On Tuesday, the President addressed our great nation to discuss his legislative agenda and motivate both those in attendance and the nation. For the most part, it was a rather typical address. The President named, one by one, a laundry list of things he plans to accomplish, with most things followed by roaring applause from one side of the room and deafening silence from the other. President Obama mentioned many things that, despite my personal disagreement, didn’t bother me too much since a lot of them don’t stand a chance of coming to fruition. However, there was one item that churned my stomach and should scare the agricultural community. In an attempt to make a more “fair” tax system, the President plans to “eliminate loopholes” in the tax system by increasing the already-high Estate Tax. To the average listener, this may have seemed like a push for tax equality. In reality, it is a devastating blow to the future of the American family farm.
The Estate Tax, also known as the “Death Tax” or “The worst tax in the history of taxes,” has long been a thorn in the side of the American Dream. The modern Death Tax began in 1916 in an effort to boost the country’s income by taking money from people who don’t need it: dead people. The tax was likely passed with good intentions. This was a tax that was intended to come from unearned inheritances left by wealthy businessmen for their kids. “His/Her kids earn it, so why not tax it?” was likely the rationale. Lawmakers applauded the “tax on the rich” when, in reality, the worst part of the tax fell on our farmers.
Farmers, by and large, are not “rich people.” They are rich in values, integrity, and character, but seldom in money. A farmer may bring home $75,000 dollars or more in a good year. But if drought or low prices strike, a farmer could be looking at an annual income that is in the red. These aren’t the people who were targeted with the death tax, but since farming is an expensive gig, the value of their land and equipment could easily put them above the current $5.25 million capital gains exemption.
Farm land is a hot commodity in the US. While the government may print more money, it can’t print more land. And with an increasing population and urban expansion, demand for land–especially fertile land–is skyrocketing. According to the USDA Land Values 2013 Summary, the average value of an acre of farmland for the entire US is $2,900. In Iowa, where the ground is optimal for row-crop production, the average is $8,600 per acre! So a 500 acre farm in the Hawkeye State has an average value of $4.3 million, and that is just the soil! Add in buildings and equipment (a combine harvester alone can cost upwards of $300,000), and the farmer can easily be seen as a wealthy person in the eyes of the taxman. Unlike other investments, however, farming does not yield lofty returns. After paying for seed, fertilizer, herbicide, labor, and a myriad of other expenses, farmers may do well just to break even.
When a farmer dies, his children will be taxed as heavily on their parent’s farm as they would be if they were left a mountain of cash from an oil tycoon. That’s downright disgraceful. Many will not have the cash to pay that tax, and will have no choice but to sell the farm. Whether this affects just one farm or one million farms, this tax is abhorrent. No family should have to part with their farm just because a loved one died.
What does this mean for college students? For the agriculture majors who plan to go back to their family farm, it means that their career could be in jeopardy. Farming has already lost it’s appeal to most graduates and now many who want to take over farms won’t be able to. Exactly who will grow our food if farmers can’t afford to?
Fortunately, the farmers have a friend in the Senate when it comes to this issue, and his name is Mitch McConnell. The Senate Majority Leader spoke about the death tax at the Kentucky Farm Bureau Country Ham Breakfast (which I had the honor of attending) several months ago. McConnell made it extremely clear to the audience that he was no fan of the death tax. “My single top priority for the last decade for American Agriculture, and in particular Kentucky Agriculture, would be to get rid of the death tax all together,” the senator said proudly as the audience applauded. At the time, he was minority leader, and with his new position of influence, it’s a good bet that any bill that raises the death tax will die before it leaves Capitol Hill.
“I’ve always felt it was the government’s final outrage that you had to visit both the IRS and the undertaker in the same day.”
– Senator Mitch McConnell, (R-KY)
There is a big opportunity for future farmers to capitalize on the upcoming tide of farm transitions, but that will become less appealing if President Obama has his way. It has been stated by the USDA that in the next 20 years, around 70% of private farm land will change hands. Let’s pray that it goes from parent to child, not from parent to government.