I'll agree that it's not perfect. But Congress has done things to make it easier on the family of people with family farms. First they allow assessment of farms for tax purposes to be done for the price the land would sell as a farm, not its "highest and best use" as required of everyone else. Then they allow payment of estate taxes to be done over a long period of time with low interest.
What is a typical value of a family farm? What sort of an exemption should farmers get?
Stuart A. Bronstein wrote: ...
A) All depends on the size of the operation and land values and the magnitude of improvements. Out here, land values alone could be $5M or more for a reasonably-large-sized operation of irrigated land. That value would include nothing for improvements, equipment, inventories, etc., etc., ... Where land prices have really increased even though they may not have the total acreages I'd have no problems believing it could easily be multiples of that.
B) I don't know either, specifically. My personal opinion is the estate tax in general is wrong as a concept despite the Jefferson(?) argument for it. (In that regard I note that even some of the extremely wealthy proponents for it have made certain _their_ estates aren't going to be affected significantly which seems more than just a little disingenuous).
My point is it ain't as easy as the proponents claim to either avoid the implications nor for them to assert that it doesn't have any effect because they couldn't find the "forced sale" because it doesn't really happen that way directly.
What's happening, of course, is that folks are using what other organizational forms they can within state laws on "corporate farms" which vary widely but that also comes w/ issues. The changes in the economics have forced the sizes of farming operations to increase drastically over the last 30 years or so.
That's the first time you actually say "tax burden".
Why hasn't someone given the details of those cases to the anti-inheritance-tax groups? The story might have been worth enough money to save their farms.
And I'm still not seeing numbers.
Seth
Primarily afaict because the naysayers have the same mindset you seem to have that unless the entire operation is liquidated immediately upon death it doesn't count.
Ok, that makes sense. Then the change that's contemplated would help a lot: retain the exemption at $3.5 million per person, allowing a couple that plans properly to pass $7 million without estate tax.
Remember that a family farm will be valued based on what someone would pay to use it as a farm. That would be a lot less than what might be paid to use it for development or something else.
The Gallo family (i.e. Gallo winery) got legislation passed that allowed them (and everyone else with their assets and who noticed) to avoid the generation skipping transfer tax. But for the most part I'm not aware of wealthy families avoiding the estate tax. I suppose if there's enough money they can get insurance to pay the tax, but that imposes another cost.
I understand that. And I am, as well, not thrilled at what has happened to the family farm in recent years. I imagine that one option might be to eliminate the estate tax completely for small (whatever that means) farms, but not allow a stepped up basis. So as long as the farm stays in the family there is no tax. But as soon as it gets sold, the tax will kick in on a good part of the sale price.
And that has caused farms to produce things that are not necessarily in the best interests of the country, but allow for the greatest profit. Things like subsidies for some crops and not for others also play a large part in this.
But it seems to me that there is a growing movement toward better and more local foods (even if at a higher cost), and those are often grown on smaller farms. So there is hope.
The above values _WERE_ based on current farmland values (based on prices paid recently in this county at auction). Also, you apparently are in a fairly metropolitan area where there is some likelihood of land being developed commercially. Out in the "real" farm country, there really are no other uses for sizable acreages as there are no encroaching cities industry or so on (thank goodness and city folks should be glad assuming they continue to want to eat).
The $3.5M individual would be better than the alternatives of reverting to $1M obviously but still leaves problems w/ the early-widowed which was the instigating even in both of the cases I've alluded to above. Then the other half is gone.
Also, just as a consideration, do you have any idea what the capital investment in equipment and improvements looks like these days? Have you priced combines/tractors/planters required recently? Do you know what a center-pivot circle and well cost to install? The fact I pointed out that the land values don't include anything at all for the capitalized items and improvements is significant.
Indeed. Shows what having "real" money instead of being in the low-end of the affected bracket can do. :(
I was thinking specifically in this case of the Buffet/Gates fiasco of testifying for the continuation and "benefits" and then going the trust route. Not that I particularly blame them for doing what they can; only it's not exactly playing straight up w/ their words before Congress imo.
Well, that's not all that simple, either. :) It's taken some 70 years to build the farm programs that began w/ FDR/New Deal in response to the Depression. We're now to the point of also complying (or at least trying to get agreement on) w/ WTO pacts and still compete w/ the EU and rest of world that are subsidizing certain of their production agriculture folks at least as much if not far more than we are. Add to that that folks like Monsanto sell same technologies outside the US for far less than they charge producers in the US and that adds even more bias against the US producer. So, one has to dig far deeper than the typical coverage to have any hope at all of seeing the real picture overall.
