WASHINGTON, D.C., November 14, 2007 –
Family farmers and ranchers have long opposed estate taxes because of the
devastating effects the tax can have on their farm and ranch businesses when a
family member dies. That’s why the American Farm Bureau Federation, the
country’s largest organization representing farmers and ranchers who grow every
commodity marketed commercially in this country, supports permanent repeal of
the federal estate tax.
“Farm Bureau members continue to urge lawmakers to provide permanent relief
from the burdens of the federal death tax. The repeal of this tax is Farm
Bureau’s top tax priority, and one that unites farmers and ranchers nationwide,
regardless of the crop or farm animal they produce,” said AFBF President Bob
Stallman.
The death of a farmer or rancher may force his or her children and
grandchildren to liquidate all or part of the family’s property and other assets
to pay the federal death tax, even if the family spent years and thousands of
dollars preparing for that time.
“Farms and ranches are often passed down from one generation to the next,”
said Stallman. “Young farmers and ranchers struggle enough, given current
conditions, to enter the business on their own. The continued presence of the
federal estate tax remains a significant barrier to many family farm succession
plans.”
While other small businesses and other sectors of the U.S. economy have
similar objections to estate taxes, farmers and ranchers are particularly
sensitive to this tax for several reasons: First, farms typically require
substantially more in capital assets to generate $1 in income than other
businesses; second, in addition to carrying a larger capital burden while
operating and a high estate tax burden in death, the typical farm has more
capital tied up in fixed assets that are difficult to liquidate—as a result,
roughly twice the number of farm estates paid federal estate taxes compared to
estates generally in the late 1990s; and third, the average farm estate tax is
larger than the tax paid by most other estates.
Two Farm Bureau members are excellent examples of what happens when families
are faced with large federal estate taxes. Hannah Tangeman-Cheney, a rancher in
California, thought her sister and she had taken all the necessary steps to
ensure their ranch would remain in their family as their mother aged. However,
when her mother died in 1990, Hannah and her sister were confronted with federal
estate taxes much larger than what they had planned for with care. They
ultimately decided they had no choice but to cut and sell more than 13,000 trees
to raise the money they needed to pay the IRS. They would not have taken this
action had they not faced federal estate taxes.
Michigan’s Brigette Leach still feels the financial effects that stem from
paying $552,000 in estate taxes several years ago. Like Hannah Tangeman-Cheney,
Brigette and her family worked with professionals to plan for the day when their
diversified farm would be passed down. The Leaches spent a considerable sum of
money and much time crafting a plan to ensure they would not be trapped in a web
of estate taxes, yet those plans were not enough after the last grandparent
passed away. Their land unexpectedly doubled in value over the years, forcing
the family to pay far more than they had planned for. As a result of the money
paid to the IRS, the Leaches have not been able to expand their farm business
the way they wanted to. The finances of this family farm are more vulnerable now
than before as a result of the federal estate tax burden.
The fact is, the estate taxes due on a moderately sized farm could total
around $300,000 in 2011, the equivalent of more than 2.5 years of farm returns
from both income and asset appreciation. For a larger farm, the tax liability
could be about $1.5 million, the equivalent of six to seven years of income and
asset appreciation. Further, average values of land—generally farmers’ and
ranchers’ largest asset—appreciated by 70 percent nationwide from 2003 to
2007.
“The federal death tax has long out-lived its purpose,” Stallman said.
“Initiated in 1916 to raise revenue for a war, it’s now embedded in the U.S. tax
code, even though it raises less than 2 percent of total federal tax
receipts.”
AFBF remains committed to the permanent repeal of estate taxes. Until
permanent repeal is achieved, AFBF supports increasing the exemption to $10
million a person and indexing it to inflation. Full stepped-up basis also must
be maintained, the gift-tax exemption should be increased to $20,000 and
indexed, and there should be no limits on the amount that property values can be
adjusted under IRS code section 2032A special use valuation.
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Contacts: Anne Keller Cyndie
Sirekis
(202)
406-3659 (202)
406-3649
annek@fb.org cyndies@fb.org
