By Gene Hall
As the nation races toward the so-called “fiscal cliff” early next year, America’s farm and ranch families are worried their farm businesses will be wreckage at the foot of that cliff.
Today, we focus on one of the good policies that will turn into a pumpkin if the clock strikes midnight on Dec. 31 without a budget deal. If ever a tax needed reform, it was the federal estate tax. It was part of the Bush tax cuts which will expire at the end of this year. The ‘Death Tax,’ as many like to call it, including me, was scaled down to a manageable level.
But, if this cut expires with all the rest, the tax will return to its previous top rate of 55 percent and a $1 million exemption on Jan. 1, 2013. It doesn’t take a very large farming or ranching enterprise to reach a million bucks in value these days. With a lot of value tied up in land, equipment and livestock, there might not be enough to pay the taxes when the current owner dies.
According to USDA, 10 percent of farms and ranches could owe estate taxes next year. Approximately 1.5 percent of farms paid the tax in 2009, when the exemption was $3.5 million.
Farmers and ranchers are supporting an estate tax provision that would maintain or improve the $5 million exemption level and keep the maximum rate at 35 percent and adjust it for inflation. If the law reverts back to the punitive rate of 55 percent and only a $1 million exemption, a transfer of the farm to the next generation may not be possible.
Like other businesses, farms can fail for a variety of reasons. For the federal government to push that along with tax policy is just not acceptable. Almost everyone wants to fix this. Let’s get it done.