New transfer tax could cost ranchers $1.4M on average

By National Cattlemen’s Beef Association,

The Texas A&M Agricultural and Food Policy Center released a report quantifying the negative impact imposing new transfer taxes will have on U.S. cattle and beef producers. The conclusions of the study support NCBA’s position on tax policy for rural America that creates a viable business climate for family-owned businesses, including farms and ranches.

This study, requested by Ranking Member of the Senate Committee on Agriculture, Nutrition, and Forestry John Boozman and Ranking Member of the House Committee on Agriculture GT Thompson, reveals the significant impact two proposed bills would have on long-standing provisions in the tax code. The STEP Act would eliminate stepped-up basis at the time of death of an owner. The 99.5% Act would, most notably, decrease the estate tax exemption from the current $11.7 million per individual and $23.4 million per couple to $3.5 million per individual and $7 million per couple. The study proves that, because of their unique structure, family-owned businesses are particularly susceptible to changes in the tax code. In fact, if both bills were implemented 98% of the representative farms used in the study would have seen an average tax increase of $1.4 million.

“This study supports what NCBA has long advocated for—tax policy for rural America that encourages generational transfer, instead of acting as a barrier for the next generation of agriculturists to contribute to a safe, reliable and abundant food supply chain. From the results of the study, it is clear that these proposed bills would have significant and, in some cases, devastating effects on family-owned businesses,” said Senior Executive Director of Government Affairs Danielle Beck. “We appreciate Senator Boozman and Representative Thompson taking action to preserve sound tax policies and ultimately supporting the businesses that are the backbone of rural economies across the United States.”

With more than 40% of farmland expected to transition in the next two decades, Congress must prioritize policies that support land transfers to the next generation of farmers and ranchers. When doing this, it is imperative that lawmakers take into consideration the complexity of the implications of taxes on family-owned businesses. In the case of farms and ranches, the United States Department of Agriculture (USDA) reports that 91% of assets are illiquid. This means that to pay off tax liabilities at the time of an owner’s death, surviving family members may be forced to sell of land, farm equipment and sometimes parts of the operation. If farmland is lost, and therefore transitioned out of production, the environmental benefits that come along with the deliberate stewardship done by farmers and ranchers will be lost as well.

“Farmers and ranchers conserve nearly 900 million acres of crop and rangeland in the United States. The vital work done by cattle and beef producers to deliver an array of environmental benefits such as restoring wildlife habitat, sequestering carbon, and protecting and improving water quality, depends on their ability to stay in business. Federal tax policy that facilitates generational transfer and allows the next generation of producers to build upon the environmental and economic benefits of today’s farmers and ranchers is just as important for fifth-generation producers as it is for first-generation, veteran, and minority community producers who are breaking into and establishing a foothold in the industry,” said Beck.

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