A White House official told FOX Business on Tuesday that the American Families Plan will include protections for family-owned businesses and farms so that they do not get hit by the president’s desire to eliminate stepped-up basis.
"Our reforms are designed with protections so that family-owned businesses and farms will not have to pay income taxes when given to heirs who continue to run the business," the White House official said. "These protections will encourage family farms to stay in the family."
The American Families Plan includes proposals for free public education, universal preschool, affordable child care, an extension of the expanded Child Tax Credit and plans for a national paid leave program.
In order to fund these policies, and the others called for under the sweeping proposal, Biden has proposed increasing the top personal income tax rate for the wealthiest earners to 39.6% from 37%, taxing capital gains at the same rate as ordinary income for households earning at least $1 million, eliminating stepped up basis for gains in excess of $1 million and closing the carried interest loophole.
But farmers apparently won't have to worry about changes to stepped up basis.
Typically when an individual purchases something – like a stock or another capital asset – and sells it, her or she is required to pay taxes: Capital gains taxes are paid on the difference between what an individual originally paid for a property or investment versus what it sells for at the time it is sold.
If the owner of the property (like a farm) or investment passes away, however, the person who inherits it can sell it immediately and pay no tax. That is because the cost basis has been "stepped up" from the price the deceased owner originally paid for it to its fair-market value on the date it was inherited.
Eliminating the provision is not a new idea. In fact, it was proposed by the Obama administration in 2015, with some exceptions designed to protect the middle class – including for the inheritance of small, family-owned and operated businesses, for example.
FOX Business’ Edward Lawrence contributed to this report.