Meanwhile, despite all that, US agriculture remains one of the few bright spots in the balance of trade yet it seems to be always an area under attack for more regulation and restrictions. As one last little note on that score something over 2/3-rds of the Ag budget goes to inner city and other aid programs rather than production agriculture.
Over 70% of the calories consumed in the US come from the midwest farm belt. There's some market and ability to have such localized production on the coasts but it certainly will never be able to produce anywhere close to the amounts of foodstuffs needed for the entire population in the US, what more provide for the rest of the world's needs. Not to mention that it is, of course, a very elitist "solution" as only the affluent can afford the luxury.
"The Tax Policy Center projects that roughly 440 taxable estates were primarily made up of farm and business assets in 2004. And even considering estates for which farming or business was a sideline, the Center found only 7,090 taxable estates for 2004 that included any farm or business income. That's still just 38 percent of all taxable estates."
"Of the 440 taxable family farm and business estates in 2004, two out of five paid an average rate of only 1.6 percent. These were taxable estates valued at less than $2 million."
"Worth noting is that family-owned farms and closely held businesses already receive special treatment under current law. Heirs who agree to keep the farm or business assets within the family for 10 years after death can reduce the taxable amount of the estate by 40 percent to 70 percent. And if the farm or business is at least 35 percent of the gross value of the estate, payments can be spread out over 14 years."
D.F. Manno wrote: ...
Like anything else, it only matters if it matters.
IOW, as long as you're not one of the 440 then you think it's ok?
But how much effort, and how many millions of dollars were spent in estate planning to achieve this result?
Does anybody think any tax is "ok"? They're a necessity, but nobody likes paying them.
Besides, you're moving the goal posts. Your initial argument was that the estate tax forced too many family farms/businesses to be sold. If only 440 such estates were subject to the tax, there can't have been that many forced to sell because of the tax.
How much effort and how many millions of dollars were spent in tax planning to avoid income tax?
I made no claim on numbers overall; only that there are two instances in this and a neighboring county I am aware of in which it drastically altered the operation. From the fact that the total population in the two counties combined is well under 50k and well over half that is in the one sizable county seat I would presume the numbers nationwide would be sizable in that regards.
And again, my contention is that it isn't necessarily a direct sale of the entire operation immediately on/after death that's the entire risk but that the effects on operations of having to deal w/ the financial burdens on top of everything else during and after the transition is an unfair burden. And, I'll agree it isn't only farm family businesses that are affected; I think it's a problem for essentially all.
As others noted I also agree there are untold consequences of extra effort and costs undertaken solely for the intent to try to avoid the problem that have costs associated with them as well.
As for "necessity" I'll grant there's a need for revenue; however, I don't think there's anything that makes the estate tax absolutely mandatory--one could always substitute another form in lieu of.
How much actual revenue does it generate overall annually and what fraction of total federal revenues is that?
As you can undoubtedly tell and I stated before, I think it is an unethical tax on its face and if retained the limits should be so hight as to make anything other than the $10s or $100s of millions essentially exempt and it should be indexed w/ inflation automagically.
I referred to the Jefferson stance earlier and nobody corrected my memory that it was he so I'll throw out my last dart using it as an illustration. Would he have considered Monticello and its environs along w/ Poplar Forest and the rest of his holdings egregiously large? What would those holdings at their peak be worth in today's money if still intact?
"Taxes are the price we pay for civilization." -- Oliver Wendell Holmes, Jr.
Unless you think that freeloading is a virtue, or that Money Faeries will pave the roads and teach our children, of course taxes are OK.
We can have reasonable arguments about the fairest and most efficient way to assess and collect them, but not about whether they should exist in the first place.
R's, John
Some year ago we hosted a high-school exchange student at our home, and as it happened, while he was here, there was an election.
One of the things on the ballot was a local county mental health facilities tax, something that the county seems to do pretty well at, and just about always is approved by the voters.
So we explained to this student what was on the ballot and when we to to the proposed mental health facilities tax, he said that's dumb, no one back home would ever vote to increase their taxes. And he was not just dead serious, he came away thinking Americans were plain crazy because they voted to increase their taxes.
