Estate Tax Increase Jeopardizes Future of Family Farms

By Jon Scholl

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Congress is now convened in a lame duck session, dealing with a host of issues that were postponed or bypassed in regular order earlier this year.  The farm bill is one of them.  So is essentially two years' worth of federal budgeting.  This perpetual postponement comes at a steep price.

Congress's failure to reach a $1.2 trillion deficit-reduction package last year leaves in place the automatic across-the-board spending cuts known as a sequester.  Those cuts, like the sword of Damocles, hang over all federal programs - good and bad alike - unless Congress can devise a more sensible budget plan that funds priority programs and weeds out unnecessary and wasteful spending.  Total cuts to federal spending in 2013 would be $110 billion.

Moreover, a number of tax provisions expire at the end of this year.  These expiring tax provisions are largely the culmination of temporary tax and budget bills that have deferred rather than dealt with policy differences.  The tax bill on January 1, 2013 will be $514 billion higher because of these expiring provisions.

Taken together, the sequester and the expiring tax provisions, result in a fiscal cliff of more than $600 billion.  The Congressional Budget office predicts that our nation's economy could not withstand such a fall.  Going over the cliff would leave our economy in recession.

There are likely to be lasting consequences, especially for our nation's farm familiesOne of the tax provisions to be implemented in 2013 is a stiffer estate tax, or “death tax,” as it has come to be known.  Few taxes are more unpopular.  A 2009 Tax Foundation poll found that most taxpayers consider the estate tax the most unfair of all federal taxes. 

If Congress does not steer our economy away from the fiscal cliff, estate tax rates would increase to 55 percent from the current 35 percent, and the exclusion would decrease from $5 million down to $1 million.  This jeopardizes many family farms. 

Consider the nature of farming and ranching.  It is a capital-intensive business that is relatively low margin with illiquid assets such as land and barns.  A USDA 2010 economic survey revealed that 88 percent of all farm assets were illiquid.  Moreover, most farms and ranches are family owned, and thus subject to estate taxes. 

Family farms and ranches are not only small businesses. Family farmers are also the caretakers of one of our nation's most important natural resources - farmland, soil and the capacity to grow food, fiber and fuel.  Excessive estate tax bills almost assure the break-up of multi-generational family farms, and the eventual loss of valuable farmland to development.

If Congress allows the estate tax to increase as scheduled, it could cost America's farmers and ranchers more than $3 billion in 2013 alone.  Over the long term, it will cost many farmers their livelihoods, too.

The preferable policy options from American Farmland Trust's point of view would be for estate taxes to exempt farms remaining in agricultural production or to exclude any development potential in appraising the land's value if the land is intended to stay in agricultural production. That way, the estate would be taxed based only on the production value it holds - a more fair measure, and a much sounder conservation policy.

At the minimum, maintaining the current estate tax rate of 35 percent with an exclusion of $5 million is essential.  That is the message that American Farmland Trust recently delivered to Congress in concert with 35 other groups on behalf of American agriculture via a letter to each and every Member of Congress.  At stake is the protection of America's family farmers and ranchers and preserving the land that feeds and clothes the world.     

About the author: Jon Scholl became the President of American Farmland Trust in July 2008, after serving as Counselor to the Administrator for Agricultural Policy at the U.S. Environmental Protection Agency (U.S. EPA) since 2004. Prior to that, Scholl served the Illinois Farm Bureau for 25 years. He is a partner in a family farm in McLean County, Illinois.

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