A Tax Plan to Destroy Farms and Ranches

Max Baucus

...To pay for Covid-19 recovery and rebuilding efforts, Congress is considering a provision that would hit family businesses with taxes they can’t pay. This proposal would eliminate the step-up in basis at death on capital gains of more than $1 million and $2.5 million for couples. That means family businesses would have to pay taxes on their appreciated value even if that value is still locked up in the business. Eliminating the step-up would force family businesses and ranchers to liquidate when an owner dies and to lay off employees while bringing in little revenue for Uncle Sam.

Lawmakers should know this is a mistake. In 1976 and again in 2010, Congress passed legislation eliminating the step-up in basis. Both times it had to be reinstated because of the devastating effects on family-owned businesses. Proponents try to temper criticism by suggesting carve-outs, but we’ve learned from experience that they are ineffective. Congress tried that in 1997 for inherited family-held businesses but the exceptions were too narrow to benefit anyone, and widening them would have been tantamount to repealing the estate tax altogether.

I’m not the only Democrat who feels this way. More than a dozen Democratic representatives from farm districts, led by Rep. Cindy Axne (D., Iowa), sent a letter in May to Speaker Nancy Pelosi, Majority Leader Steny Hoyer and Ways and Means Chairman Richard Neal urging them to reconsider any plans to eliminate the step-up in basis because it will hurt family businesses.

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AFBF: Estate Taxes Are A Threat to Family Farms

 ...Farms with assets above the estate tax exemption often must liquidate some of those assets to meet estate tax obligations, which can reach as high as 40% of the taxable amount. Estate taxes are a particular concern for farmers and ranchers because they are based on the market value of the asset; given the consistent appreciation in agricultural land and assets, this can be very high for farm and ranch families. A limitation on the estate tax exemption means that each year, fewer and fewer farm families will be protected from the estate tax– a clear risk to the continuity of family farms.

...During 2020, the national average value of farm real estate, including all land and buildings on farms, was $3,160 per acre, unchanged from 2019’s record high. Based on this, it would take approximately 3,700 acres to reach the current $11.58 million estate tax exemption.

Importantly, over the last decade, the value of farmland in the U.S. has increased by nearly 50%, or $1,010 per acre. Given that increase, it would take 32% fewer acres to reach the estate tax exemption level in 2020 than it would have in 2010.

Based on the most recent Census of Agriculture, more than 74,000 family farmers were operating 2,000 or more acres in 2017, suggesting that approximately 3.6% of the more than 2 million family farms could potentially have farm assets that exceed the estate tax exemption. These 74,000 farms operate more than 449 million acres, indicating that nearly 50% of the farmland in the U.S. could face increased liquidation pressure upon the transfer of assets at death.

Realizing that on average 15% of total farm assets come from assets other than real estate such as farm machinery or livestock, these numbers actually understate the number of family farms that could have assets that exceed the estate tax exemption. If the current $11.5 million estate tax exemption level is not made permanent, in 2026 the estate exemption would fall to an inflation-adjusted $5 million. In 2020 dollars, the $5 million exemption level would be approximately $5.8 million, pushing the threshold for triggering the estate tax down to approximately 1,800 acres. When evaluating this threshold on a state-by-state level, more than 156,000 farms, or nearly 8% of farms would be impacted. These farms account for more than 582 million acres, indicating that as much as 65% of farmland could be operated by farms above the inflation-adjusted $5 million estate exemption level.

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Editorial: Why the death tax needs to die

