Members of Congress have introduced new legislation to permanently remove the federal estate tax, often referred to as the death tax. Sen. John Thune (R-SD) and Reps. Sanford Bishop (D-GA-2) and Jason Smith (R-MO-8) introduced the Death Tax Repeal Act of 2021 in early March. The legislation is backed by the National Cattlemen’s Beef Association (NCBA), as well as American Farm Bureau Federation (AFBF).
“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.
Thune introduced similar legislation in 2019, but it did not receive a vote in Congress. The 2021 Senate version has the support of 25 Republican cosponsors, while the House of Representatives companion legislation has 120 cosponsors, although Bishop is the only Democrat.
The Tax Cuts and Jobs Act of 2017 included an estate tax exemption, which expires in 2025, that requires an estate to file and pay taxes when gross assets exceed $11.58 million per person. After 2025, the exemption amount returns to $5.5 million per individual adjusted for inflation, as set by the American Taxpayer Relief Act of 2012.
NCBA wrote a letter to the legislation sponsors, saying, “While these changes provide significant relief on a temporary basis, they are set to expire in 2026 and the estate tax will once again become a significant obstacle to keeping family-owned cattle operations intact and viable during generational transfers.”
The Death Tax Repeal Act of 2021 would remove the estate tax entirely.
Estate tax implications
Farms with assets above the exemption level often must liquidate some assets to meet estate tax obligations, which can reach as much as 40 percent of the taxable amount, according to a 2020 AFBF analysis.
“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,” the analysis read.
By repealing estate taxes, or even making the current exemptions permanent, farmers and ranchers would be able to avoid at least partially liquidating inherited farm assets.
In 2020, the national average value of farm real estate, including land and buildings, was $3,160 per acre. It would take about 3,700 acres to reach the current $11.58 million exemption. Over the past decade, value of farmland has increased by nearly 50 percent. This means that in 2020, it took 32 percent fewer acres to reach the exemption level in 2020 than it did in 2010.
Census of Agriculture data shows 74,000 family farmers operated 2,000 or more acres in 2017, meaning about 3.6 percent of the total 2 million family farms could have assets that exceed the exemption level. This accounts for nearly 50 percent of farmland in the U.S. that faces liquidation pressure after the transfer of assets after death, AFBF said.
If the current exemption level were not made permanent, or if the legislation to repeal the tax is not passed, in 2026 the threshold for triggering the estate tax would be adjusted down to 1,800 acres. This would impact more than 156,000 farms, or nearly 8 percent of farms, and more than 582 million acres.
“Farming and ranching is capital-intensive; yet farmland, cropland, buildings and machinery are highly illiquid assets. As a result, family farms have few options to generate cash to pay the estate tax,” the analysis read.
AFBF concluded, “Given the demographics in agriculture, it’s critical that Congress eliminates the death tax—or at the very least make the current $11.6 million exemption permanent so that family farms across the country can continue their agricultural legacy.”
According to NCBA, 2,000 acres of agricultural land is converted every day, and 40 percent of farmland is expected to transition in the next two decades.
“As small business owners, cattle producers understand and appreciate the role of taxes in maintaining and improving our nation,” Bohn said. “However, they also believe that the most effective tax code is an equitable one.
“For this reason, NCBA ardently supports full and permanent repeal of the estate tax.” — Anna Miller, WLJ editor
