Since the early days of President Joe Biden’s tenure in office, he has promised to revitalize the U.S. economy by creating a series of new federal government programs aimed at supporting everything from universal childcare to free community college. He campaigned on these same issues while visiting the Granite State during the 2020 Democratic primary and called them, “a down payment on the future of our country.” Time and again, the president has assured that his proposals would be fully funded by raising rates on the nation’s highest earners without the need for a middle-class tax hike.

Then, in late-April, when President Biden unveiled his American Families Plan (AFP), which came with a $1.8 trillion price tag, his tone shifted. It appeared his administration had resigned to the fact that paying for the funding gaps in their proposal would require increased taxes on a much wider range of people than expected. Specifically, the administration’s decision to remove “step-up basis” accounting from our nation’s tax code to pay for the plan could deal an especially acute blow to New Hampshire families.

Folded into the AFP is a funding provision based on the Sensible Taxation and Equity Promotion (STEP) Act – a bill introduced earlier this spring by Senator Chris Van Hollen that 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. This “zombie tax,” as some have called it, is a monumental, if not unconstitutional, shift in the way capital gains on inherited assets are taxed.

Currently, when a person inherits an asset such as a family business from a deceased relative, they do not pay taxes on the value that accrued under the previous owner. Under President Biden’s zombie tax, this standard would change. For assets with a book value of over $1 million, the government would collect a tax based on the amount that the asset appreciated under the original owner. That means, if an individual inherited a family-owned bakery with a book value of $1.5 million from their parents who originally spent $20,000 to buy the shop in 1975, that person would need to pay a tax on the difference between the two values.

And just to be clear – there is a big difference between the value of a business and having cash in the bank. Most small businesses do not have anywhere near their total value in liquid cash. This new tax bill would further compound cash flows and possibly make a healthy business, insolvent.

When the administration rolled out its plans to inject over $6 trillion of fiscal stimulus over the course of three separate pieces of legislation, they were bound to get creative with how to pay for it all. Unfortunately, if the zombie tax is enacted it will most certainly have disastrous effects on the allocation of long-term investment into our nation’s economy. Some studies have shown repeal of the step-up basis could wipe out over $10 billion annually in GDP from the US economy. Investment is the key driver of economic growth, and this plan would turn off the spigot.

I truly hope New Hampshire’s congressional delegation will think twice before signing on to President Biden’s possibly unconstitutional and ill thoughtout funding plan as it is currently written. The repeal of step-up basis and the implementation of the zombie tax will most certainly deal a devastating blow to family-owned small businesses, manufacturers, and farms across the Granite State.

Frederick Boucher is a native of Nashua and works downtown at his office on Main Street. He currently resides in Windham with his wife and daughter.

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