With the rates bouncing up and down any estimate is a guess, but I've seen credible numbers in the $70 to $100 billion range. It's not the income tax, but it's not peanuts either. Apparently, increasing the exemption from $2M/couple to $7M doesn't affect the revenue very much and greatly decreases the number of estates affected. I wouldn't have any problem with restoring the exemption to the $7M it was last year.
Huh? Because it only affects rich people? Because it makes it less likely that we'll have a hereditary rentier plutocracy?
I dunno. Would that be with or without the slaves?
R's, John
That doesn't explain why nobody is _providing_ numbers. "You wouldn't believe me if I proved it" is an excuse, not a proof. Nobody will believe it based on the fact that you claim to have an excuse for not providing actual information.
Seth
The only way to provide numbers for these operations would be to have the ledgers for the several years operation preceding and after the incidents. That's clearly beyond the realm of what can be done over usenet even if one were inclined to publish same. Again, I repeat it wasn't that they had to sell the entire operation immediately so simply the value and the tax by itself aren't sufficient. Since neither (fortunately) were our operation I don't have any right to bandy their numbers about anyway.
I can't talk of others; I don't know the circumstances. As noted elsewhere, given this is a pretty low population area and I'm aware of two in this area I can't imagine that it isn't an issue elsewhere as well.
The following is again my opinion but I still think the primary problem is that there isn't sufficient interest in the real problem and that the proponents of keeping it set the ground rules of "evidence" they would consider to cull out anything that doesn't fit the instantaneous and total liquidation as not being "causal enough". If it takes three years, say, or the operation is down-sized by half, it's like proving working in the shipyard was the cause of the malignancy--maybe, but the claim will be denied more times than not because of no way to prove causation from correlation.
Disagree if you want; I'm sure you will. No response necessary but how many of your clients are sizable family farms so you have the inside information on how it might be going to affect their operations or would if the operator(s) were in an accident tomorrow?
But, you've hit on an important point and I'll bring it up at the next Farm Bureau meeting--perhaps the tactic has been wrong entirely in trying to find those "smoking gun" cases but it is these in-depth cases and projections of impact that would be more useful.
How about just "The estate was worth $X, including $Y for the farm. Estate taxes were $Z; bequests to those not getting the farm were $W, and estate taxes had to be paid according to $SCHEDULE."
Those are the key numbers. If the entire estate was the farm, and it was left to the decedent's child, and taxes were significant, that's one thing. If the farm was half the estate, and others got cash bequests leaving not enough in the estate to pay taxes (from the residual which included the farm), that's another.
If you publish the facts, whether or not some interest group accepts them isn't very important; the public can see for themselves.
The amount of taxes paid vs. the amount raised by selling (half) the farm over the next three years is indicative. If taxes were $100,000 and the farm was sold for $20,000,000, then I don't think taxes were the cause. If taxes were $1,000,000 and the farm was sold for $3,000,000 then they were.
Information is useful. If somebody claims "that never happened" and then examples start forcing him to backtrack "Well, they never had to sell the entire farm within 15 minutes." he isn't going to win many arguments.
Seth
Seth wrote: ...
I don't think "that's another" at all in reality and that's part of the problem of analyzing it in that manner. While technically true as far as specific tax alone goes sure but it's that tax burden that creates the issue of there not being sufficient assets to make for an orderly transition w/o disrupting the operation that I see as the reason there's a problem in the tax.
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Problem is, "the public" isn't making the legislation, it's a group of self-serving politicians that don't give a hoot about public afaict.
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I'll see what we can do about preparing more in depth analyses and data, though. I'm just not convinced anybody really pays any attention to anything other than 30-sec sound bites in DC unfortunately.
If the farmer makes the decision to divide his estate in such a way that the recipient of the farm can't afford to continue farming, and he had the option to divide his estate in a different way which would have allowed the recipient to continue farming, then I see it as the farmer's decision that caused farming to be unsupportable.
Suppose the farmer's will says "I leave $1,000,000 to Child A, and the rest (including the farm) to Child B" and the estate has $100,000 cash plus the farm (worth $3,000,000). There's no estate tax, but the administrator has to borrow $900,000 against the farm in order to give Child A his bequest. Now Child B can't afford to continue farming, because the farm doesn't produce enough income to pay off the loan and for him to live on. That clearly isn't an estate tax issue, because there is no estate tax. Now change that example so there's, say, $1,000 in estate tax. I say the problem is still the way the farmer divided his property in his will, not the estate tax.
They do want re-election at some point, so they at least pretend to pay attention to what the public wants.
So come up with some that have facts behind them and support your position.
Seth
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