New details for a potential $3.5 trillion spending and tax package were released by the House Ways & Means Committee on Monday Sep. 13, including a proposal for funding new policies advanced by Democrats.
According to Krista Swanson, Gary Schnitkey and Nick Paulson of the University of Illinois Department of Agricultural and Consumer Economics, in the Illinois farmdocDaily, this package includes proposals for several changes to the tax code intended to generate additional tax revenues. Several of these provisions could affect farmers.
However, two tax changes proposed earlier in the year were not included: a new tax on property transfer to attain a step-up in basis and limitations on like-kind exchanges, the economists said.
Several proposals would increase taxes including changes that would lower the estate tax exemption level, increase the top capital gains tax rate and increase the top tax rate for ordinary income, they said. Some proposed changes, such as the change to the special use valuation for farm estates and corporate income tax changes could lower taxes for some farm families.
This proposal will be subject to mark-up before reaching a vote on the House floor, and the Senate has not released its tax proposal, which may or may not follow the same pattern, the study said.
ESTATE TAXES
While this proposal did not include the transfer tax, it does propose lowering the unified credit, or exemption level, referring to a set amount that an individual can gift before becoming subject to any gift or estate taxes, the economists said. It would lower the existing estate tax exemption level from an inflation adjusted $10 million per individual ($11.7 million for 2021) to an inflation adjusted $5 million per individual.
The proposed exemption level is the same that existed prior to the 2017 Tax Cuts and Jobs Act that doubled the estate tax exemption, they said. Only 0.16% of US farm operator estates owed estate taxes in 2020 under the existing exemption. More would owe estate taxes if this limit passes.
Though lowering the exemption level would increase the number of farm estates owing estate tax, a separate move related to estate taxes could alleviate that for some farms, particularly those located in areas where farmland is highly valued for other purposes.
The House proposal updates the Special Use Valuation for Certain Real Property Used in Farming or Other Trades or Businesses. This would allow descendants who own real property used in a farm or business to value the property based on actual use instead of fair market value in determining the value for estate tax purposes.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $124.22 to $125.56 per cwt, compared with last week’s range of $122.43 to $127.40. FOB dressed steers and heifers went for $195.05 to $196.41 per cwt, versus $192.44 to $203.38.
The USDA choice cutout Tuesday was down $4.29 per cwt at $311.37, while select was off $2.74 at $278.01. The choice/select spread narrowed to $33.36 from $34.91 with 119 loads of fabricated product and 56 loads of trimmings and grinds sold into the spot market.
The USDA reported Monday that basis bids for corn from livestock feeding operations in the Southern Plains were unchanged at $1.85 to $2.05 a bushel over the Dec futures and for southwest Kansas were unchanged at $0.40 over Dec, which settled at $5.17 a bushel, down $0.04 3/4.
The CME Feeder Cattle Index for the seven days ended Monday was $153.77 per cwt up $0.02. This compares with Tuesday’s Sep contract settlement of $154.85 per cwt, down $0.15.