According to a new report released by the Joint Economic Committee, there are extensive costs associated with the estate tax. These have the potential to be hard on the farm families who own 98% of the nation's 2.2 million farms. This new tax also makes it difficult for young farmers and ranchers to take up the profession.
Compiled by staff
Published: Jul 26, 2012
Bureau Federation said it concurs with a Joint Economic Committee report, "Costs and Consequences of the Federal Estate Tax," released Wednesday that details the financial harm posed by estate taxes on family businesses.
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% 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 that 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% 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% 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 that 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% of total assets whereas hard assets (including land and buildings) comprised 88% of total assets. Alone, real estate accounted for approximately 85% 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% 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%, striking a blow to farmers and ranchers trying to transition from one generation to the next.
To see original article CLICK HERE