Blog for Rural America

The Center for Rural Affairs, a private, non-profit organization, is working to strengthen small businesses, family farms and ranches, and rural communities. Permission to reprint items from this web log is hereby granted, on the condition that clear credit is given to the original source of the material. If the blog provides information for a story, please let us know by sending an email to johnc@cfra.org.

Saturday, September 30, 2006

Neil Harl Letter Regarding Estate Tax

Goehring’s mistaken on his points regarding estate tax

Neil E. Harl

The Jamestown Sun
Published Thursday, July 27, 2006

Doug Goehring’s letter to the editor on the estate tax has come to my attention. The article is misleading with several untrue statements. It is a myth that farms are adversely impacted by the federal estate tax. That has been an artfully-spun tale by a group of very wealthy families over the past decade and it is untrue. A few years ago, I was quoted in the New York Times (April 8, 2001) as saying I had never seen a farm that had to be sold to pay federal estate tax. And that is still the case. My observations range over more than 45 years with more than 3,200 seminars in 43 states for farmers, bankers, attorneys, CPAs and others, including many all-day seminars in North Dakota.

The American Farm Bureau Federation was quoted, in the same article, as saying that “... it could not cite a single example of a farm lost because of estate taxes.” A few days after that front page article ran in the Times, the AFBF put out a notice to its offices asking for a search for farms lost to pay federal estate tax. It was my understanding, from informed individuals, that they never located one.

There are very good reasons why that is the case. First, each decedent presently can pass $2 million in asset value without paying federal estate tax. That is $4 million for a husband and wife. Second, Congress has been very generous over the years and allows a substantial reduction in valuation of farm land (under special use valuation) at death with the discount now totaling as much as $900,000. Also, there are various other discounts that can be claimed including a co-ownership discount (usually around 20 percent) and an entity discount (often 35 percent, sometimes higher).

My research indicates that less than 1 percent of farm estates have to file a federal estate tax return and even fewer have to pay any federal estate tax. Interestingly, decedents with estates more than $20 million have the largest average amount of farm property $992,738 in 2004. That group includes very few bona fide family farmers. If there is anyone who might complain, it is the Ted Turners of the world who have been buying up large land tracts throughout the Plains states. In 2004, the top 808 estates (those with estates exceeding $20 million in taxable estate – that’s above the exclusion amount) paid an average of $3.99 million in federal estate tax. That is the measure of tax benefit had the federal estate tax been repealed in 2004.

Contrary to Goehring’s assertion that repeal of the federal estate tax would not take one cent out of the federal coffers, more than $21.51 billion was paid in federal estate tax in 2004 and the figure is expected to be higher in 2006 because of the rapid run-up in estate values. At a time when the federal budget deficit is running at an alarming level, throwing more than $20 billion out of the federal revenue stream should be of concern to anyone worried about fiscal responsibility. Unless spending is cut, every dollar lost from federal estate tax repeal must necessarily be made up with another source of revenue. Is a hike in income tax more palatable?
The top rate for deaths in 2006 is 46 percent, not 55 percent as Goehring said, a rate paid by a tiny, tiny fraction of the estates.

I might add that North Dakota has ranked at or near the bottom for years in the average amount of federal estate tax paid per estate. The big run-up in wealth in recent years has largely bypassed the states that are heavily agricultural.

Finally, the big worry for farms and ranches should be the possible loss of the new income tax basis at death. The repeal provision passed in 2001 would, after 2009, drop the concept of a completely new basis for assets held at death. That is of concern to everyone who inherits property, up and down the income and asset scale.

Neil E. Harl
Ames, Iowa
(Harl is the Charles F. Curtiss Distinguished Professor in Agriculture and emeritus professor of economics at Iowa State University, Ames)

post a question or comment here or contact John Crabtree, johnc@cfra.org

Center for Rural Affairs
Values. Worth. Action.

14 Comments:

  • At 8:23 PM, Blogger Becky McCray said…

    Thanks your for an excellent, well thought out and fact-based article. I appreciate the research that went into this, and I thank you for sharing it.

     
  • At 9:39 PM, Blogger Center for Rural Affairs said…

    Becky, I appreciate your comments. Professor Harl is a good friend of the Center for Rural Affairs and seems to be spending a good share of his time these days refuting myths like this one. He has always had great courage, and it seems that being "semi-retired" from Iowa State has given him more time to dedicate to mythbusting. I'll be sure to send your kind words along to him. thanks, john

    John Crabtree, johnc@cfra.org
    Center for Rural Affairs
    Values. Worth. Action.

     
  • At 10:20 PM, Anonymous Anonymous said…

    Neil Harl is the smartest guy I have ever met. He should be in Congress, if he were we might have a fighting chance to get a decent farm bill.

     
  • At 2:33 PM, Anonymous Anonymous said…

    well, this Goehring fellow certainly seems dim compared to Professor Harl. I looked up his letter online, I cannot believe that he said that families "usually have to sell the farm to pay the estate tax..." Usually? What a politically cynical and disingenuous comment.

     
  • At 3:27 PM, Anonymous Anonymous said…

    We should not allow people like Goehring to continue to spread these lies.

    And it makes me proud to have Neil Harl on my side.

    I hope more people will continue to confront people like Goering when they spread B.S. like this.

     
  • At 6:00 PM, Anonymous Anonymous said…

    Great stuff. Farm groups (Farm Bureau, beef especially) foolishly waste their political capital on this silly issue. I know of no one who has had to sell their farm because of this tax.

     
  • At 2:45 AM, Blogger Seo Link Master said…

    You need us if you have any of these tax problems: Back
    Taxes
    , Unfiled Returns, Missing Records, Threat of Levy, or, if you need an Installment Agreement or an Offer in Compromise A tax levy or garnishment or attachment are all the same thing. The terms may be used interchangeably. A wage garnishment or levy may be against any asset. In the enforcement of tax collections. We prepare all Federal and State Unfiled tax Returns The Fair Tax Act (HR
    25/S 1025) is a bill in the United States Congress for changing Tax Solutions laws to replace the Internal Revenue Service (IRS) and all federal income taxes (including Alternative Minimum Tax), Past due tax returns, Past due tax returns, Past due returns, Past due taxes, Unpaid tax, Tax negotiation, Wage levy, Robert M. Adams, Bob Adams, Try to Be Happy, Search Engine Optimization

     
  • At 7:30 PM, Anonymous Real estate key boxes said…

    How generous of you to share this with us! what a brilliant, well written post. I really enjoyed this. I agree with anon We should not allow people like Goehring to continue to spread these lies.

    Cheers,
    Hank

     
  • At 7:10 AM, Anonymous Winstrol said…

    The taxes are becoming inconsiderably high!!!

     
  • At 2:40 PM, Anonymous File Old Tax Returns said…

    Nobody is a fan of the current tax system

     
  • At 2:41 PM, Anonymous Unfiled Taxes said…

    I tend to agree

     
  • At 11:06 PM, Anonymous Filing Prior taxes said…

    yep---

     
  • At 11:07 PM, Anonymous Filing Back Taxes said…

    OK

     
  • At 11:08 PM, Anonymous Filing Past Tax Returns said…

    let's do it

     

Post a Comment

Links to this post:

Create a Link

<< Home