Estate Tax Changes Considered In Congress

Proposed changes to farm estate taxes are a sign of the strong feelings that exist for changes to the current tax code, but some schemes could have significant effects to family farms, according to a white paper published by the Illinois Farmdocdaily.

Economists Krista Swanson, Gary Schnitkey and Nick Paulson from the Department of Agricultural and Consumer Economics at the University of Illinois, along with Karl Zulauf from the Department of Agricultural, Environmental and Development Economics at the Ohio State University, did the study.




The legislators introducing the bills were aiming to target the nation’s largest billionaires.  One seeks to lower estate tax exemption levels to $3.5 million from $11.7 million and an incremental increase estate tax rates based on the inheritance’s value over the $3.5-million cutoff.

Under that proposal, there is a provision allowing farmers to lower the value of their farmland by up to $3 million for estate tax purposes and increase maximum exclusion for conservation easements.  But many farms still would be subject to more inheritance taxes.

The other would remove the step-up in basis provisions at the time of death and create a new transfer tax – separate from the estate tax and gift tax – that would apply to transfers of property in a farm estate at death and gift transfers made during a lifetime.  Land, for instance, would be taxed on the increase in value since it was purchased and not on the value at the time of inheritance.




The proposals raise major philosophical questions:

–What should the role of the federal government be in facilitating the transfer of business from one generation to another?

–What about small, family-owned businesses whose assets often surpass $3.5 million?  For farmers and other small business owners these assets also are necessary for the operation of the business where the family members work and generate a labor-based income as opposed to the wealth-based income that the bills seek to target.

There would be considerable effect on farms and other family businesses paying sizable capital gains tax and estate tax at each generation.  Being forced to sell land or other assets needed to operate the business is likely among the implications of such changes.

Farmers with estate plans created based on the current tax law should be prepared to make changes if these bills or similar legislation is passed, the economists said.




Fed cattle trading this week was reported in the Plains at $120 to $123 per cwt on a live basis, up $2.50 to $4 from last week.  Dressed-basis trading last week was at $184 to $190 per cwt, unchanged to up $5.

The USDA choice cutout Wednesday was up $3.54 per cwt at $266.31, while select was up $3.89 at $255.19.  The choice/select spread narrowed to $11.12 from $11.47 with 101 loads of fabricated product and 16 loads of trimmings and grinds sold into the spot market.

The USDA reported Wednesday that basis bids for corn from livestock feeding operations in the Southern Plains were unchanged at $1.25 to $1.28 a bushel over the May CBOT futures contract, which settled at $5.60 1/2 a bushel, up $0.06 1/4.

There were 10 heifer and no steer contracts tendered for delivery Wednesday against the Apr futures contract.  Nineteen more heifer and 42 steer contracts were retendered at 1, and 34 steer contracts were retendered at two.  Thirty-four steer contracts were demanded at two, and 35 steer contracts were reclaimed at one.

The CME Feeder Cattle Index for the seven days ended Tuesday was $139.98 per cwt, up $0.28.  This compares with Wednesday’s Apr contract settlement of $147.62 per cwt, up $1.15.