Death (estate) taxes destroy family-owned farms and ranches when the tax—which can be as high as 47 percent— forces farmers and ranchers to sell land, buildings or equipment needed to operate their businesses.
The average estate-tax payment from 1999 to 2000 was the equivalent to 11⁄2 to two years of net farm income.
Farmers and ranchers in Kansas have long battled any form of death tax. Those same agricultural producers, many who belong to Farm Bureau, support the permanent repeal of death taxes.
Across our state, family farms/ranches and small businesses face the probability of a death tax that could undo a lifetime of hard work, careful planning and saving. By necessity, these farms, ranches and business continue to increase in size. By doing so, they provide opportunities for the next generation of Kansas agriculture.
However, these new, larger enterprises are more than ever capital-intensive businesses and face increasing pressure when it comes to passing the family business to the next generation. Death taxes can damage and even destroy the economic viability of farms, ranches and businesses.
As an example, the estate taxes due on a moderately sized farm could total around $300,000, the equivalent of more than 21⁄2 years of farm returns from both income and asset appreciation.
For a larger farm, the tax liability could be about $1.5 million, the equivalent of six to seven years of income and asset appreciation.
Further, average values of land—generally the farmers’ and ranchers’ largest asset—appreciated by 70 percent nationwide from 2003 to 2007.
When farmers and ranchers disappear, the rural communities and businesses they support also suffer. Farmland located closer to urban center is often lost forever to development when death taxes force farm families out of business.
Agricultural estates face heavier, potentially more disruptive death tax burdens than other estates. About twice the number of farm estates paid federal death taxes in the late 1990s compared to other estates. The average farm death tax is also larger than the tax paid by most other estates.
While other small businesses and other sectors of the U.S. economy have similar objections to estate taxes, farmers and ranchers are particularly sensitive to this tax for several reasons:
n Farms typically require substantially more in capital assets to generate $1 in income than other businesses;
n In addition to carrying a larger capital burden while operating and a high estate-tax burden in death, the typical farm has more capital tied up in fixed assets that are difficult to liquidate. As a result, roughly twice the number of farm estates paid federal estate taxes compared to general estates in the late 1990s;
n The average farm estate tax is larger than the tax paid by most other estates.
Farmers, ranchers and businesses find it difficult to predict the future net worth of their operations, so they feel compelled to spend money for estate planning and life insurance.
While estate planning is sometimes effective in protecting farm businesses from over-burdensome death taxes, estate planning tools are costly and can take funds that could be better used by farmers and ranchers to operate and expand their businesses.
Even with the best of plans, no attorney or accountant can guarantee that the plans farmers, ranchers and businesses pay for will save their enterprises.
Only repeal can truly erase the burden and uncertainties of estate tax planning or the inexcusable levy associated with it.
John Schlageck is a leading commentator on agriculture and rural Kansas. Born and raised on a diversified farm in northwestern Kansas, his writing reflects a lifetime of experience, knowledge and passion.