Farmers and the Estate Tax Myth
Pity the poor farmer whose land is ripped from his heirs and sold to pay the draconian “death tax.” It never happens, says the man who wrote the book on estate-tax planning. Why are farmers letting Big Money use them as a stalking horse to kill the estate tax?
As President Trump and the Republican Congress search for legislative victories, they are expected to turn their attention to “reforming” the tax system. The details of tax reform proposals remain negotiable at this point, but there will no doubt be consensus around one particular tax that the political right continues to use a punching bag: the estate tax.
Having worked in and around agriculture policy for the two decades of my adult life, I have always been puzzled by the constant crusade against the estate tax (which repeal supporters have re-branded as the “death tax”) as one of the largest supposed threats facing family farm survival. Farmers are the consistent poster children of estate tax repeal, whether by President Trump or by former President George W. Bush in the early 2000s.
The Farm Bureau, the nation’s largest agricultural lobbying group, has featured estate tax repeal among its key legislative priorities for many years. The current president, Zippy Duvall of Georgia, recently responded to President Trump’s tax reform plan, stating that, “Eliminating the estate tax will free farmers to invest in the future of their family businesses rather than selling off their land and legacy when a family member dies.”
The Farm Bureau is joined by national and state commodity groups, such as the National Cattlemen’s Beef Association and National Pork Producers Council, in their continuous estate tax repeal campaign. This message has penetrated Republican orthodoxy deeply, and remains on President Trump’s stump speech checklist of policies to help “forgotten rural America.”
But, like so many issues in today’s political landscape, instead of offering any clear data or empirical evidence to back up their rhetoric, agriculture industry groups and their political allies are simply pushing policies that favor a massive wealth transfer. They are actively working to dismantle government spending that supports the poor, the working class, and rural communities in favor of gigantic paydays for the super-rich.
“The idea that the estate tax is somehow forcing farmer to sell their land, it’s wrong, just dead wrong.” Neil Harl, Economist
The truth about the estate tax is that only a tiny, tiny fraction of the very richest farmers will ever have to pay. USDA’s Economic Research Service reports that only 0.4% (4 out of 1,000) have estate tax liability. That’s because estate taxes are only due for farmers with estates of greater than $5.49 million ($10.98 million for a married couple). $10.98 million is a lot of land, tractors and cattle.
In addition to the tax-free transfer of wealth for everything below $5.49 million in assets, farm families can take advantage of many estate planning techniques to prevent estate tax liabilities. They can form family corporations, use tax-basis tricks, establish legal mechanisms to transfer land and equipment to their heirs before death. There is an entire industry of lawyers and accountants that farmers can hire to dodge future estate tax liabilities.
Further, Chloe Cho of the Center on Budget and Policy Priorities has further analyzed the estate tax and its impacts on farmers, finding that only 50 estates with agricultural holdings are expected to pay estate taxes in 2017. Of those, estate taxes will only be paid on 6% of the estate’s value. Estate tax repeal, “would also cost $269 billion over the decade, expanding deficits and adding to pressure for cuts in federal programs” Cho wrote, based upon finding from the nonpartisan Congressional Budget Office.
I spoke with Dr. Neil Harl, emeritus professor of economics at Iowa State University, who literally wrote the manual on farm estate planning and agricultural law. Dr. Harl has yet to meet any farmer who has ever had to sell their farm to pay estate tax liabilities, other than one case of a farmer who hadn’t paid income tax for the 10 previous years who died without a will.
“The idea that the estate tax is somehow forcing farmer to sell their land, it’s wrong, just dead wrong,” said Harl. “The tax system provides many tools to help farmers effectively transfer their assets to their heirs. Both times before now, in the 1960s and in 2001, when the estate tax repeal forces were at their strongest, Congress stepped in and rewarded farmers and small business owners with even more flexibility.”
Harl said that limiting wealth accumulation in the hands of a few landowners makes sense. “Every generation, in agriculture, has to figure out a way to earn their own living, make their own way, during their own life. That’s how we will adapt to the times in agriculture,” Harl said.
It’s worth noting that the Trump Administration’s budget draft has landed in rural America with a thud. Their proposals to terminate USDA Rural Development Programs, to eliminate regional economic development agencies, to slash programs that support rural infrastructure and cut farm bill spending have seen pushback from Congress and millions of rural citizens.
Much has been written about the need to bolster the farm economy, which has seen net farm income decline from a record $120 billion in 2013 to a projected $60 billion this year. Government spending, whether through agricultural subsidies, conservation programs or research and incentives that drive agricultural diversification, is needed now just like it has been throughout the last century.
In addition, the nation’s rural challenges include much more than agriculture. Access to affordable health care continues to be a problem for much of rural America. Small towns are struggling to address the growing opioid epidemic. Many rural communities desperately need clean water, communications and energy infrastructure investments.
With such a long list of needs in mind, now is not the time to repeal a progressive tax on a handful of uber-wealthy Americans that generates nearly $27 billion in annual tax revenue. Instead of helping America’s farmers, estate tax repeal would actually lead to further erosion of public policies farmers depend during difficult times.
Bryce Oates, a Missouri native, covers conservation, agriculture, public lands and other topics for the Daily Yonder.