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 That is the measure of tax benefit had the federal estate tax been repealed in 2004.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
(Harl is the Charles F. Curtiss Distinguished Professor in Agriculture and emeritus professor of economics at Iowa State University, Ames)
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