Estate Tax Proposals Target Family Farms, Ranches
By Jennifer Whitlock
Republican leaders of the Select Revenue Measures subcommittee of the US House Committee on Ways and Means recently held a meeting to discuss the ramifications of the proposed changes to inheritance tax codes on family farms, ranches and small businesses.
The repeal of the base increase provision in fiscal law would create many problems for those who produce our country’s food and fiber. In short, these proposed tax increases would be disastrous for American farmers, ranchers and family business owners, said Nebraskan Representative Adrian Smith, who co-hosted the meeting with Texas Representative Kevin Brady.
“We are already seeing how the prospect of raising taxes is sabotaging our economic recovery [from the COVID-19 pandemic] and undermine the country’s growth, ”Brady said.
In his opening remarks, Brady noted that Republicans and House Democrats have publicly expressed concern that the Enhanced Base Repeal Bill “targets family farms, ranches and small businesses. of workers “.
Estate plans for family farms and Texas ranches are under threat, according to Pat McDowell, District 1 state manager of the Texas Farm Bureau (TFB). He testified before the committee about his family’s problems with the troubling proposals.
Thirty years ago McDowell’s parents donated part of their land near Shamrock to McDowell and his brothers. Further land was purchased by the brothers from other relatives and neighbors to expand the farm to its present size. Today McDowell said the land is worth at least three to four times what they paid for it.
McDowell and his brothers plan to pass their farm and ranch to his niece and husband, as they have an interest in continuing the family business.
“We have spent a lot of time and money on estate planning using the Basic Plus concept. It is not our plan, or my niece’s, to sell the land now or in the immediate future. But if our children have financial problems at some point, they can sell portions of the land to cover the losses, ”he said. “If they do not receive the increase in the property base during the inheritance, they will have to sell the land to pay this new tax. If a lot of land is sold, the entire ranch becomes unprofitable. Losing a reinforced base would be a slow death for our ranch. “
And the reinforced base is not just about the land.
McDowell noted that his livestock and farm equipment are also in the crosshairs. He gave the example of an heir selling a cow for $ 500. Without a strengthened base, heirs would owe $ 100 (or 20%) to the Internal Revenue Service (IRS) in capital gains tax. He said the additional taxes accrued on livestock and equipment would be a huge blow to the ranch’s bottom line.
Even farmland that is not directly owned but operated by the McDowells will be affected. He explained that many farmers and ranchers rent much of their land from absent landowners, many of whom have inherited land from their own families. An unintended consequence of the abrogation of the increased base means that they will likely lose these leased properties.
“Most of our owners are over 70 years old. We send annual lease checks to landowners in states as far away as Oregon, California and Illinois, ”he said. “But just like us, these out-of-state landowners will face enhanced base loss for their heirs. These heirs will receive 20% less inheritance than they think today. What will happen to this land? We think they will sell it. Etc. “
During the meeting, Illinois representative Darin LaHood highlighted the major economic impact these proposals would have on farmers and family farms across the country. He cited a recent to study by the Texas A&M University Center for Agriculture and Food Policy. The study showed that repealing the enhanced base and reducing the estate tax exemption to $ 3.5 million would represent an average liability of $ 1.43 million per farm of additional tax liabilities. He noted that this is a staggering amount for farming and ranch families whose assets consist mostly of livestock and equipment, not the land itself.
The elimination of the strengthened base indicates that the US government does not value family businesses, according to Michael Gilmartin, co-owner of Commercial Creamery in Spokane, Wash. The family-owned creamery has been around for over a century.
It is already difficult to move a family business forward through the third and fourth generations, but these inheritance tax proposals can make them impossible, he noted.
“My job was to protect and grow the business and pass it on to the next generation. If there is new legislation that eliminates the increased base, that makes my death a taxable event, ”Gilmartin said. “There is no way my kids can afford this tax. A tax on these stocks could be more than their annual income, and you can double it if we double the capital gains rate. “
It can be difficult to know what action to take when farmers and ranchers are so uncertain of the outcome of these proposals, McDowell added. There are probably big challenges ahead if the increases in inheritance tax occur, he said.
“Four generations of sweat and sacrifice allow us to have a family business that provides a lot of food and fiber to the United States, as well as a decent life for our families and our employees. [My niece and her husband] know the legacy and what their grandparents and parents did, but that’s just the unknown of the future, ”he said. “Our children want to be able to continue to help feed our nation. What’s it going to be for her to put all her blood and sweat and tears in there and later the government wants to take it? They don’t really know what they are working for. The loss of the strengthened base will kill our family farms.