Will Congress Hit the Books on Estate Taxes?

Will Congress Hit the Books on Estate Taxes?
By Dal Grooms
National Farm Bureau Federation

Members of Congress and school children have wrapped up their summer recesses. Students have returned to their schools, giddy with tales of their summer adventures and with glowing anticipation for a new school year. Chances are good that members of Congress are a bit more somber on their return to Capitol Hill.

During the August recess, many of the country’s farmers and ranchers reminded members of Congress there’s a lot of work left to do in the weeks between now and Oct. 8. One of the issues that needs and deserves to be shored up quickly is settling the question of the estate tax exemption.

On Jan. 1 of this year, the estate tax was repealed. Farmers and ranchers liked that, and would like to see it continue. Most farms and ranches are family-owned, with a good share of the farmland owned by the eldest family member. Under the repeal, when that family member dies, those farm families can this year address the personal loss without facing a great financial loss, too.

The concern, though, is that the repeal only lasts until the end of this year. Then it reverts to a top tax rate of 55 percent after the first $1 million of the estate’s value, and that’s before a state adds its own estate tax, if it has one, on the estate value. That kind of cost on a farm, ranch or any small business can be enough to force downsizing, as chunks are sold off to meet the tax burden. In some cases that could lead to a family farm or business shrinking to the level of economic unsustainability.

On average, farm and ranch estates have 84 percent of their assets tied up in real estate. As has been said on numerous occasions, farmers are asset rich and cash poor. If land must be sold to pay the tax bill, it reduces the family’s chances for keeping the business operating since fewer acres usually means less income. In the late 1990s, it took medium-sized farm operations two-and-a-half years to pay off estate taxes, which at that time were levied at the same 55 percent rate we would see again if Congress does not take action this year.

In cases where the land supports more than one family household, it usually means that at least one family has to leave the business in order for the rest to keep farming or ranching. Generally, that doesn’t lead to a happy family gathering at Thanksgiving.

While farmers and ranchers would prefer the permanent elimination of estate taxes, there is writing on the wall that some estate tax will be in force on Jan. 1, 2011.

Members of Congress must act quickly and with clear vision to demonstrate they listened during their recess. If they did, they will pass a bill that includes an exemption large enough to cover most farms and ranches, and they will make sure the exemption is indexed to inflation. The bell has rung. Now it’s time to sharpen the pencils and hit the books to hammer out estate tax reform that works for America’s farm and ranch families.

Dal Grooms, a regular contributor to Focus on Agriculture, is a native of the Midwest, where she writes about rural and agricultural issues.

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