Death Tax Threatens Life of Family Farms

Most people don’t recognize the correlation between the federal estate tax and the U.S. agriculture industry.

But the value of this tax is of extreme importance to owners of family farms and ranches.

The federal estate tax, commonly referred to as the “death tax,” is scheduled to expire at the end of the year. At stake for farm families across the nation are tax exemptions, or relief from tax burdens, that affect their ability to maintain inherited farmland.

More than 90 percent of today’s U.S. farms are family farms.

As defined by the IRS, the death tax is a tax on one’s ability to transfer property. It originated in 1917 to aid in World War I costs.

As it currently stands, when family members inherit a family farm, these individuals incur the same inheritance tax breaks as their predecessor. But if legislation isn’t renewed, these assets will not be transferred. New taxes will be enacted that have the potential to damage the financial security of our country’s farm owners.

If congressional action is not taken, the exemption would drop from $3.5 million to $1 million with a top rate of 55 percent. New proposals that could replace the tax are not indexed for inflation.

“By not indexing the death tax for inflation, we are simply ensuring it’s going to have a negative impact on families, farmers and small businesses in the near future,” said Congressman Aaron Schock, R-Ill.

The issue is heated. Why? This tax generates an estimated $1 trillion a decade for the U.S. economy.

Proponents claim that family-farm owners should be required to pay more taxes on inherited land and that estimates about the potential for economic loss are exaggerated. They reason that the estate tax prevents the perpetuation of wealth and is a better source of federal revenue than the income tax, which is said to directly disincentivize work.

Opponents of the estate tax argue that farm owners are “asset rich but cash poor,” meaning that farm inheritors may have significant documented wealth (land value), but this wealth is used as a tool to perform business and generate profit and cannot be considered as excess money.

Many assert that inheritors are sometimes forced to cede land to afford their newly acquired property taxes.

Escalating land prices easily make the majority of farms and ranches well more than the $1 million exemption, states a NorthernAg.net story. Most farmers and ranchers desire an increased death-tax exemption level and a decreased rate.

“Without some leeway, farm lobbyists argue, portions of family farms — some in the same family for more than 100 years — would have to be sold just to cover the taxes,” states an editorial in Jacksonville's Journal Courier.

In the process, the U.S Department of Agriculture estimates, one in every 10 family farms would face a tax burden when changing hands. The American Farm Bureau Federation has asked for the exemption to be raised to at least $5 million.

“The 2011 change to the estate tax law does a disservice to agriculture because we are a land-based, capital-intensive industry with few options for paying estate taxes when they come due. The current state of our economy, coupled with the uncertain nature of estate tax liabilities make it difficult for family-owned farms and ranches to make sound business decisions,” said Montana Farm Bureau Federation Bob Hanson.

Currently, lawmakers from states with vested interests in agriculture are lobbying for death-tax modifications.

Montana Farm Bureau Federation Young Farmer and Rancher Chair Peter Taylor said, “It’s extremely important that we explain to our senators, the media and the public how this tax will eliminate the next generation taking over America’s productive farms and ranches.”

*Photo obtained from www.michiganestateplanninglawblog.com

Program supports development of U.S. producers

Earlier this month, the United States Department of Agriculture (USDA) implemented a new support program to help America’s farmers hurt by the recent economic crisis. USDA Sec. Tom Vilsack introduced the Trade Adjustment Assistance for Farmers Program, also known as the TAA for Farmers Program.

"As we work to help rural America recover from the worst economic crisis since the Great Depression, the Trade Adjustment Assistance for Farmers Program will create new opportunities for producers hurt by import competition," said Vilsack. "Eligible producers will receive much-needed technical assistance and cash benefits to help them adjust to the current economic environment."

Farmers receive financial assistance after meeting eligibility requirements and upon completion of stringent training and education courses that can last up to three years.

According to USDA, the TAA for Farmers Program helps producers of raw agricultural commodities and fishermen adjust to a changing economic environment associated with import competition by means of technical assistance and cash benefits.

It’s not another subsidy, said Kevin Klair, extension economist at the Center for Farm Financial Management at the University of Minnesota.

“Congress was very intentional when structuring this program. Important management and competition issues were considered to make it most effective,” said Klair.

The American Recovery and Reinvestment Act of 2009 (ARRA) reauthorized and modified the TAA. The Act includes measures to modernize the nation's infrastructure, enhance energy independence, expand educational opportunities, preserve and improve affordable health care, provide tax relief and protect those in greatest need, according to the Obama administration.

