Ranchers urge Congress to pass permanent estate tax relief
Thirty groups have joined together to push Congress to provide a much needed permanent relief from the estate tax.
The groups, including National Cattlemen’s Beef Association (NCBA), are hoping Congress will at least extend the current relief until permanent repeal is on the table. The current estate tax relief is set at $5 million per individual and $10 million per couple at a rate of 35 percent. Current estate tax relief is set to expire at the end of 2012 with exemption levels dropping to $1 million per individual and the tax rate increasing to 55 percent.
“If Congress allows current estate tax relief to expire it will have a devastating impact on the cattle industry. America’s farmers and ranchers are small business owners who cannot afford to foot the bill for government inaction,” said NCBA President J.D. Alexander.
NCBA Associate Director of Legislative Affairs Kent Bacus says the issue rises to the top policy issue for family-owned small businesses, such as farms and ranches, because of the burden it places on families hoping to pass their business on to the next generation.
“The estate tax is a prime example of bad tax policy and Congress should repeal. Unfortunately, we hear from some elected leaders who claim to be defenders of the little guy. Meanwhile, they avoid opportunities to kill the death tax,” said Bacus. “In order to sustain these family businesses, the future must contain a level of certainty. The next generation cannot possibly afford to take over the family business if they are taxed to death.”
Some Congress members have joined in the “death tax” fight.
Congresswoman Shelley Berkley, D-NV, introduced legislation making the estate tax relief in the 2010 Tax Act permanent, solidifying the lower 35 percent rate, higher $5 million exemption indexed for inflation, reunification and spousal portability.
Congressman Kevin Brady’s, R-TX, estate tax repeal bill is now a little more bipartisan. Congressman Sanford Bishop, D-GA, a member of the Congressional Black Caucus, be came the third Democrat to cosponsor the bill, joining Congressmen Mike Ross, D-AR, and Dan Boren, D- OK. Brady’s legislation would essentially provide full and permanent relief from the tax.
Sen. John Thune of South Dakota also introduced a companion bill, the Death Tax Repeal Permanency Act of 2012. They also released an updated study proving how harmful and ineffective the death tax is from the Joint Economic Committee. Bacus said the study’s key points are the estate tax continues to hurt the economy, fails as a revenue generator, creates a barrier to economic equality, and could increase revenue if it were abolished.
“It’s important that we move out of the lame duck without raising the death tax,” said Brady. “That would be devastating and it is our highest priority to make sure that it doesn’t move to that confiscatory level.”
Brady, a senior member of the House Ways and Means Committee, said he would like to see a vote on the House floor on his bill during the lame-duck session.
His first priority, though, is that the tax doesn’t go up.
“If there’s an extension of current law, we want them to include the death tax at its current level,” Brady said.
But there is support for expiration of the estate tax. A March 2012 letter was sent to lawmakers asking Congress to either let the current estate tax expire or pass legislation sponsored by Rep. Jim McDermott, D-WA, that would index for inflation at a $1 million exemption level.
Senate Majority Leader Harry Reid, D-NV, led efforts to secure passage of a tax package that extends tax rates for family income up to $250,000 for a year, raises the top rate on capital gains and dividends, as well as continue several targeted tax provisions. The Reid package, according to Bacus, does not address the estate tax and would leave small business owners and ranchers vulnerable to a reversion of the pre-2001 levels of a 55 percent tax on estates worth $1 million or more. Bacus said this is unacceptable.
“Most farmers and ranchers would trip the $1 million threshold on land values alone. Land values are through the roof and all of the assets it takes to operate a farm or ranch, including livestock, farm machinery and more, would hit the majority of farm and ranch families throughout the country,” said Bacus. “This is not a tax on the wealthy. We must find permanent relief or risk taking land out of production agriculture, threatening our ability to provide food for U.S. consumers and abroad.”
The Joint Economic Committee (JEC) issued a report that detailed the financial harm posed by estate taxes on family businesses. JEC, a bipartisan committee composed of members from the House and Senate, issued its report, “Costs and Consequences of the Federal Estate Tax,” in July.
According to the report, there are extensive costs associated with the estate tax in terms of the dissolution of family businesses, slower growth of capital stock, and a loss of output and income over time.
“With the average age of a farmer being 58 years old, the estate tax creates even a steeper barrier for young farmers and ranchers to take up the profession at a time when farming is already difficult to enter,” said American Farm Bureau Federation President Bob Stallman.
The report also found that the estate tax impedes economic growth because it discourages savings and capital accumulation. Gaining access to capital is vital to farms and rural economies. In 2010, land accounted for approximately 85 percent of total farm assets. Currently, in some parts of the country, land values have increased well over $10,000 per acre. Further, land values from 2010 to 2011 increased on average 25 percent and have greatly expanded the number of farms and ranches that now top the estate tax $5 million exemption.
Especially holding true for farmers and ranchers, the report also found that the estate tax is a significant hindrance to entrepreneurial activity since many family businesses lack sufficient liquid assets to pay estate tax liabilities. In 2010, liquid assets in agriculture comprised only 12 percent of total assets whereas hard assets (including land and buildings), comprised 88 percent of total assets. Alone, real estate accounted for approximately 85 percent of farm assets in 2010.
“When estate taxes on an agricultural business exceed cash and other liquid assets, surviving family partners are forced to sell illiquid assets, such as land, buildings or equipment to keep their businesses operating,” said Stallman. “With 88 percent of farm and ranch assets illiquid, producers have few options when it comes to generating cash to pay the estate tax.” — Traci Eatherton, WLJ Editor