Minggu, 14 Oktober 2012

Nothing is Certain but Death and Taxes

Odd that I would start a blog referencing Benjamin Franklin, but this topic is timely and critical if you care about the preservation of the family farm and the farmland used to grow your food.

This blog has nothing to do with your food... and EVERYTHING to do with your food supply. Unless Congress acts, at the stroke of midnight January 1, 2013, the federal estate tax will revert to pre-2001 levels or from a current $5 million exemption to a $1 million exemption. If you don't think this will impact your food, think again. One of the biggest threats to farming today is the inability of heirs to retain the farm and keep it operational is the federal estate tax. According to a report issued by the Joint Economic Committee this summer entitled the Cost and Consequences of the Federal Estate Tax, estate tax is the "overwhelming cause of the dissolution of family businesses." Since 98% of all farms in the US are family owned, this has wide spread implications over the next 10-20 years as the aging farm population passes away.

Most farms are land rich and cash poor. The report also noted that of the majority of the assets on a farm, 85% of the value is held in real estate, ie: farmland. Hard assets account for 88% of a farm's value whereas liquidity was only 12%. So when faced with a death in the family, few family farms have a choice but to auction off equipment and land in order to pay the estate tax. This results in the break up of the family farm. The remaining portion may not be sufficient to support the heirs to stay in farming, or by auctioning off equipment, leaves the heirs in a position to be unable to farm. I mean if you sell the tractors and combine to pay Uncle Sam his taxes, where do you get the cash to buy another tractor and combine? You just gave all your cash to the government and now don't have the equipment you need to operate your farm. You can't just "go" get more equipment.

According to the American Farm Bureau Federation press release on this report :“When estate taxes on an agricultural business exceed cash and other liquid assets, surviving family partners are forced to sell illiquid assets, such as land, buildings or equipment to keep their businesses operating,” said Stallman. “With 88 percent of farm and ranch assets illiquid, producers have few options when it comes to generating cash to pay the estate tax.” The video below details  AFBF President Bob Stallman's call for Congress to protect farm families from the impending change in the reduction of the federal estate tax exemption.