Eligibility

• The commodity on which the farmer claims losses must qualify for the program as determined by the USDA (notifications issued in Federal Register notices).
• Farmers must have experienced a greater than 15-percent decrease in the national average price, the quantity of production, value of production or cash receipts of the commodity compared to the average of the three preceding marketing years, and imports contributed importantly to this decline.
• Applicants must complete a series of workshops/education sessions.
• Farmers can apply until April 14.

The public had the opportunity to weigh-in about program procedures and eligibility criteria in August. Most public commentary centered on payment limitations with consideration to adjusted gross income and specialty crops, a well as consideration to the length of intensive training about how to use the program. There is an additional 30-day period for public comment commencing March 1.

Farmers may receive $4,000 in assistance after an initial series of free technical-training classes. Klair said farmers are eligible to receive an additional $8,000 after writing an approved long-term business-adjustment plan to aid them in their future operations.

“It teaches farmers how to be more-efficient U.S. producers,” said Klair, who said the program has received numerous inquiry calls.

Klair said the “downside” to the program is its strict qualification requirements.

“It would be great if everyone could qualify,” said Klair.

Farmers can appeal a denied application.

To learn more about the intricacies of the program, visit http://www.fas.usda.gov/ITP/TAA/taa.asp or http://www.taaforfarmers.org/.

Should the federal government take more or less of a role in financially assisting farmers? How can farmers relay the significance of this program to media/the public if criticized?

Agriculture: Assisting the Economy

America is a nation of opportunity for businesses big and small, despite our economy’s current challenges. The country’s economic state dictates a business’ vitality and lifespan, but even in financial difficulty, one industry has always persevered – agriculture.

Historically, agriculture has been a consistent job provider in society because of food necessity. This fundamental principle has made the industry indispensable to our economy, as discussed in one of my earlier blogs. In the 1800s, nearly 80 percent of the population was involved in farming. Wartime food production added to workforce numbers and the industry’s significance in the 1930s. National and global market demands keep the industry afloat today.

"It's a bright spot in the economy," said Standard & Poor's equity analyst Adrian Compton.

U.S. Department of Agriculture (USDA) Chief Economist, Joseph Glauber, forecasts 2009 returns to be the second highest on record, farm income to be above its 10-year average and farm debt at an all-time low.

“We attribute the high level of expected farm income to strong crop receipts; reflecting higher crop prices, increased international demand and support from government payments," said Compton.

These factors have notably affected America’s financial system by funneling jobs and money into the market.

Farm Economy Statistics
• Figures released in 2005 from the USDA’s Economic Research Service (ERS) indicate that farm and farm-related employment are responsible for providing income to 167,001,363 individuals in the U.S.
• One of every five U.S. jobs is associated with the ag industry (Macoupin County Agricultural Literacy Program - MCALP).
• Forty-eight thousand industry jobs are created each year (MCALP).
• The industry channeled $140 billion to the economy in 2008 in the form of net income to producers from crop and livestock production, farm services performed and payouts of wages to workers, rents to landlords and interest to lenders, with similar projections for 2009 (Kiplinger Agriculture Letter).
• Farm producers rank first on Sageworks’ “Top Performing Industries by Sales Growth” within the past 12 months.

The industry boasted impressive gains in 2008 with similar projections for 2009.

"It is expected that 2009 will be another good year for the farm economy," ERS stated in its 2009 Farm Sector Income Forecast, "bolstered by strong demand for feed crops, oilseeds and food grains."

Because the agriculture industry relies on multiple participants for it to function, a variety of employment opportunities exist (more than 200 job types according to MCALP), contributing to its growth and dependability as both a part-time job and career source. Those working within the industry can be either salaried or self-employed. Industry-related jobs run the gamut from machinery suppliers, to plant operators to farmhands and involve farm production and processing, whole and retail trade and farm management and education.

Farming is not a cure-all, however, for those experiencing financial straits. Overproduction, fluctuating prices, variable weather and costly applications, among other factors, complicate the industry, which jeopardize sales and profit. The industry is kept in check by federal subsidies.

Agriculture’s presence will perpetually remain in the economic forefront as a commodity industry. Working in unison, American farmers, farm-related businesses and the government will determine the health and longevity of the industry as an employer.

How can other sectors of the U.S. economy learn from agriculture? What other industries are as far reaching as farming?