Smart hard work combined with good planning increases the likelihood of a bright and prosperous future. This is considered the American way?the American dream.
Part of this same American dream is the expectation that future generations will experience a better life than that of their parents. It?s always been that way ? parents want their children to have more opportunities than they did.
The fondest wish of Kansas farmers, ranchers and small business owners is to pass these family ventures on to their children and grandchildren. They work years to leave a legacy of land or a business.
Unfortunately, that shared dream is threatened by the return of the estate tax. The estate tax is slated to return with a vengeance on Jan. 1, 2013 to a top rate of 55 percent and a $1 million exemption.
Estate taxes owed to the federal government by the farm or ranch owner?s surviving family members can wallop them harder than other small business owners because 86 percent of farm and ranch assets are land based.
The projected higher rate and lower exemption could result in as many as 10 percent of farms and ranches owing estate taxes in 2013 and beyond, according to the U.S. Department of Agricul?ture Economic Research Service. Contrast this with three short years ago when approximately 1.6 percent of agricultural operations were subject to estate taxes and the exemption totaled $3.5 million.
When Uncle Sam comes to pay his respects, surviving family members without enough cash may be forced to sell land, buildings or equipment they need to keep their operations running, just to pay the tax bill.
Rural communities and businesses suffer when farms and ranches are dismantled and farmland is sold. When this occurs near urban centers farmland is often lost forever to development.
The money farmers pay to the government in capital gains taxes is money that could be reinvested in the farm or ranch and indirectly into the rural community where the farm is located. Local machinery, fuel, herbicide, fertilizer and parts, dealers will suffer. Such businesses keep people employed and provide much-needed money to local governments in the form of county or city sales taxes.
Estate taxes also threaten the transfer of farmland between farmers and ranchers. The average age of a farmer today is 57 years old.
As farmers consider retirement, they set the selling price of land or other assets high enough to recover the cost of capital gains taxes. This increases the likelihood farmland will be developed for other uses because few young farmers can afford to buy from these retiring producers.
A higher exemption and a lower rate will give farmers and ranchers a better opportunity to transfer their family-owned businesses to the next generation. Farmers and ranchers believe Congress should provide an estate tax provision that would increase the exemption level to $5 million and adjust it for inflation while reducing the maximum rate to 35 percent.
Taking such action is the right thing to do. It will be one way Congress can show it still believes in the American dream and it truly values small business, including families who farm and ranch. Congress can send a message that hard work is still rewarded in the United States.
Estate tax relief will give future generations hope they can maintain the family legacy and keep the farm. Most importantly, estate tax relief will keep alive the American dream ? if you work hard and plan ahead, you can pass the fruits of your labor to your children and grandchildren.
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.
