taxes makes each project a potential investor might complete all the more expensive. That means that there’s probably going to be a decline in investment.
Clements: For farmers and ranchers, the elimination would make passing on the family farm to the next generation more challenging.
Nigh: A long standing provision of U.S. tax law is that a capital gains tax is not imposed when assets are transferred at death to an heir. Furthermore, tax law allows the heir to increase their basis in the asset to fair market value without paying capital gains tax. This is referred to as a step up in basis. By eliminating step up in basis, it means more capital gains taxes have to be paid, which makes it all the more challenging to get that business to be viable for your heirs.
Clements: Find the study online at fb.org. Micheal Clements, Washington.
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