A storm of estate taxes threatens farm country
Two recent news reports contained troubling year-end news for farm families.
Farmland values are booming. Minnesota farmland prices are nearly 30 percent higher than a year ago, according to the Federal Reserve Bank of Minneapolis. It’s a similar catastrophe in Iowa where an Iowa State University survey shows high corn and soybean prices have driven average farmland values to a new record of almost $7,000 per acre.
I know what you’re thinking: “Isn’t that good news for farmland owners?”
Well, yes, it is good news. That is, unless the farm family patriarch or matriarch dies after December 2012, when current estate tax relief will end. Higher farmland values mean that more people will face the difficult task of figuring out how to pay the estate tax and keep the farm in the family -- without having to sell land or other assets needed to farm.
Estate tax relief would have expired last year, but Congress passed a bill to set the exemption at $5 million and the top tax rate at 35 percent for two years. Unless Congress extends the exemption and rates, or even better, eliminates the estate tax, a $1 million exemption and a top tax rate of 55 percent will kick in on Jan. 1, 2013.
Farm families will be outside the exemption on as few as 143 acres in Iowa, where the average farm size is about 330 acres. In Minnesota, the transfer of just 166 acres from one generation to the next will come with a tax bill of hundreds of thousands of dollars.
For all the talk these days about buying local food from family farmers, you’d think that keeping farms in the family would be a top priority for Congress. But if estate tax relief expires, then it’s almost certain that some of today’s farm families will be selling land rather than selling corn and tomatoes at the local farmers’ market or grain at the local elevator.
Some are able to avoid the tax through savvy planning. But, the cost of estate tax planning, an ongoing endeavor due to changes in farm structure and tax law, is a heavy burden on a farmer’s bottom line in a time of high production costs.
While farm income rose 28 percent this year, production expenses rose 12 percent to $320 billion. Some agricultural experts warn that increases in costs for feed, fertilizer, and fuel -- and land -- could outpace increases in farm income after 2013, due to the cyclical nature of crop profitability. They advise farmers and ranchers to save now for the rainy days ahead, something that’s easier to do if you don’t have to pay lawyers and estate tax planners.
Today’s record-breaking farmland values should indeed be good news for farmers, but the threat of estate taxes to their families’ ability to continue their agricultural heritage puts a damper on things. Farmland values combined with the expiration of estate tax relief and the aging of America’s farmers and ranchers forecast a perfect storm that could leave fewer farms in business to feed their communities and our nation.
Congress needs to take action early next year to stop this gathering storm.
Lynne Finnerty is editor of FBNews, the American Farm Bureau Federation’s official newspaper.