Jun 16, 2021Proposed inheritance tax changes would be devastating for family farms, study shows
A newly released Texas A&M’s Agricultural and Food Policy Center (AFPC) study of U.S. Senate legislation calling for changes to the Capital Gains and Estate Tax would take a heavy toll on family farms.
Texas A&M’s Agricultural and Food Policy Center (AFPC) maintains a database of 94 representative farms in 30 different states. That data, in conjunction with a farm-level policy simulation model, allowed AFPC to analyze policy changes on farms across the country.
The analysis considered the impact of the Sensible Taxation and Equity Promotion Act (STEP Act), proposed by Sen. Chris Van Hollen (D-Maryland), to eliminate stepped-up basis upon death of the farm owner.
The study also looked at the impact of the “For the 99.5 Percent Act (99.5% Act)” introduced by Sen. Bernie Sanders (I-Vermont) — calling for a decrease of the estate tax exemption from $7 million to $3.5 million, among other things.
The results? Devastating would be an under-statement.
Under current tax law, only two of the 94 representative farms in the AFPC databased would be impacted by an event triggering a generational transfer.
“By contrast, under the STEP Act, 92 of the 94 representative farms would be impacted, with additional tax liabilities incurred averaging $726,104 per farm,” the study reported. “Under the 99.5% Act, 41 of the 92 representative farms would be impacted, with additional tax liabilities incurred averaging $2.17 million per farm.”
According to the study, if both the STEP Act and the 99.5% Act were simultaneously implemented, 92 of the 94 representative farms would be impacted, with additional tax liabilities incurred averaging $1.43 million per farm across the 92 representative farms.
Under current law, when the owner of a farm dies, the estate is subjected to federal estate taxes. As of 2021, $11.7 million per individual and $23.4 million per couple in assets are exempted from the estate tax, effectively protecting most farms from the estate tax.
In addition, when a decedent passes farm assets to an heir, the heir can take fair market values as their basis in the property (i.e., stepped-up basis), effectively avoiding capital gains taxes.
“Given that cropland values have roughly tripled over the past 25 years, most producers are extremely sensitive to any changes to the estate tax exemptions or stepped-up basis,” according to the study.
The analysis came at the request of U.S. Sen. John Boozman (R-Arkansas), ranking member of the Senate Committee on Agriculture, Nutrition, and Forestry; and U.S. Rep. G.T. Thompson (R-Pennsylvania), ranking member of the House Committee on Agriculture.
“The livelihoods of American farmers are on the chopping block with proposed changes to stepped-up basis and the estate tax. Many Democrats love to talk about taxing the richest of the rich, but in reality, their proposals would hurt Main Street far more than Wall Street,” said Thompson. “The economic harm that will inevitably fall onto on our farmers is too great a burden to gamble with, even with proposed carve-outs and exemptions.”
Boozman said the report underscores what the industry has known for years — new taxes on farmers are more than just an annoyance, they’re a generational threat to farm families.
“The data speaks for itself and should give pause to anyone considering this approach as an option to pay for new additional federal spending. If changes of these magnitude are pursued, as some have discussed, the economic harm it will cause will have a lasting impact on rural America,” Boozman said.
AFPC’s study is available online here.
— Michigan Farm Bureau