By John Stencel
Federal estate tax law has to be among the most misunderstood and exploited laws on the books.
Politicians vowing to repeal federal estate tax say it will devastate small family farms and other businesses. Yet when asked to come up with a single example of a family farm or ranch that has been forced to sell out to pay the tax on their inherited estate, politicians come up short. Buying into this claim are owners of family businesses, including farms and ranches. Many in the latter category are members of Rocky Mountain Farmers Union. I have received letters from several individuals asking why we would support continuing a tax that would take the farm away from their heirs.
There are a lot of very good reasons for family farmers and ranchers—and most Americans, for that matter—to retain a federal estate tax.
Very few farms and ranches will ever be taxed under the federal estate tax law. According to the Congressional Budget Office (CBO), only 65 of the estimated two million U.S. farms and ranches would have been required to pay any estate tax in 2000. This is with an exemption level of $3.5 million. The U.S. House this June voted to increase this exemption to $10 million per estate. Another reason Americans should think twice before climbing on the bandwagon to eliminate estate tax is the federal budget. Permanently repealing the estate tax would cost roughly $1 trillion from 2012 to 2021. This cost includes $808 billion in lost revenue and $222 billion in increased interest payments on the national debt.
Incidentally, the amount often quoted as the “official” ten-year cost estimate is a much lower $387 billion. This lower amount is misleading because it covers an earlier ten-year period, 2007-2016, that captures only the cost of five years of repealed tax.
A third argument against elimination of the estate tax is that it would create a precipitous decline in charitable giving. The same CBO report estimated that if the estate tax had been repealed in 2000, charitable donations would have been reduced by $13 billion to $25 billion in a single year. The amount by which the CBO says charitable donations would fall is more than the total corporate charitable donations, which totaled $11 billion that same year. Rocky Mountain Farmers Union is not opposed to reasonably increasing the exemption level for estate taxation, but we fail to see the value of reducing incentives for charitable giving and taking a major hit in federal budget revenue in order to ensure that a handful of the nation’s richest dynasties remain and grow even wealthier.
Furthermore, agriculture is really tired of politicians continuing to tell the public that family farms and ranches will have to be sold to pay the taxman if the federal estate tax is not repealed.