Greenville Leader

The Peeler family has been involved in the dairy business since 1918.

L.D. Peeler, Jr., has been milking cows since 1978, and at 67, he is preparing to turn the South Carolina business over to his daughter Iris, 40, and son, Davis. But a change in capital gains taxes proposed by President Joe Biden might put that plan at risk.

Even if the portion of Biden's "American Families Plan" that would raise the capital gains tax on heirs of property greater than $1 million doesn't end Peeler's wish, he said people need to realize the terms used to describe farms often distort the reality that the vast majority remain family owned and operated. Putting a heavier tax burden on them will only drive more out of business, he said.

“It hurts the farmer,” Peeler said. “You’re just putting out the family farm.”

The Peelers have 68 registered Jersey cattle, well known for their rich milk. The family sells raw milk — unpasteurized, chilled and bottled on the farm.

“There’s a big demand for healthy food,” Peeler said.

It’s a rare kind of dairy, with most states mandating pasteurization. But Peeler strongly believes his milk, produced under rigorous conditions on Milky Way Farm, is superior, and he has clients eager for it.

The family recently built a creamery on the farm to meet the demand for fluid milk, whole milk, flavored milk and raw milk. It’s a successful business, and one Peeler aspires to hand over to his children.

That’s what happened to him when he departed the corporate world in 1978, and purchased a dozen head of cattle from his dad. The dairy business can produce a rough ride, with milk prices rising and falling sharply. Add in the need to milk every day, and many people don’t want to continue.

Peeler knows why — “it’s hard work,” he said.

When he left Cherokee County in 1987, he was the last dairy farmer there. Thirty-four years ago, there were 24 dairies in Anderson County. Today Milky Way Farm is the last one in operation. Milky Way recently added a couple robotic milking machines, and it's looking to the future.

Peeler is ready for the fourth generation to take the reins.

But Biden’s proposed tax reform would increase taxes on inheritance by eliminating a provision allowing heirs to report the value of assets at the time of inheritance. This allows heirs to avoid gains taxes completely if they immediately sell their assets.

According to a The Center Square article, Biden's plan would require heirs to pay capital gains taxes on the increase in value of their inheritance during the lifetime of the deceased. The tax would apply to inheritances valued at more than $1 million, including the land necessary to continue the operations of the farm.

The tax, farmers say, will greatly impact farmers like Peeler who want to pass down the family farm. A major tax burden will be shifted onto heirs simply because of how much farms can increase in value throughout the lifetime of the previous owner, The Center Square reported.

Chris Hagenow, vice president of Iowans for Tax Relief and an Iowa state legislator, warns that such a change could force families to sell their land.

“When it comes to passing down a family farm to a niece or a nephew, the tax liability can result in selling the whole farm or significant pieces of the farm off simply to pay the tax bill,” Hagenow told The Center Square. “There is no question that an inheritance tax is a significant burden on families' farms and their continuity.”

U.S. Rep. Kevin Brady (R-Texas), the former chair and now minority leader of the House of Representatives Ways and Means Committee, told The Center Square that Biden’s proposal could affect many farms.

“Democrats have pledged to repeal ‘stepped-up basis,’ which is what makes it possible for a family business — like a farm — to pass from one generation to the next without being forced to sell off assets to pay an enormous tax bill to Washington,” Brady said.

Other critics add that the tax reform fits in with the general vision of the Democratic tax plans, with U.S. Rep. Adrian Smith (R-Nebraska) pointing to a major flaw in the proposal.

“Democrats’ proposal to repeal stepped-up basis encapsulates everything wrong with their entire tax agenda,” Smith told The Center Square. “They have proposed doubling the capital gains rate to nearly 40% in the name of so-called ‘fairness,’ rather than prioritizing economic growth or even revenue.”

A group of 13 Democrats also opposed the measure, in a rare bipartisan move against the majority agenda.

An April study by The Family Business Estate Tax Coalition revealed that the proposed changes to the inheritance tax could cost more than 80,000 jobs annually, and reduce the GDP by $10 million each year. The report also pointed out that laborers would share a burden of the cost because it would decrease wages “given that about one-third of the burden of the tax increase is shifted onto labor because the tax-induced reduction in investment makes labor less productive.”

The Republican Senate delegation also sent a letter opposing the tax changes.

“We are concerned that your American Families Plan proposes to make drastic changes to the taxation of capital income, including a longstanding tax provision that prevents family-owned businesses, farms, and ranches from being hit with a crippling tax bill when a family member passes away,” the July 21 letter stated.

Both Sens. Lindsey Graham and Tim Scott of South Carolina signed the letter. Scott said the proposed change was dangerous and poorly planned. It could be especially hard on low-income neighborhoods, he said.

Peeler, meanwhile, said he’s not sure the proposed tax change will affect his operation because it might not be big enough. But he is keeping an eye on what develops in Washington, D.C., keenly aware it could disrupt a family business after more than a century of producing milk for thirsty customers.