Death by a Thousand Assessments — How Capital Gains Proposals Are Liquidating the American Family Farm and Business

The Tax Code as an Inheritance Thief

For decades, American families have operated under a reasonable compact with their government: build something, pay your taxes along the way, and when the time comes to pass what you've built to your children, the stepped-up basis provision will ensure they aren't taxed on gains that accrued across your lifetime. It wasn't a loophole. It was a recognition that a civilized tax system shouldn't punish the act of dying.

That compact is now under sustained assault. Proposals circulating in progressive policy circles — and formally advanced during the Biden administration's budget submissions — would eliminate the stepped-up basis entirely and, in more aggressive iterations, impose taxes on unrealized capital gains before assets are even sold. The architects of these plans present them as tools to make billionaires pay their fair share. The fine print tells a very different story.

Who Actually Gets Hit

Let's be precise about the mechanics. Under current law, when a parent dies and leaves appreciated assets to a child — a farm, a small business, a rental property — the child's cost basis is "stepped up" to the fair market value at the time of inheritance. If the parent bought farmland for $100,000 in 1980 and it's worth $1.2 million today, the heir doesn't owe capital gains tax on that $1.1 million in appreciation. They start fresh at the inherited value.

Eliminating stepped-up basis — a proposal that has appeared in multiple Democratic budget frameworks — would mean that same heir owes capital gains tax on $1.1 million the moment they sell, or in some versions, simply upon inheritance. At the current 20 percent long-term capital gains rate, plus the 3.8 percent net investment income tax, that's a bill north of $260,000. On a family farm that is asset-rich and cash-poor, that bill doesn't get paid from a checking account. It gets paid by selling land.

The Tax Foundation and the American Farm Bureau Federation have both documented this dynamic extensively. According to the Farm Bureau, the elimination of stepped-up basis would jeopardize the viability of thousands of family farming operations, not because those families are wealthy in any conventional sense, but because the asset base of agriculture — land — has appreciated dramatically while the cash income it generates remains modest and seasonal.

The Billionaire Framing Is a Deliberate Misdirection

Progressives will tell you this is about closing the "buy, borrow, die" strategy favored by the ultra-wealthy: accumulate appreciating assets, borrow against them tax-free, and let the stepped-up basis wipe out the embedded gain at death. It's a real phenomenon, and the policy concern isn't entirely fabricated.

But here's what they won't tell you: the billionaire with a sophisticated estate planning team and a fleet of attorneys has options the Iowa corn farmer does not. Trusts, charitable vehicles, family limited partnerships, life insurance structures — the truly wealthy have mechanisms to navigate even aggressive tax changes. The family with a hardware store in rural Ohio, a modest commercial building, and a few hundred acres does not have a Blackrock-connected wealth manager on retainer. They have a local accountant and a prayer.

The practical effect of eliminating stepped-up basis isn't to dent the fortunes of the genuinely wealthy. It is to ensure that the first generation capable of passing something meaningful to the next generation — the first family to climb from working class to asset-owning — gets taxed back down to zero at the moment of transfer. It is, in the most literal sense, a policy designed to prevent the emergence of a multigenerational middle class.

Unrealized Gains: Taxing What You Haven't Earned

The stepped-up basis fight is aggressive enough. The unrealized gains proposal is a different category of radicalism entirely. Several progressive economists and at least one former Treasury proposal have floated the concept of marking assets to market annually and taxing the appreciation even when no sale has occurred — meaning a farmer whose land value rose this year owes tax on gains he cannot access without selling the land itself.

This is not taxation. It is forced liquidation dressed in the language of fairness. No serious reading of the tax code's historical purpose — which has always been tied to realization events — supports this framework. And the constitutional questions it raises under the Sixteenth Amendment's definition of "income" are genuine, as the Supreme Court's 2024 Moore v. United States decision signaled, even if it did not resolve them definitively.

The Conservative Principle at Stake

Conservatives have long argued that the antidote to permanent inequality is not redistribution but the accumulation and transmission of private wealth across generations. A society where every family can build something, own something, and pass something on is a society with a genuine middle class — not a permanent underclass dependent on government transfers and a permanent elite too entrenched to be challenged.

That is precisely the society these tax proposals would undermine. The progressive vision of inheritance taxation, at its logical endpoint, is a world where private wealth cannot compound across generations — where every generation starts from scratch and the state becomes the default custodian of accumulated value. That is not a vision of fairness. It is a vision of managed dependency.

The stepped-up basis has existed in the U.S. tax code in various forms since 1921. It has survived Democratic and Republican administrations alike because lawmakers of both parties historically understood that taxing the same appreciation twice — once notionally at death and again upon sale — is punitive, economically destructive, and fundamentally incompatible with the American promise that what you build is yours to pass on.

What Comes Next

With a Republican-controlled Congress and a White House currently focused on extension of the 2017 Tax Cuts and Jobs Act provisions, the most aggressive unrealized gains proposals are not imminent law. But they remain live ambitions in progressive policy circles, and the budget reconciliation process has historically been the vehicle through which tax changes with enormous long-term consequences get quietly inserted into legislation few members read in full.

Conservatives should be clear-eyed: the fight over stepped-up basis and unrealized gains is not a technical debate about tax mechanics. It is a fundamental argument about whether private wealth — built slowly, taxed along the way, and passed with love to the next generation — belongs to the family that built it or to the government that watched.

The answer, for anyone who has ever inherited a work ethic along with an acre of land, should be obvious.