President Joe Biden rode into the White House on a promise to provide economic relief for those Americans who were hardest hit by the Covid-19 pandemic. To get people back on their feet, he pledged to increase federal government spending on everything from secondary education to senior services. These ambitious goals, he said, would be fully funded by having wealthy Americans “pay their fair share.”
To accomplish these goals, President Biden introduced the American Families Plan (AFP). To pay for the plan’s $1.8 trillion price tag, the president laid out several strategies that he assured would generate enough revenue to cover the spending without raising taxes on middle-class Americans.
In the funding plan, he includes a proposal called the Sensible Taxation and Equity Promotion (STEP) Act. This provision would eliminate an element of the tax code called “step-up basis” and institute a retroactive tax on the appreciation of inherited assets valued over $1 million.
The STEP Act, i.e. a “fairness tax,” would force a fictional sale of assets to make the heir to a family house, farm, business or any other inherited asset,pay taxes retroactively on any capital gains that occurred under the previous owner.
Let’s put this into perspective. Take George, a man who came from nothing but was determined to leave his kids better off than the start he had. He worked all his life, taking a hard job to make decent money which he saved and invested wisely so he could pass something on to his children. He managed to save enough money that his investment has grown by $2 million after 40 years of work and sacrifice.
The day he dies, the government will swoop in and force a fictional sale so that they can claim $800,000 in taxes. So instead of leaving his five kids the sum of his lifetime savings, the kids get whatever is left after the confiscatory new tax is levied. And keep in mind, George already paid taxes on his money. Taxes were taken out of every paycheck he got, and he invested on what was left. But the government needs to find a way to pay for President Biden’s massive spending, and extra taxation of George’s entire life investments is the key.
Or take a small business like a family farm. It’s owned and operated by Mary, who believes in giving back to her community. She started with nothing but built a successful business by a lot of hard work and sacrifice and now it employs 30 people, all of them locals. Mary reinvests back into the company and her community everything that she doesn’t need to eat or pay her bills. But then Mary gets cancer and dies.
With the STEP Act, the government comes in, evaluates her business – on paper – at $10 million because of all the investments she’s made in the property and equipment over her entire lifetime of work. Mary never received money like that a day of her life. All she had was the business she had built, which she hoped to turn over to her children at her death.
Unless specifically exempted, Biden’s “fairness tax” will create an additional $4 million dollar tax in addition to the estate tax that could be levied against her estate to the tune of several million dollars. So, her kids will need to raise roughly $7 million to pay the government to keep the family farm. The business does not generate that kind of cash, so they will have to sell to Mary’s farm to a competitor or private equity firm who likely is not part of the community and who, if history is any guide, will choose to sell it off in pieces and the local employees will be on their own.
These are hypothetical examples, but regardless, the truth is that the local community would be better served if the money in Mary’s estate remained local, instead of going to the IRS. And George didn’t work his entire life to help politicians in D.C. achieve their objectives – he intended his life of work to go to his children.
I urge Senators Joe Manchin and Shelley Moore Capito to stand up for West Virginians and oppose implementation of the STEP act. The pandemic brought West Virginia’s economy to its knees. The last thing the Mountain State needs is another tax hike on hardworking West Virginians handed down from politicians in Washington.
— Dianna Graves is a Republican member of the West Virginia House of Delegates, representing District 38 in Kanawha County.