Producers hope for death of the estate tax

Jan 20, 2012

Time is running out for the twoyear extension on the “death tax” relief passed in December of 2010, and National Cattlemen’s Beef Association (NCBA) is laying the groundwork for a full repeal, or at the least making the current package permanent.

NCBA Vice President of Communications Colin Woodall says the number one 2012 topic is the estate tax.

“It’s an issue we’ve been talking about for many, many years,” Woodall said. “A little over a year ago, we were able to get a two-year fix that has helped a lot of producers, but that fix expires the end of this year.”

Congress passed the two-year tax package, known as the Reid- McConnell Tax Package, at the end of the 2010 session, which, in addition to preventing the estate tax from reverting to pre-2001 levels of a 55 percent tax with a $1 million exemption, the tax package addressed a variety of other expiring tax issues that would have affected U.S. cattle producers.

The package extended for two years the Bush tax rates and expanded the estate tax exclusion to $5 million or $10 million per couple.

The tax package included language to reduce the top rate of the estate tax, commonly known as the death tax, to 35 percent, increase the exemption level to $5 million, index exemptions to inflation, and include a stepped-up basis. The law currently allows the deceased spouse’s estate to transfer to the surviving spouse without the complicated rules under previous law.

The tax relief bill included a two-year extension of income tax rates for all tax brackets and all capital gains and dividends, according to NCBA.

Kent Bacus, NCBA manager of legislative affairs, agrees that the looming estate tax deadline is one of the most important issues facing family farmers and ranchers this year.

“The death tax is one of the leading causes of the breakup of multigeneration family farms and ranches. At the time of the death, farming and ranching families are forced to sell off land, farm¬† equipment, parts of the operation or the entire ranch to pay off tax liabilities on assets that have likely been taxed two or three times over the course of a lifetime,” Bacus said.

Congressman Kevin Brady, R-TX, is on top of the issue and has introduced the Death Tax Permanency Repeal Act and has support on his legislation from more than 190 bipartisan members of Congress.

“If Congress fails to act by the end of this year, the estate tax will revert to a staggering $1 million exemption with a 55 percent tax rate,” he added.

With 2012 being an election year, any legislation is a challenge, and Woodall says it will be more difficult to get some kind of action on the death tax, but he is hopeful.

“When you look at what we did last year with the two-year fix, we did that under a Democrat Senate, a Democrat House and the Obama administration,” Woodall said. “Now we have the opportunity to get a little bit more help from the House of Representatives because Republicans are a little bit more tax friendly, tax relief friendly when it comes to this issue.”

While NCBA is busy fighting for the end of the estate tax, some state groups are coming together to remove state level inheritance taxes.

An estate is the total of all possessions and debts, and after funeral and administrative expenses are paid, the federal government gets its current 35 percent. Then, in some states, the inheritance tax occurs after heirs have received the estate. This means that in some cases, an estate is taxed twice, first by the federal estate tax, then by the state inheritance tax.

Ranchers in some states that receive inheritance tax dollars, such as Nebraska, are building up their own campaigns. But on the flip side, the local counties are fighting for their money, and in Nebraska, that accounted to $42 million in funding in 2007-08. Some counties say they will be forced to raise property taxes to make up for the loss if the inheritance tax is eliminated.

“... the estate tax will revert to a staggering $1 million exemption with a 55 percent tax rate.”

“It’s devastating,” said Nebraska Lancaster County board member Deb Schorr, who estimated her county collects about $6 million per year from the tax. “If this goes through, there will be layoffs.”

Rep. Sal Pace, D-CO, has sponsored inheritance tax relief legislation he hopes will protect the long-term viability of Colorado’s agricultural economy.

“The Colorado Agricultural Lands Legacy Act (HB1042) will help secondand third-generation farmers and ranchers stay on the land when a parent or grandparent passes away,” he said.

“Unfortunately, under existing laws, we have policy in place that discourages our agricultural heritage in Colorado. Colorado inheritance tax laws (Title 23.5, Article 39) punish so-called land-rich, but cash-poor, farming and ranching families when a father or mother passes away,” he said.

Pace points out that an entire community suffers with the loss of a community rancher or farmer, and it’s not unusual for secondor third-generation farms to be forced into subdividing or selling to pay off inheritance and estate taxes.

“This policy is forcing younger farmers and ranchers off the land and is discouraging multi-generational agriculture,” he said.

The Colorado inheritance tax is unique in that it is directly tied to the federal rate.

Pace’s act provides for an income tax credit that would offset the state estate taxes on the transfer of the land from one generation to the next.

What exactly counts toward the estate, anyway? Is it just the money stashed under the bed? The bank account? The summer home in Florida? All the things reserved for wealthy people? Yes and much more! Cash, accounts, real estate, stocks and bonds and other busi ness interests, and valuable goods like cars, boats, art pieces or rare collections, along with cattle, horses and farm equipment. An appraiser will determine the fair market value of everything to figure out the taxable value of the estate.

“This outdated tax is not a tax on the wealthy. The wealthy can afford accountants and estate planners to help them evade the tax. The death tax hurts familyowned farms and ranches hardest,” Bacus said. “As Congress begins the second session of the 112th Congress, it’s time, once again, to turn our attention to providing permanent relief from the death tax.” — Traci Eatherton, WLJ Editor