Agriculture looks to be a big winner as a result of the 2016 election. Two of its longest-standing grievances are quite likely to be addressed.
My assumption is the federal estate tax will be one of those despised policies to be eliminated. How will this affect agriculture?
My estimate is hardly at all, and not as expected. Listening to the complaints about the estate tax as it existed before 2017, you would think virtually every farm risked a lifetime’s accumulation of wealth being confiscated at death.
The mundane facts show otherwise. Only about 20 small businesses pay any estate tax every year and most of those were likely not farmers. Indeed, estate-tax opponents are routinely confounded when asked to show an example of a farm sold to pay taxes.
Existential Threat. This is not to say it couldn’t happen, but modest common-sense preparations and the typical size of a farm estate make the approximately $10 million umbrella pretty roomy. Relief from a phantom menace (sorry, couldn’t resist) might have some emotional value, yet no backs will be straightened by the removal of a non-existent burden. The net gain for farmers is little more than an end-zone dance.
This tax change, though, is an existential threat to the estate-planning industry. My guess is farm magazines will have to find about 30 pages every year of other stuff to write about, for example. The estate tax, or more properly the fear of it, created an industry that could charge farmers 99¢ to save a them a dollar of taxes.
Business consultants won’t need to devise strategies to make farm transitions tax-free. Because gift taxes are part of the estate tax, who needs cunning schemes to handle farm allocation? Farmers can just give land or other assets away whenever they want. On the other, far more likely hand, they can hold onto everything until death doth them part. Without the vague threat of money siphoned off to the government, uncomfortable conversations about the farm after—well, you know—will be easier. Because they won’t happen.
Step Back. One caveat is the Trump tax-reform element of taxing previously exempt capital gains in larger estates valued at more than $10 million. The basis step-up, which costs roughly as much revenue as the estate tax generated, could be revised to bigly impact heirs who sell.
Longer-term, this win for farmers might have oblique side effects. Ineffectual as it was because of the ease with which it could be avoided, the estate tax became a symbolic brake on the concentration of wealth. Elimination of the tax also poses a $60 billion government revenue shortfall that is almost entirely paid by a few thousand very large estates. Any replacement source will almost certainly be more regressive. The need for cash to pay estate taxes will evaporate, suggesting insurance sales to farmers could plummet.
Minimal Impact. The end of the estate tax will be a problematic win for farm organizations, especially the American Farm Bureau Federation. The “death tax” reliably allowed people from all sectors of agriculture to bond over their outrage. With its demise, and the probable obstruction or delay of the Waters of the U.S. (WOTUS) rule, farm groups will return to internal bickering over subsidy-dollar shares, ethanol and feed prices, or single-sector issues.
For too long, those two trusty enemies have been the ties that bound us across commodities. Worse still, these issues provided political camouflage for the reality that farmers rely heavily on taxpayer support and government regulation.
For almost all farmers, the estate tax and WOTUS were not really about profit or the destiny of our acres. Farmers hated perceived infringement on our self-defined freedom, despite the limited effects. The satisfaction of victory won’t boost our bottom lines.