Montana Farm Bureau

The Montana Farm Bureau has expressed strong dismay that S. 3412, the Middle Class Tax Cut Act, passed yesterday in a 51-48 vote. The state’s largest agricultural organization noted that if anything, the legislation isn’t going to help, but harm, family business and especially family farms and ranches. The bill did not include any extension for the estate tax rate, meaning in 2013, the death tax will increase from 35 percent to 55 percent, and the estate tax deduction will decrease from $5 million to $1 million with no spousal transfer.

“Montana Farm Bureau was extremely dismayed at this vote, especially when both of our senators, who come from farm families, voted yea,” said MFBF President Bob Hanson. “We’ve been saying over and over again that raising the rate of the death tax and decreasing the deduction could be the death knell for transferring family farms, ranchers or other businesses to the next generation.”

Hanson explains that non-liquid assets, such as machinery, buildings and land, are continually increasing in value. “According to the report ‘Costs and Consequences of the Federal Estate Tax’ just released by the bi-partisan Joint Economic Committee, the estate tax is a significant hindrance to entrepreneurial activity since many family businesses lack sufficient liquid assets to pay estate tax liabilities. In 2010, liquid assets in agriculture comprised only 12 percent of total assets whereas hard assets (including land and buildings) comprised 88 percent of total assets. Alone, real estate accounted for approximately 85 percent of farm assets in 2010.”

He says farmers or ranchers who have to sell land and equipment to generate enough cash to pay a hefty federal estate tax often don’t have enough money left to keep their business viable. “If you sell most of your grazing land, or several expensive pieces of farm equipment to pay the death tax, you won’t have what you need to keep producing food,” Hanson said. “It’s a real travesty.”

According to the report, there are extensive costs associated with the estate tax in terms of the dissolution of family businesses, slower growth of capital stock and a loss of output and income over time. This can be particularly hard on farm families, who own 98 percent of the nation’s 2.2 million farms.

The report found that estate tax impedes economic growth because it discourages savings and capital accumulation. Gaining access to capital is vital to farms and rural economies.  Currently, in some parts of the country including Montana, land values have increased over $10,000 per acre. Further, land values from 2010 to 2011 increased on average 25 percent and have greatly expanded the number of farms and ranches that now top the estate tax $5 million exemption which is easily reached when the bulk of your asset value is the land you farm.

“The estate tax creates a steep barrier for young people trying to get into farming and ranching,” notes Hanson. “With 58 being the average age of a farmer, we should be trying to make things easier for young people instead of making it almost impossible to get into ag because of these outrageous tax laws. If a farmer’s or rancher’s heirs have to pay the rate of 55 percent of the estate with an exemption of $1 million, it will put Montana agriculture out of business in one generation.”