You’ve probably heard people warning about the “fiscal cliff” looming at the end of the year. But what is it? And why should you care? American Farm Bureau Economist Matt Erickson explains what that precipice means to agriculture and rural America in this report from AFBF’s Miranda McDaniel.
McDaniel: Unless Congress does something before the end of the year, the United States economy will face what’s been dubbed “the fiscal cliff” on January 1st. That’s shorthand for the predicament the nation will face when numerous tax breaks end and automatic spending cuts to more than 1000 government programs will hit all at once. American Farm Bureau Economist Matt Erickson points out that U.S. agriculture would not be immune, especially when it comes to the estate tax.
Erickson: We would see policy revert back to pre-2001 levels and it’s expected that one out of every 10 farm estates would owe an estate tax if this were to occur. The estate tax will go from a $5 million exemption and a 35 percent rate down to a $1 million exemption and a top tax rate of 55 percent.
McDaniel: Erickson says that means it will be a lot harder for farmers and ranchers, who are often in partnership with their parents, to pass their farm down to the next generation. That’s because the value of most farms and ranches is tied up in the land and the equipment.
Erickson: When estate taxes exceed cash and other liquid assets, surviving partners are forced to sell assets not easily converted to cash such as land, buildings or equipment to keep the family farm alive. Now understand, 86 percent of farm assets aren’t easily converted to cash, so there are few options to pay for these estate taxes that farmers and ranchers face in order to transfer from one generation to the next.
McDaniel: The automatic spending cuts would take away $1.2 trillion from federal programs over 9 years and many farm programs would be on the list, which will affect more than just farmers and ranchers.
Erickson: I think the loser of all of this is going to be rural America. When we look at farm bill program spending, it’s not just about crop insurance, it’s not just about commodity programs, but it’s also about rural America, rural development and economic programs, also about food safety programs, agricultural research and Extension.
McDaniel: All good reasons to encourage Congress to back away from that fiscal cliff before the end of the year. Miranda McDaniel, Washington.
Erickson: From agriculture’s perspective, three things that we need to look at: the estate tax policy, capital gains tax policy and farm bill or agricultural program spending in terms of being affected by this fiscal cliff.
McDaniel:In the second extra actuality Erickson says cuts to the farm bill will hurt more than just farmers and ranchers. The cut runs 11 seconds, in 3-2-1.
Erickson: Programs such as agricultural research, Extension, rural development and community-type programs. Those are expected to be cut by 8.2 percent in the first year. Commodity programs will be cut by 7.6 percent.
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