ACTION ALERT: Ask Your Members of Congress to Oppose Tax Increases in Reconciliation
Under the recently enacted $3.5 trillion budget resolution, the Senate Finance Committee and House Ways and Means Committee are currently considering several tax proposals of particular relevance to SLMA members. Several of these items were introduced in President Biden's "Green Book" in May of this year. SLMA's tax counsel at Gomel, Davis and Watson, LLP has drafted the below points that you can copy and paste into an email to your Members of Congress, or use as talking points in a phone call. We have also drafted an introductory paragraph that you can customize as needed. If you have a direct contact in your Representatives' and Senators' offices, please reach out to them directly. You can also access contact information by clicking here.
As the House and Senate consider tax increases to pay for the various spending goals of the $3.5T reconciliation plan, please consider the impact that tax increases will have on manufacturers, both family and corporate owned, and the people who count on them to support their families throughout the country. Sawmills are often the largest employers in the rural communities in which they operate, providing good paying jobs for our employees while also supplying the market with a sustainable, carbon storing building product. Additionally, the economic impact of sawmills extends beyond our direct employees to the many businesses that support our industry, from the timber growers that we purchase logs from to truck drivers, fuel stations, electricians, and other service providers that keep mills operating. Our mill in _____________________, _____ employees XXX people while providing millions of board feet of lumber per year for home construction and other vital industries. The various tax increases being discussed will have a detrimental effect on our ability to continue employing people and meet our nation's need for wood products. Please take the following points into consideration and let me know if you have any questions.
1.) Oppose the proposed capital gain tax on appreciated property upon death or gift, or upon transfers of property into, and distributions in kind form, a trust or partnership.
- Illiquidity. The proposal is in direct contravention of the long-standing principle that there must be a "realization event" (i.e., generally a sale for proceeds) before an income tax is imposed. Capital gain recognition on these transfers would impose tax on a gain not yet realized - an unreasonable burden that will force many taxpayers to prematurely liquidate the transferred assets.
- Administrative burden. Assessing a tax on such transfers will impose significant administrative burden on taxpayers to determine the basis, track the use of any available exemption, attempt to obtain old records that may be unavailable, and necessitating additional disclosure and filings.
2.) Do not eliminate step-up basis at death (with or without capital gain at death).
- Administrative burden. When transfers upon death no longer result in a "step-up" (or "step-down") to establish basis at the current fair market value, but instead the decedent's basis is "carried over" the recipient, the recipient will have to make that determination. As noted above, this could impose a substantial burden on those who inherit property.
- Potential double tax. For those estates subject to estate tax, this would result in double taxes on the same property: first at death, and again when it is sold. The effect on generationally owned businesses and farm could be devastating, especially since the assets of a sawmill or farm (equipment, land, machinery, etc.) are often very illiquid.
3.) Oppose the increase of capital gain rate to 39.6% for households with income over $1 million.
- Disproportionate harm to timberland. We should maintain the current capital gains treatment of timber because forestry is a long-term investment. An owner of timberland may go decades without making major cuts as the timber matures, and then have a large cut that results in large proceeds in a single year. This proposal would incentivize owners to cut timber prematurely to "even out" gains, potentially resulting in economic and environmental harm.
- Market restraint. On the other hand, an increase in the capital gains rate will encourage some owners to keep their timber off the market to avoid the hefty tax, thereby skewing the timber market.
4.) Do not increase the maximum ordinary income tax rate for individuals to 39.6% for income over $400,000.
- Current rate is high enough. The maximum federal rate is already 37%, even before factoring in the assortment of other federal and state taxes. Excessive rates will adversely impact economic growth.
5.) Do not increase the maximum corporate income rate to 28%.
- Current rate is high enough. Excessive rates will adversely impact economic growth.
6.) Oppose any repeal or narrowing of the Section 199A QBI deduction.
- Inequitable. The proposed modifications would disadvantage owners of S corporations and partnerships versus C corporations.
7.) Do not repeal or limit Section 1031 tax-deferred exchanges.
- Short sighted. For decades, like-kind exchanges - which allow investors to defer taxes on the sale of property if the proceeds are reinvested in a new property - have been a cornerstone of the real estate market, generating economic benefits on every level which far exceed the amount of taxes deferred. Reducing or eliminating this technique would have significant adverse effects on the real estate market.
8.) Keep the estate tax exemption at $11.7 million (and not revert to $5.8 million (estimated)).
- Unfairness. The current enhanced exemption is scheduled to continue through 2025. This should be maintained and extended to protect family businesses.
9.) Oppose any changes to valuation rules to remove discounts for interests in entities for tax purposes.
- Unfairness. Contrary to the claims by advocates of this proposal, valuation discounts to minority interests in nonmarketable assets reflect economic reality, and should be allowed for tax purposes.
10.) Do not require that employers automatically include their employees in any 401(k) or IRA plans they offer.
- Unfairness. Employers are facing labor shortages and much higher wage demands; they are best suited to decide which retirement benefits to offer their employees.
11.) Do not tax gain on unrealized appreciation of trusts and partnerships.
- Illiquidity/Unfairness. Under the proposal, noncorporate entities (e.g., trusts, partnerships) that own property has not been the subject of a recognition event in the past 90 years would recognize gain on unrealized appreciation; this would begin December 31, 2030. This again is a violation of traditional tax principals.