Commentary: Farmers can influence coming tax-reform debate


Issue Date: August 16, 2017
By Josh Rolph
Josh Rolph
The federal estate tax affects every farm and ranch family, and agricultural organizations have long advocated for its repeal. A new survey shows that nearly two-thirds of Americans support repeal of the estate tax.

In what could be the broadest change since 1986, congressional Republicans and President Trump are planning to reform the federal tax code. We can anticipate the next few months to be filled with tax-reform negotiations, and Farm Bureau will be there to promote and advocate for meaningful reform.

The tax code affects each farm family in different ways. It influences the ownership structure of the operation and allocations of interest among family members; drives business decisions, such as when to purchase capital; and necessitates development and maintenance of a farm estate plan. Tax forms are now required to determine eligibility for farm-bill programs.

Agriculture operates in a world of uncertainty. Weather and regulatory changes, pest and disease outbreaks, unpredictable markets and ever-fluctuating input prices make running a farm or ranch business an ongoing challenge, even under the best of circumstances.

In a polarized political environment where 98 percent of Americans work outside of agriculture, it's encouraging to know the general public understands this uncertainty. Polling group Morning Consult released a poll of registered voters last week, showing that 67 percent believe farmers and ranchers should be extended special tax treatment due to the challenges and risks of agriculture.

Farmers and ranchers need tax reform that protects the farm. Tax policy certainly shouldn't harm the farm. Tax reform should reduce a family farm's effective tax rate and continue provisions that allow farmers to match income with expenses and deal with uncertain markets and weather. We believe tax reform should:

  • Be comprehensive by acknowledging all farm and ranch businesses, including sole proprietors, partnerships and S corporations.
  • Reduce combined income-tax rates enough to account for any lost deductions or credits.
  • Allow businesses to deduct expenses when incurred, continue cash accounting and keep Section 1031 like-kind exchanges.
  • Repeal the estate tax and continue stepped-up basis, which sets the value of land and buildings at what the property is worth when inherited.
  • Lower capital gains taxes on capital investments and not impose capital gains taxes on transfers at death.

In recent years, our advocacy has centered on the so-called "tax extenders" that resulted in making permanent Section 179 business expensing and allowing for bonus depreciation.

While tax issues such as these have been important, we have long supported full repeal of the estate tax. We made progress a few years ago by obtaining the highest estate tax exemption level in a century.

When full estate tax repeal was last achievable, Congress was unable to move legislation to the president. More than a decade later, we now have another shot at getting it done.

The Morning Consult poll found that nearly three in five voters agree that the federal estate tax is a bad idea. A solid 64 percent majority supports repeal of the estate tax.

For farm and ranch families, despite the current estate-tax exemption of $5.49 million per individual, the tax is a burden always hanging over their heads. When the farm owner passes away, any portion of the estate valued above the exemption level is taxed at 40 percent. For most operations where assets are illiquid, the sale of farmland becomes inevitable.

Reform opponents say the estate tax only affects a small number of farm families. I argue that it affects every farm family. Whether or not the estate's value is less than the current exemption, these families must pay attorney and accounting fees to put an estate plan into place. Each time there is any change to that plan, a bill is due. So the estate tax has additional non-tax burdens, not to mention the emotional tax required to work out these details with family members.

Repeal of the estate tax is sorely needed. From all my tax-related talks over the years with farmers and ranchers, I've learned that the estate tax is the most despised. Should repeal finally occur, it would be like pulling the proverbial thorn that has been in the side of every agricultural family in America for generations.

For example, the estate tax presents a significant burden for one California rancher who lost a grandparent more than a decade ago, resulting in a $2 million estate tax bill she couldn't pay. Although she earned only enough income to pay her property tax and liability insurance, the IRS began sending bills of well over $100,000 per year.

Saying that selling the land would be like parting with her family, she decided to fight by hiring an accountant, an attorney, assessors, surveyors and an advisor. When all was said and done, her non-tax expenses totaled more than $150,000—and the IRS didn't cut any breaks.

The rancher is concerned about what would happen if her father, who is not actively ranching, were to pass away suddenly. Her family would likely lose the property. This burden hangs over her head every day.

She explained to me the long, rich history of the ranch and how it had survived the Great Depression, eminent domain, the ups and downs of the market and other weighty challenges.

"But today," she said, "it faces the most lethal threat in its history: the federal estate tax."

We should take very seriously this historic chance to repeal the estate tax. If your family has felt the impacts of the estate tax, feel free to share your story with me at jrolph@cfbf.com.

(Josh Rolph is manager of federal policy for the California Farm Bureau Federation.)

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