Grand Forks Herald
July 21, 2006 Friday
North Dakota: EDT
VIEWPOINT
Tax seldom, if ever, forces farm sale
Neil Harl
A column by Doug Goehring, Republican candidate for North Dakota agriculture
commissioner, has come to my attention.
The column is misleading with several untrue statements.
It is a myth that farms are hurt by the federal estate tax. That has been an artfully
spun tale by a group of very wealthy families over the past decade, and it is
untrue.
In 2001, I was quoted in the New York Times as saying that I never had seen a
farm that had to be sold to pay federal estate tax. That still is the case. My
observations range over more than 45 years with more than 3200 seminars in 43
states for farmers, bankers, attorneys, CPAs and others, including many all-day
seminars in North Dakota.
The American Farm Bureau Federation was quoted, in the same article, as
saying that "it could not cite a single example of a farm lost because of estate
taxes." A few days later, the federation put out a notice to its offices asking for a
search for farms lost to pay federal estate tax. It is my understanding from
informed individuals that the group never locate one.
There are very good reasons why that is the case. First, each decedent presently
can pass $2 million in asset value without paying federal estate tax. That is $4
million for a husband and wife. Second, Congress has been very generous over
the years and allows a substantial reduction in valuation of farm land (under
special use valuation) at death, with the discount now totaling as much as
$900,000.
Also, there are various other discounts that can be claimed, including a coownership discount (usually around 20 percent) and an entity discount (often 35
percent, sometimes higher).
My research in this area indicates that fewer than 1 percent of farm estates have
to file a federal estate tax return and even fewer have to pay any federal estate
tax. Interestingly, decedents with estates over $20 million have the largest
average amount of farm property - $992,738 in 2004. That group includes very
few bona fide family farmers.
If there is anyone who might complain, it is the Ted Turners of the world, who
have been buying up large land tracts throughout the Plains states. In 2004, the
top 808 estates (those with estates exceeding $20 million in taxable estate that's above the exclusion amount) paid an average of $3,990,625 in federal
estate tax.
That is the measure of tax benefit had the federal estate tax been repealed in
2004.
Contrary to Goehring's assertion that repeal of the federal estate tax would not
"take one cent out of the federal coffers," $21.5 billion was paid in federal estate
tax in 2004, and the figure is expected to be higher in 2006 because of the rapid
run-up in estate values.
At a time when the federal budget deficit is running at an alarming level, throwing
more than $20 billion out of the federal revenue stream should be of concern to
anyone worried about fiscal responsibility. Unless spending is cut, every dollar
lost from federal estate tax repeal must necessarily be made up with another
source of revenue. Is a hike in income tax more palatable?
Finally, the top rate for deaths in 2006 is 46 percent (not 55 percent as stated by
Goehring), and that rate is paid by a tiny, tiny fraction of the estates.
I might add that for years, North Dakota has ranked at or near the bottom in the
average amount of federal estate tax paid per estate. The big run-up in wealth in
recent years has largely bypassed the states that are heavily agricultural.
Finally, the big worry for farms and ranches should be the possible loss of the
new income tax basis at death. The repeal provision passed in 2001 would, after
2009, drop the concept of a completely new basis for assets held at death. That
is of concern to everyone who inherits property, up and down the income and
asset scale.
Harl is the Charles F. Curtiss Distinguished Professor in agriculture and an
emeritus professor of economics at Iowa State University.