AFBF: Report Shows Real Harm of Estate Taxes

The American Farm Bureau Federation recently said it concurs with a Joint Economic Committee report that details the financial harm posed by estate taxes on family businesses. The JEC, a bipartisan committee composed of members from the House and Senate, issued its report, “Costs and Consequences of the Federal Estate Tax,” earlier today.

According to the report, there are extensive costs associated with the estate tax in terms of the dissolution of family businesses, slower growth of capital stock and a loss of output and income over time. This can be particularly hard on farm families, who own 98 percent of the nation’s 2.2 million farms.

“With the average age of a farmer being 58 years old, the estate tax creates even a steeper barrier for young farmers and ranchers to take up the profession at a time when farming is already difficult to enter,” said AFBF President Bob Stallman.

The report also found that the estate tax impedes economic growth because it discourages savings and capital accumulation. Gaining access to capital is vital to farms and rural economies. In 2010, land accounted for approximately 85 percent of total farm assets. Currently, in some parts of the country, land values have increased well over $10,000 per acre. Further, land values from 2010 to 2011 increased on average 25 percent and have greatly expanded the number of farms and ranches that now top the estate tax $5 million exemption.

Especially holding true for farmers and ranchers, the report also found that the estate tax is a significant hindrance to entrepreneurial activity since many family businesses lack sufficient liquid assets to pay estate tax liabilities. In 2010, liquid assets in agriculture comprised only 12 percent of total assets whereas hard assets (including land and buildings) comprised 88 percent of total assets. Alone, real estate accounted for approximately 85 percent of farm assets in 2010.

“When estate taxes on an agricultural business exceed cash and other liquid assets, surviving family partners are forced to sell illiquid assets, such as land, buildings or equipment to keep their businesses operating,” said Stallman. “With 88 percent of farm and ranch assets illiquid, producers have few options when it comes to generating cash to pay the estate tax.”

AFBF Backs Senate and House Bills Reforming Estate Tax; Tell VFB your story in the comments!

The American Farm Bureau Federation has endorsed Senate legislation that would help protect America’s farm and ranch families from potentially crippling blows of the federal estate tax following a farm owner’s death.

The Senate bill, the Death Tax Repeal Permanency Act of 2012 (S. 2242), was introduced by Sen. John Thune (R-S.D.). The bill is similar to another Farm Bureau-supported, H.R. 1259, introduced in the House by Rep. Kevin Brady (R-Texas). The House bill now has more than 200 co-sponsors.

 In a letter to Thune and other sponsors, AFBF President Bob Stallman stated that estate taxes continue to be a problem for the nation’s farmers and ranchers. Individuals, family partnerships and family corporations own 98 percent of the nation’s 2 million agricultural operations. When estate taxes on an agricultural business exceed cash and other liquid assets, the tax can cripple a family-owned farm or ranch and hurt the rural communities and businesses that agriculture supports, according to AFBF.

The Unemployment Insurance Reauthorization and Job Creation Act of 2010 set the estate tax exemption at $5 million per person, with a top tax rate of 35 percent for 2011 and 2012. That legislation also put in place a new provision for 2011 and 2012 that allows the unused portion of a spouse’s exemption to be used by a surviving spouse, and it permanently reinstates stepped-up basis in regard to tax treatment. Legislation is necessary because without congressional action, in 2013, the estate tax exemption will shrink to $1 million per person with no spousal transfer and the top rate will increase to 55 percent.