Issue:
More than 2 million farms dot America’s rural landscape. Individuals, family partnerships and family corporations own 98 percent of them. Family farms produce about 86 percent of U.S. agricultural products sold.
Death taxes destroy family-owned farms when the tax, which can be as high as 45 percent, forces farmers to sell land, buildings or equipment needed to operate their businesses. The average estate tax payment in 1999 to 2000 was the equivalent of one-and-a-half to two years of net farm income.
Farm estates face heavier, potentially more disruptive death tax burdens than other estates. Roughly twice the number of farm estates paid federal death taxes compared to other estates in the late 1990s. Moreover, the average farm death tax is also larger than the tax paid by most other estates.
When farms disappear, the rural communities and businesses they support are also adversely impacted. Farmland located close to urban centers is often lost forever to development when death taxes force farm families out of business.
Congress voted to end death taxes in 2001. The law provided immediate relief through rate reduction and an expanded exemption, with complete repeal occurring in 2010. Unfortunately, the bill’s provisions expire in 2011, requiring Congress to pass additional legislation to make death tax elimination permanent.
While estate planning is sometimes effective in protecting farm businesses from over-burdensome death taxes, estate planning tools are costly and consume funds that could be better used by farmers to operate and expand their businesses. Estate planning needs were not reduced by passage of the 2001 tax law.
Legislative Status:
Farm Bureau supports H.R. 2380, introduced by Reps. Hulshof (R-Mo.) and Cramer (D-Ala.) to make death tax repeal permanent when achieved in 2010.
Farm Bureau Policy:
Farm Bureau supports the immediate and permanent elimination of death taxes. Full unlimited stepped-up basis at death must be included in any estate tax reform. Until repeal can be accomplished, Farm Bureau supports increasing the exemption to $10 million per person and indexing the exemption to inflation. The annual federal gift tax exemption should be increased to $20,000 and be indexed for inflation. Heirs should have the choice of valuing land at either fair market value or current use value without limitation, and there should be no estate tax on land that remains in agricultural production. |
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