Farmers & the Estate Tax

Farmers Watch Estate Tax Deadline

By Bill Teeter
This column was published in the Waco Tribune-Herald on Sunday, October 17, 2010

FarmFarmers 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provided for a number of significant tax cuts and decreased estate taxes for large estates until the estate tax was repealed for 2010.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.
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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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