The American Farm Bureau Federation says it concurs with a Joint Economic Committee report that details the financial harm posed by estate taxes on family businesses.
The JEC, a bipartisan committee composed of members from the House and Senate, issued its report, “Costs and Consequences of the Federal Estate Tax,” Wednesday.
According to the report, there are extensive costs associated with the estate tax in terms of the dissolution of family businesses, slower growth of capital stock and a loss of output and income over time. This can be particularly hard on farm families, who own 98 percent of the nation’s 2.2 million farms.
“With the average age of a farmer being 58 years old, the estate tax creates even a steeper barrier for young farmers and ranchers to take up the profession at a time when farming is already difficult to enter,” said AFBF President Bob Stallman.
The report also found the estate tax impedes economic growth because it discourages savings and capital accumulation. Gaining access to capital is vital to farms and rural economies.
In 2010, land accounted for approximately 85 percent of total farm assets. Currently, in some parts of the country, land values have increased well over $10,000 per acre. Further, land values from 2010 to 2011 increased on average 25 percent and have greatly expanded the number of farms and ranches that now top the estate tax $5 million exemption.
Especially holding true for farmers and ranchers, the report also found the estate tax is a significant hindrance to entrepreneurial activity since many family businesses lack sufficient liquid assets to pay estate tax liabilities. In 2010, liquid assets in agriculture comprised only 12 percent of total assets whereas hard assets (including land and buildings) comprised 88 percent of total assets. Alone, real estate accounted for approximately 85 percent of farm assets in 2010.
“When estate taxes on an agricultural business exceed cash and other liquid assets, surviving family partners are forced to sell illiquid assets, such as land, buildings or equipment to keep their businesses operating,” said Stallman.
“With 88 percent of farm and ranch assets illiquid, producers have few options when it comes to generating cash to pay the estate tax.”
AFBF supports permanent elimination of the estate tax. Until this can be accomplished, Farm Bureau supports extending the current $5 million exemption.
Without congressional action, in 2013, the estate tax exemption will shrink to $1 million per person with no spousal transfer, and the top rate will increase to 55 percent, striking a blow to farmers and ranchers trying to transition from one generation to the next.