Farmers Watch Estate Tax Deadline
By Bill Teeter
This column was published in the Waco Tribune-Herald on Sunday, October 17, 2010
Farmers are growing apprehensive as New Year’s Day aproaches. At midnight on Jan. 1, 2011, a 10-year-old suspension of 2001
federal estate tax rules runs out.
Congress is discussing its options on the estate
tax, which include a new tax with an increased exemption and lower
percentage rate.
Farmers hope legislators find an answer that
will either eliminate or hold down the estate tax before the deadline.
Family farms are at ground zero of the debate,
farmers and others involved in agriculture said. Such farms would be
greatly affected in the inheritance process after the
death of an owner who has willed the property to descendants or others,
they contend.
Farms often have values in the multi-millions
and descendants would be forced to sell all or part of the property to
take care of the estate tax bill, said Steve Pringle,
legislative director for the Texas Farm Bureau.
“You are left in the position of having to sell
assets to pay the government the tax that’s due,” Pringle said.
Tax law passed under President George W. Bush in
2001 provided for a number of significant tax cuts and decreased estate
taxes for large estates until the estate tax was
repealed for 2010.
Affecting other cuts
The other tax cuts, including reductions for
households making less than $250,000 a year, also were enacted under
Bush
and will expire at year’s end without action by
Congress.
If Congress does not act before the Jan. 1
deadline, the estate tax will return to its 2001 status, with an
exemption
for all estates valued at $1 million or less and a 55
percent tax rate for all value above that, Pringle said.
Congress is looking at options that include an
amendment to tax legislation that would allow for an exemption up to
$3.5 million of value and a 45 percent tax rate for
value above that. Over 10 years, the exemption would gradually increase
to $5 million and the tax rate would drop to 35
percent.
Congress will resume legislative work Nov. 15.
U.S. Rep. Chet Edwards, D-Waco, has been trying to reduce the estate
tax impact, said Josh Taylor, an Edwards aide.
A written statement from Edwards’ office this
week said the congressman has backed permanent repeal of the estate tax,
as well as exclusions for family farms and businesses
with value of as much as $10 million.
Sen. John Cornyn, R-Texas, opposes any estate tax, said Cornyn spokesman Charles Chamberlayne.
Cornyn could still vote in favor of an estate
tax that had bipartisan support and minimized the impact on farms and
businesses, Chamberlayne said.
Closer to home, Justin Young co-owns an eastern
McLennan County farm with his father, Paul Young. Farmers pay taxes
on farm income produced by the land and to tax it upon
an owner’s death is wrong, Justin Young said.
“It really needs to be completely done away
with,” he said. “It’s not a good deal for farmers. We’re taxed on it and
then we die and they turn around and tax us again.”
But support for high estate taxes, Pringle said, can be found among wealthy and low-income groups.
One organization, United for a Fair Economy,
argues that steep taxes on inherited wealth is important for the
economic
health of the country.
Wealth is increasingly concentrated with a tiny
percentage of individuals and estate taxes help combat that
concentration,
said Mazher Ali, the group’s communications director.
The Boston-based organization backs legislation
calling for larger exemptions of $3.5 million for single people and
$7 million for couples, with tax rates set on a
sliding scale from [45] to 55 percent, he said.
Single people’s fortunes of more than $500
million and couples’ fortunes of more than $1 billion would be taxed at
rates
of 65 percent, Ali said.
The taxes are an investment that helps employees
and entrepreneurs, Ali said. They help pay for administrative and
physical
infrastructure, such as the U.S. Patent Office and
highways, so they ease the way for business, he said. [emphasis added]
The National Farmers Union backs estate taxes, but also wants them moderated from what existed in 2001.
The group hopes for a tax rate of 45 percent
that increases on a sliding scale as value of the estate increases. The
tax would have an exemption of $4 million for
individuals and $8 million for couples.
Reducing the deficit
The Farmers Union statement said 1.6 percent of
farms would have been affected by the pre-2010 version of the tax. The
group contends that revenue from estate taxes would
reduce the national deficit, cut the harmful effects of a weak economy
and invest in future prosperity for the middle class.
Bill Reichenstein, a Baylor University professor
of finance, said he doesn’t think estate taxes work well as government
revenue sources.
Wealthy families often legally protect their
money from estate tax collection through special trusts, Reichenstein
said.
The only ones making any money are attorneys who set
up trusts, which typically cost around $30,000 to create, he said.
“What do we get for the estate tax? Is it really
worthwhile when we’re getting next to nothing for it?” he said.
Justin Young’s father, Paul Young, put the worth
of his farm at around $3 million. That means if nothing is done by
Jan. 1 and it were passed on through an inheritance,
taxes of more than $1 million would be placed on the estate.
Paul Young said he doesn’t believe the idea of redistributing wealth by such means works.
“If you took all the wealth in the country and
divided it up evenly between everybody, it would just go back to where
it is today,” he said.
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