According to the old saying, only death and taxes are certain in life.
If Republicans have their way (hopefully), at least one of these certainties can be eliminated.
Since there is nothing that can be done about mortality, that leaves taxes - or more specifically the so-called “death tax.”
U.S. Rep. Mac Thornberry, R-Clarendon and chairman of the House Armed Services Committee, is once again helping lead the charge with legislation to repeal the federal inheritance tax, also known as the “death tax.”
Thornberry, who visited Tuesday with the Amarillo Globe-News editorial board, is optimistic that - finally - Congress can put the “death tax” out of taxpayer misery.
“We passed a similar bill in the last Congress in the House. It was the first time it had been voted on straight-up in quite awhile,” Thornberry said. “Tax reform will be a major focus for later this year. One of the proposals is to do away with the death tax, and to streamline and simplify the tax code.
“One element of that will, could (and) should be to get rid of the death tax completely forever.”
...When it comes to the federal government and taxpayer money, anyone want to bet against Uncle Sam “adjusting” the death tax threshold to fatten his wallet? And then there are the 18 states, along with Washington, D.C., that have their own versions of a death tax.
The bottom line is it is just not fair for the federal government to impose taxes throughout a taxpayer’s lifetime, and then also slap even more taxes on this same individual’s family upon his or her death.
It is time for the “death tax” to meet its demise.

Is the estate tax killing small farms and businesses?

Efforts to repeal the estate tax (a.k.a. “death tax”) occur on an annual basis, usually around tax filing season. One year, in 2010, the estate tax actually was repealed — but then it came back again the next year. (It turned out that the taxes due at death were even more onerous for most people than with the estate tax in place.) In the meantime, Congress has increasingly cut the tax rate and boosted the exemptions, making it less and less likely that Americans would face the tax. In 2001, for instance, $675,000 ($1.35 million for couples) of an estate was exempted from the tax before a top rate of 55 percent tax rate kicked in. Now, the exemption is $5.43 million (nearly $11 million for couples) and tax rate is 40 percent on any amount after that. So the effective rate for most estates facing a tax is significantly lower than 40 percent. These exemptions have made a huge difference in terms of who gets affected. In 2000, 2 percent of estates had to pay taxes; in 2013, just 0.18 percent had to pay taxes, according to the Joint Committee on Taxation. Put another way, there were 52,000 taxable estate tax returns filed in 2000 and just 4,687 in 2013. (In 1977, by contrast, 139,000 estates had to pay tax—nearly 8 percent of deaths.) Ironically, the relatively little revenue raised by the estate tax (about $20 billion a year) has given opponents a new reason to eliminate the tax—because killing it would not make much of an impact on the budget. So, here we are, with objections still raised about the impact on farms and small businesses. As in the past, the concerns are bipartisan, with some Democrats joining the anti-estate-tax bandwagon. What does the data show?...more

The article is a back and forth on who pays and who doesn't.  In the end, the author concludes it's "a philosophical issue."  That is amply demonstrated by the farmer from Tennessee and the professor from Iowa State.  It is made clear the large increase in land values on the Tennessee farm are because of urbanization, otherwise, why would the farm owner say he wants to "maintain the farm as an example of modern agriculture within an urbanized area."?  The ag professor says this "makes no sense", that the average value of farmland in Iowa is much lower.  He then goes on to say the "super wealthy" are accumulating farm assets and are behind the "push" to kill the inheritance tax.  You can hear the envy spewing from his lips.

Not discussed in the article is the fairness of the death tax.  Why should a person pay income taxes all their life, pay property taxes on assets every year and so on, and then have to pay another tax on what is left over?  Its a tax on what's left over after taxes.

All this reminds me of my first year on the D.C. staff of Senator Domenici.  It was my first trip back to the state with him and we were hitting many of the smaller towns and rural areas.  This particular late afternoon we landed the small plane, if memory serves me right, in Fort Sumner, NM.  The pilot told us to be sure and get back before dark because there were no lights at the airport.  Domenici gave his speech and then stayed to answer questions.  

We were running late and it was my job to run interference and get us out of there.  I just about had him out the door when this physically impressive rancher grabbed me by the arm and demanded "just a minute" with the Senator.  We stopped and the rancher explained his father had passed away and now they were being forced to sell most of the ranch just to pay the inheritance taxes.  His eyes teared up when he said he had fought for his country in Korea, and now that same country was taking his family ranch away.  That did a much better job of convincing Domenici the death tax needed revision than all the issue briefs I had prepared.

Problem was, now it was dark.  The call went out, and the good folks lined their cars and pickups on either side of the runway with their headlights on, and that's how we took off that night.  I'll always remember that rancher, and those headlights.