House Approves Gradual Estate Tax End

April 5, 2001

The House approved legislation Wednesday to repeal the estate tax over the next 10 years. The American Farm Bureau Federation called it a "victory for America's family farmers and ranchers, and the future generations of producers who will help feed and clothe the world." Two prominent agricultural economists, however, advocate reform, not repeal of the estate tax.

"Farms and ranches are the backbone of rural America, and the loss of these family businesses to pay the death tax hurts the families of deceased producers, the rural communities that depend on farming and the general health of American agriculture," said AFBF President Bob Stallman. "With rates as high as 55%, farm assets-the land, buildings, equipment, livestock and other capital items it takes to run a farm-are often sold-off to pay the tax man's death invoice."

He said those who argue that the death tax's impact on farms and ranches can be minimized through estate planning or an increase in the estate tax exemption are mistaken. He said only full repeal can erase the burden and uncertainties of estate tax planning.

The would phase out death taxes over 10 years by reducing tax rates 5% per year until the tax is gone. It also immediately increases the exemption to $1.3 million and continues the stepped-up basis for $5.6 million of assets per couple.

In their paper, A Framework for Short-Term and Long-Term Improvements in U.S. Agricultural Policies, John A. Schnittker and Neil E. Harl argue that the estate and gift tax system should be "amended and continued." It "plays a role in taxing increases in value that are not subject to income tax; it encourages charitable giving; and it makes a modest contribution toward moderating the dramatic increase in concentration of wealth in recent years," they write.

Relatively few operators of farm businesses are affected by the federal estate tax, Schnittker and Harl add. "However, it would be prudent to increase the exemption amount to around $4 million per couple, from the $2.6 million exemption now in force. It is also vital that modest-sized estates receive a complete step-up in the income tax basis at death.

The entire Schnittker-Harl paper is on the Internet at http://www.econ.iastate.edu/faculty/harl/SchnittkerHarlBriefing.htm.