The Death Tax Repeal Act of 2021 was introduced in March by U.S. Senator John Thune of South Dakota and U.S. Representatives Sanford Bishop (D-GA) and Jason Smith (R-MO). Both bills would allow for a complete repeal of the estate tax, which, according to the American Farm Bureau Federation (AFBF), threatens more than 74,000 family farms across the country and nearly half of all farm and ranch land.
Agriculture producers scored a “win” in 2017 when the Tax Cuts and Jobs Act temporarily doubled the estate tax exemption to $11 million per person indexed for inflation through 2025. However, without congressional action, the estate tax exemption will revert to $5.5 million per person in 2026, putting even more farms and ranches at risk, AFBF says.
Complicating matters further, President Biden announced he’s proposing tax increases and death tax exemption limits are rumored to land at pre-2012 numbers, which were $3.5 million per person and a 45% tax rate. With Democratic control of both the House and Senate for the next two years, Biden’s tax proposals are at the forefront of agriculture industry lobbying efforts.
“The estate tax disproportionately harms cattle producers because with few options to pay off tax liabilities, many farm and ranch families are forced to make tough choices at the time of death – and in worst case scenarios, must sell off land to meet their federal tax burden,” said NCBA President Jerry Bohn.
Estate taxes are a particular concern for farmers and ranchers because they are based on the market value of the asset; given the consistent appreciation in agricultural land and assets, this can be very high for farm and ranch families. A limitation on the estate tax exemption means that each year, fewer and fewer farm families will be protected from the estate tax– making it harder and harder for family operations to span generations.
A 2019 study by the USDA’s Economic Research Service indicated that 98% of the 2-plus million farms in the U.S. were family operations. With more than 40 percent of farmland expected to transition in the next two decades, Congress must prioritize policies that support land transfers to the next generation of farmers and ranchers.
Most farm and ranch estate values can be attributed to non-liquid assets such as the fair market value of land, livestock, and equipment. Often farmers and ranchers find themselves asset rich but cash poor, complicating how they can pay estate taxes.
“As small business owners, environmental stewards, and the economic backbone of rural communities across the country, U.S. cattle producers understand and appreciate the role of taxes in maintaining and improving our nation. However, they also believe that the most effective tax code is an equitable one. For this reason, NCBA ardently supports the Death Tax Repeal Act of 2021,” Bohn said. Earlier this month, NCBA sent a letter to Senator Thune, as well as Reps. Bishop and Smith in support of the bipartisan legislation.
“We are incredibly grateful to those who took the lead on this issue,” said NCBA’s Senior Executive Director of Government Affairs Danielle Beck. “We know stepped up basis, which is critically important to our producers has been talked about as a potential revenue raiser, as well as changes to lifetime exchanges.”
Beck said they will be calling on producers to engage with their representatives as well. “We will continue communicating that information to people on the Hill.”