Congress Urged to Remedy Federal Death Tax Now

WASHINGTON, D.C., November 14, 2007 – Family farmers and ranchers have long opposed estate taxes because of the devastating effects the tax can have on their farm and ranch businesses when a family member dies. That’s why the American Farm Bureau Federation, the country’s largest organization representing farmers and ranchers who grow every commodity marketed commercially in this country, supports permanent repeal of the federal estate tax.

“Farm Bureau members continue to urge lawmakers to provide permanent relief from the burdens of the federal death tax. The repeal of this tax is Farm Bureau’s top tax priority, and one that unites farmers and ranchers nationwide, regardless of the crop or farm animal they produce,” said AFBF President Bob Stallman.

The death of a farmer or rancher may force his or her children and grandchildren to liquidate all or part of the family’s property and other assets to pay the federal death tax, even if the family spent years and thousands of dollars preparing for that time.

“Farms and ranches are often passed down from one generation to the next,” said Stallman. “Young farmers and ranchers struggle enough, given current conditions, to enter the business on their own. The continued presence of the federal estate tax remains a significant barrier to many family farm succession plans.”

While other small businesses and other sectors of the U.S. economy have similar objections to estate taxes, farmers and ranchers are particularly sensitive to this tax for several reasons: First, farms typically require substantially more in capital assets to generate $1 in income than other businesses; second, in addition to carrying a larger capital burden while operating and a high estate tax burden in death, the typical farm has more capital tied up in fixed assets that are difficult to liquidate—as a result, roughly twice the number of farm estates paid federal estate taxes compared to estates generally in the late 1990s; and third, the average farm estate tax is larger than the tax paid by most other estates.

Two Farm Bureau members are excellent examples of what happens when families are faced with large federal estate taxes. Hannah Tangeman-Cheney, a rancher in California, thought her sister and she had taken all the necessary steps to ensure their ranch would remain in their family as their mother aged. However, when her mother died in 1990, Hannah and her sister were confronted with federal estate taxes much larger than what they had planned for with care. They ultimately decided they had no choice but to cut and sell more than 13,000 trees to raise the money they needed to pay the IRS. They would not have taken this action had they not faced federal estate taxes.

Michigan’s Brigette Leach still feels the financial effects that stem from paying $552,000 in estate taxes several years ago. Like Hannah Tangeman-Cheney, Brigette and her family worked with professionals to plan for the day when their diversified farm would be passed down. The Leaches spent a considerable sum of money and much time crafting a plan to ensure they would not be trapped in a web of estate taxes, yet those plans were not enough after the last grandparent passed away. Their land unexpectedly doubled in value over the years, forcing the family to pay far more than they had planned for. As a result of the money paid to the IRS, the Leaches have not been able to expand their farm business the way they wanted to. The finances of this family farm are more vulnerable now than before as a result of the federal estate tax burden.

The fact is, the estate taxes due on a moderately sized farm could total around $300,000 in 2011, the equivalent of more than 2.5 years of farm returns from both income and asset appreciation. For a larger farm, the tax liability could be about $1.5 million, the equivalent of six to seven years of income and asset appreciation. Further, average values of land – generally farmers’ and ranchers’ largest asset – appreciated by 70 percent nationwide from 2003 to 2007.

“The federal death tax has long out-lived its purpose,” Stallman said. “Initiated in 1916 to raise revenue for a war, it’s now embedded in the U.S. tax code, even though it raises less than 2 percent of total federal tax receipts.”

AFBF remains committed to the permanent repeal of estate taxes. Until permanent repeal is achieved, AFBF supports increasing the exemption to $10 million a person and indexing it to inflation. Full stepped-up basis also must be maintained, the gift-tax exemption should be increased to $20,000 and indexed, and there should be no limits on the amount that property values can be adjusted under IRS code section 2032A special use valuation.

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