Estate taxes not a threat to most ag operations

By Marilyn Bay Wentz

Elimination of estate taxes is a priority for the Bush administration. On the surface, the policy appears also to be a boon for cash-poor, land-rich farmers and ranchers. However, a closer examination of the facts shows this is not the case.

According to data from an Internal Revenue Service analysis of 1999 tax returns, almost no working farmers would owe a cent in estate taxes. A recent Gallup poll of the general public revealed that 17 percent believe they will owe estate taxes. In fact, only the richest 2 percent of Americans will.

The operative word here is “taxable,” says RMFU attorney Chuck Holum, who agrees that good advanced planning greatly reduces and usually eliminates tax liabilities for all but the largest estates.

Why then, are family farmers put forth as the poster children for repealing estate taxes? President George Bush recently vowed that to keep family farms in the family, “We are going to get rid of the death tax.”

Perhaps such scenarios have occurred in the past, particularly given different estate tax and inheritance tax laws at the state level. In addition, heirs may elect to sell a farm or business, rather than to deal with the emotional and logistical difficulties associated with continuing to operate a business. Assuming taxes would be one of those difficulties, heirs may make inaccurate comments about having to sell the property to pay estate taxes.

Regardless of the reasons for the inaccurate portrayal, even the American Farm Bureau Federation—one of the leading advocates for elimination of estate taxes—when asked by the New York Times was unable to come up with a single case of a farm being lost because of the tax liability.

The same article quoted Neil Harl, an Iowa State University economist whose tax advice has made him a household name with Midwest farmers. He has searched for a farm lost due to estate taxes but never found one. “It’s a myth,” Harl said.

Longtime RMFU member Jim Brophy of Yuma, Colo., said about federal estate taxes: “It is the only thing that breaks up large estates. If it were not for the estate tax, the wealthiest estates would just become larger and larger.”

He refutes the common argument against estates taxes that they constitute double taxation—once when the income is earned and a second time when it is passed on to heirs. He points out that taxes for appreciation of assets have never been paid.

Currently, federal law allows for $675,000 per person or $1.35 million per couple to be excluded before estate taxes are assessed. The exclusion is slated to increase incrementally, topping out at $1 million per person or $2 million per couple by 2006.

“As a family farm organization, we need to support sharing the wealth,” Brophy said. “As far as the family farm is concerned, there is nothing wrong with this policy.”

Kansas Farmers Union agrees with Brophy. The organization recently called on the U.S. Congress to reject elimination of estate taxes.

“The foundation of America’s family farm structure is individual land ownership,” said the Kansas Farmers Union board. “By exempting huge farms of any inheritance tax, we effectively eliminate opportunities for beginning farmers and rural businesses to purchase and own land. This unchecked acceleration of land ownership by the wealthy could lead to a monopolistic food system which would starve our nation’s economic system, short change consumers and encourage environmental abuse.”

National Farmers Union supports immediately increasing the estate tax exemption to cover estates valued at $4 million per person or $8 million per couple, saying this level would protect the estates of virtually every family farm and small business.