The Sensible Taxation and Equity Promotion (STEP) Act has been proposed by a group of senators in Washington, including liberal Sens. Warren and Sanders, to be included in the infrastructure or reconciliation bill. That would be devastating to New Hampshire’s family-owned businesses, farms and homesteads.
If passed, the STEP Act would get rid of a longstanding tax provision called “step up in basis,” which allows children to inherit family businesses or family farms and homesteads without paying taxes that would force them to lay off employees, cut back operations, or sell the family business or property altogether.
The STEP Act — a bill introduced earlier this spring — would raise additional revenue by instituting a retroactive levy on the appreciation of inherited assets. In essence, it ends the practice of appraising inherited assets on a stepped-up basis, which is used to lower the capital gains tax liability for what tend to be cash-poor heirs. I wouldn’t be surprised if this tax would be found to be unconstitutional. At the very least, it constitutes a major shift in the way capital gains on inherited assets are taxed.
That value of a business is defined as the total of all of its assets, property, personnel, and also includes its reputation and brand value. The STEP Act would, in effect, treat a family-owned business as though they themselves as an individual were worth what their entire business is worth and asses a tax on us based on the value of the company.
This is how it works. Hypothetically, say a woman started a family business and when she passed it down to her daughter it was worth $1 million. Over the course of her daughter’s time running the company she was able to add employees, expand capabilities and grow the company significantly. Assume for the moment that when the daughter wanted to now pass it off to one of her children it was worth $20 million. Under the STEP Act, the IRS would treat her as if her personal wealth was worth the $19 million difference. She would then be saddled with a tax bill she in no way could possibly afford.
Under this scenario, a family-owned company would be given a tax bill with no other way to pay it other than be forced to let employees go, scale back any plans to grow the business, or worse yet, have to sell the company or property just to pay off the taxes. This story wouldn’t be unique in New Hampshire. Family-owned businesses and farmers across the country would be faced with the same impossible choices. This is just another Washington power grab for our hard-earned dollars to feed a bloated system.
The Biden administration has many new proposals and plans, including the infrastructure deal and many others still up for debate. And while they have promised not to pay for their spending on the backs of the middle class and small family businesses — the STEP Act would do just that. Having survived the last year and a half of COVID challenges, the last thing Granite Staters need is a new job-killing tax.
I know our delegation likes to say it supports small businesses in New Hampshire. Well, speaking out against the STEP Act would be a true test of their character. I hope they will help defeat this unfair and possibly unconstitutional attempt to tax New Hampshire’s family-run businesses and farms, and persuade their other colleagues in the U.S. House and Senate to keep the STEP Act out of any infrastructure or reconciliation bills.
(Note: The STEP Act allows the first million dollars of appreciated assets to pass at death without triggering the income tax.)