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.
I am part of a 3rd generation family farm. The 2nd generation (my father in law) has sold some of the farming assets to the 3rd generation (my husband and brother in law), but the majority of the farm, ie the land, the farm's main asset, is still held by the 2nd generation. Upon death, the 3rd generation (us) will be responsible to paying the estate taxes on nearly 1800 acres of land plus additional assets held by the 2nd generation.
Unless Congress acts, on 1/1/13, the current $5 million exemption will revert to a $1 million exemption.
Let's look at what $1 million exemption looks like to a family farm:
$1 million exemption = 100 acres of land.
$1 million exemption = 2 Combines
$1 million exemption = 3 - large Tractors
$1 million exemption = 4 - irrigation systems
$1 million exemption = approximately 115,000 bushels of corn
$1 million exemption = approximately 61,000 bushels of soybeans.
$1 million exemption = approximately 154,000 bales of hay
While these may seem like large numbers to someone who doesn't farm, they are not. They are the value of your every day items on a family farm. So if a $1 million exemption covers approximately 100 acres, we will be paying taxes on the remaining 1700 acres. And that will be at the 55% tax rate. It spells real trouble for any farmer inheriting the farm as of 1/1/13. Without doing the math, I can tell you that is a chunk of change we do not have.
Farming is not a hobby nor is it cheap. It takes real dollars and real assets to produce your food. All of these things are up for auction when an estate is passed from one generation to the next at death.
Morbid subject? Maybe. But a real crisis facing U.S. farm families.
So what can YOU do? If preservation of the family farm and farmland is important to you then call your Senators and Representatives and ask them to move on reforming the federal estate tax THIS YEAR! At a minimum, we need to extend the current $5 million exemption. At best, we need to abolish estate tax.
The link will lead you to a webpage providing you with information on contacting your Senators:Contact Your Senators
This link will lead you to a webpage providing you with information on contacting your Congressmen: Contact Your Representatives
To read the full details of the Joint Economic Committee Report, click on this link.
JEC report on Cost & Consequence of the Federal Estate Tax
Thank you for taking the time to help with this critical issue.