Only a very few farms would face the estate tax, according to a study of IRS data performed by the Congressional Budget Office.
A new report by the Congressional Budget office (CBO) dispels the notion that the estate tax is a burden to the nation’s farms, forcing them to sell their farms to pay the tax. In fact, exceedingly few farms will face the tax under the new exemption levels established by law in 2001.
The study, “Effects of the Federal Estate Tax on Farms and Small Businesses” was published in July. Analysts used tax returns from 1999 and 2000 to examine the effects of freezing the exemption level at $1.5 million, $2.0 million, or $3.5 million.
They found that under the $1.5 million exemption level – the current level – only 300 farm estates nationwide would have owed any estate tax in 2000. At the $2 million exemption level scheduled to take effect in 2006, only 123 farm estates would have owed estate taxes. The number dropped to 65 taxable farm estates in 2000 under the 2009 exemption level of $3.5 million.
Not only were few farms effected by the estate tax, those that were generally had enough liquid assets in 2000 to pay the tax without selling the farm. At a $2 million exemption, only 15 farm estates would have owed more in taxes than they could cover through their liquid assets. At a $3.5 million exemption, 13 farms would have faced that situation.
CBO cautions that it may have overstated the number of farm estates with liquidity constraints because certain assets held in trusts, like life insurance, were not used to calculate available assets. Estates with liquidity problems would also have had other options for paying the estate tax, such as spreading their payments out over 14 years. These would have allowed them to pay the tax without having to sell off farm assets.
For the purposes of their study, the CBO analysts defined a farm estate as one where the primary occupation of the decedent was farmer or farm worker. You can view the study on the Congressional Budget Office website, http://www.cbo.gov
With Congressional representatives back in Washington and faced with difficult budget cuts, these findings only strengthen the arguments in favor of keeping the estate tax. It brings in needed revenue that could help support programs that create opportunities for farmers, ranchers, small business owners, and rural communities. And that’s not money from those who can ill afford to pay it.
For more information contact: Chuck Hassebrook, Executive Director, Center for Rural Affairs, email@example.com - or - John Crabtree, Center for Rural Affairs, firstname.lastname@example.org
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