Former Democratic Senator Heidi Heitkamp, one of the party’s leading voices on tax policy, said President Joe Biden’s proposal to tax appreciated assets upon death would hurt family farms and family-owned businesses.

“I’m trying to sound the alarm, both economically and politically, for Democrats that this is not a path to walk,” she said in an interview on “Squawk Box.” “The disruption that it would create for small family business and farmers and family assets is not worth the pain.”

Biden has proposed taxing appreciated assets at death for income over $1 million. He has also proposed increasing the capital gains tax to ordinary income rates. The plan is up for debate as part of the reconciliation bill in Congress. Under his proposal, individuals who inherit private businesses or property worth millions could face an immediate capital gains tax of more than 40%, even if they don’t sell.

Currently, under what’s called “step-up in basis,” individuals can inherit appreciated assets without paying a tax and the value is “stepped up” to current valuations, effectively erasing the decedent’s gain for tax purposes. Biden and many progressive Democrats say the step-up amounts to a giant loophole for the rich, allowing millionaires and billionaires to pass companies and assets to their families for generations without ever paying a capital gains tax.

Heitkamp, who served in the Senate until 2019, chairs a new nonprofit called Save America’s Family Enterprises (SAFE), which is campaigning against the proposal and running ads that feature family businesses. Neither Heitkamp nor the group would disclose its donors.

Heitkamp said she favors raising the capital gains tax to ordinary income rates, since “unearned income should not be taxed at a rate that’s so much lower than earned income.” She also favors eliminating the step-up in basis, so assets would not get “stepped up” to a new valuation when they’re inherited, but would retain their original basis when they are sold.

Her opposition to Biden’s plan is the immediate tax upon death, she said. Families should only owe a capital gains tax when the asset is sold and the gain is realized, she explained.

“The piece of this that I find most troubling is that all of the sudden, for the first time, we are going to be taxing unrealized capital gains,” she said. “My position has always been you ought to realize the capital gain.”

She gave an example of a truck driver named Sam, whose family has owned a lake cabin in Minnesota for generations and has seen its value skyrocket over time with gentrification. Next door, a wealthy buyer buys a piece of land for $2 million and builds a $2 million mansion. If both die, the wealthy owner could pass his property to his family and pay no tax, since they would have a high, current basis. Sam’s family, however, would potentially owe millions in taxes when he died, even if the family doesn’t sell the property.

She said the same would apply to family-owned businesses and farms.

“Family assets are about more than a balance sheet,” she said. “Family assets are about where we work, where we live and where we recreate. When you look at taxing unrealized capital gains, what you are doing is opening up a Pandora’s box that won’t be closed for a long, long time.”

The White House said family farms and family-owned businesses would be exempt from the tax until the assets are sold. Families will also have up to 15 years to pay the tax to help ease the pressure on them to sell immediately. A White House analysis stated that only the richest 0.3% of taxpayers would owe the tax, since couples can get exemptions of up to $2.5 million if it includes real estate.

Howard Gleckman, a senior fellow in the Urban-Brookings Tax Policy Center at the Urban Institute, said that Biden’s plan to tax appreciated assets upon death is a key part of the overall plan to raise capital gains rates to ordinary income rates. Without taxing appreciated assets at death, he said, wealthy families would simply hold on to assets indefinitely to avoid the higher capital gains tax.

“Biden’s proposal to raise capital gains tax rates to ordinary income rates would raise very little revenue and have troublesome economic effects without some form of realization at death,” he said. “Even with step-up, tax would not be paid until the heirs sell, which could be decades after the original investor dies. That lock-in could leave investments stuck in poorly performing assets for generations.”