With budgets tight and tables turning on Capitol Hill, what once looked like a friendly environment for a permanent repeal of the estate tax, now looks impossible.
Today the majority of Congressional members no longer support full repeal, and it is likely something will be passed before the end of the year to prevent the one year of repeal from going into effect, tax specialists predict.
Currently, the estate tax - also termed the "death tax" - is set at 45% for estates worth more than $3.5 million (or $7 million for a couple). The President's budget proposed freezing the estate tax at this level so it could be dealt with at a later date.
If Congress does not freeze the tax at this level, the estate tax would be eliminated completely in 2010. However, in 2011, it would revert to pre-2001 tax levels, and estates worth more than $1 million would be taxed at a 55% rate.
If the estate tax law does expire in 2010, estates would also lose the "stepped-up basis," which adjusts the value of property for inflation at death and impact what you pay capital gains on. Pat Wolfe, American Farm Bureau Federation tax specialist, said she expects capital gains will be moved separately from the estate tax.
H.R. 3905, the Estate Tax Relief Act of 2009, was recently introduced by Congresswoman Shelley Berkley. D-Nev., along with Representatives Kevin Brady, D-Texas, Devin Nunes, R-Calif., and Artur Davis, D-Ala. It would raise the estate-tax exemption through a phased approach, starting at $3.5 million in 2009, and increasing by $150,000 each year until 2019 when the exemption would permanently level off at $5 million.
The phase-out of the tax would work the same way: decreasing from 45% to 35% by 1% increments from 2009 to 2019. The bill is indexed for inflation after 2019.
Agriculture organizations continue to push for an exclusion of farm assets from the estate tax as long as the estate continues as a farming operation in addition to the highest estate tax exemption level possible. H.R. 3524, the Family Farm and Conservation Preservation Act allows for this exclusion. It is sponsored by Congressmen Mike Thompson, D-Calif., and John Salazar, D-Colo.
Earlier this year an amendment by Sen. Blanche Lincoln, D-Ark., and Jon Kyl, R-Ariz., was included in the Senate budget resolution to raise the death tax exemption to $5 million per individual and $10 million per couple, indexed for inflation. While the amendment wasn't included in the final bill passed in conference, the National Cattlemen's Beef Association noted its passage in the Senate "demonstrated strong bipartisan support for death tax reform."
There is some support H.R. 3905 as a first step in finding a permanent fix for the estate tax.
"This bipartisan bill is a step in the right direction towards a permanent solution that will allow farmers and ranchers to better plan for the future of their operations," said Jill Davidsaver, NCBA manager of legislative affairs." If Congress doesn't act soon, it will be too late. Allowing the estate tax to revert to pre-2001 levels will be a death warrant for small-to-medium sized family businesses."
The Farm Bureau states that extending the current estate tax exemption of $3.5 million per person and the tax rate at 45%, is a "non-starter for Farm Bureau, which supports an increase in the exemption to $10 million a person."
"We recognize full repeal is not an option, but a simple one-year extension is unacceptable for our members," adds Davidsaver. "NCBA is continuing to fight for meaningful and long-term relief for producers so they can keep their operations intact and hand them down to future generations."
The death tax is considered one of the leading causes of the breakup of multi-generation family farms and ranches. According to the U.S. Department of Agriculture's (USDA) Economic Research Service (ERS), farm estates are 5-20 times more likely to incur estate taxes than other estates.
In fact, according to ERS estimates, one in ten farm estates (farms with sales of $250,000 or more annually) are likely to owe estate taxes in 2009. Most of the time, these assets have already faced taxes two or three times over the course of a lifetime.
Policy is one of the most important issues facing farmers today, but often the most difficult to digest. Jacqui Fatka has a passion to decode the often difficult world of agricultural policy into terms understandable for today's ag players.
Fatka joined the Farm Progress team as E-Content Editor in August 2003 after graduating from Iowa State University. Prior to full-time employment with Farm Progress, she interned at Wallaces Farmer magazine, Iowa Sen. Chuck Grassley's press office and the Iowa Pork Producers Association and freelanced for National Hog Farmer. She also worked as a public relations consultant with Iowa Industries for the Future, an effort to bring together major players in the biorenewables industry.
Currently Fatka is a staff editor at a sister publication, Feedstuffs. For Farm Futures she regularly tells the story of ongoing agricultural policy changes. Her byline can also be found on management profiles.
Fatka grew up on a grain and livestock farm near Atlantic, Iowa. She currently lives in central Ohio with her husband Eric.
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