Few Farmers Pay Federal Estate Taxes

This story has been updated.

Federal estate taxes. They’ve been the subject of debate for decades. Farmers loathe them and small business owners are terrified of them. Yet, very few farmers ever have to pay them.

On February 4, 1981, Laura Lane, a farmer and contributing editor to Farm Journal Magazine testified before a special committee of the United States Senate about the importance of repealing the death tax. She was elderly and had chosen not to get married, so she found herself in a category of taxpayers she felt were often overlooked.

“I am going to speak to three instances of statutory or regulatory discrimination and injustice,” she testified. “You heard something about each of one of them, but I want to make some particular points about each.”

Lane went on to outline that women should be recognized as contributing financially when they own or work on a farm, contrary to the section of tax code at the time she coined “widow’s tax.” She also pointed out the double standard in estate taxes at that time: if the husband died first the wife was required to pay estate taxes, but if the wife died first, no taxes were filed. Also during that period, widows were not eligible for special use valuations under the tax code.  Her third point of contention at that time was that farmers and their spouses were ineligible to set up an IRA account and reap its benefits.

Lane was a feminist and an advocate for farmers. In her time, estate taxes were the thorn in the side of American agriculture.

Is that still true today? Philosophically it is, but thanks to an updated tax code and copious estate planning on behalf of farmers, few farmers pay federal estate taxes.

The USDA estimates that only 0.6 percent of farms currently in business would someday have to pay estate taxes. For example, if every farm in the U.S. went out of business in 2016, roughly 38,000 of those farms would have to pay taxes according to USDA’s Economic Research Service.

Today, any married couple with less than $11 million is assets is exempt from federal estate taxes and if the land will remain in agriculture for another 10 or more years, there’s an addition $1 million special use valuation. As a result, 120 farms per year are required to pay any amount of federal estate taxes, according to the Nonpartisan Tax Policy Center.

So why does the death tax get brought up in Congressional debate almost every year?

John Dillard an attorney at Washington D.C. Law firm, OFA Law says, “Billionaires are exploiting America’s sympathy for farmers in this debate.”