Farm groups and lawmakers last week expressed alarm at a proposal by several U.S. Senate Democrats to raise money for infrastructure improvements and other government programs by taxing unrealized capital gains at death and eliminating stepped-up basis provisions in the nation’s tax code. 

The proposed changes would have a devastating effect on family farms by slamming them with steep tax bills after a death, the opponents said. Those additional taxes could force liquidations of family operations that have been built up over generations and lead to further consolidation in American...