As the discussion of estate taxes continues to be discussed within the infrastructure proposals and Biden’s American Jobs Plan and American Families Plan, Congressional members introduced the Estate Tax Reduction Act, legislation to reduce the estate tax to 20%—half of the current top rate of 40%. This bipartisan, bicameral legislation was introduced by Sen. Joni Ernst, R-Iowa, along with Sens. Tom Cotton, R-Ark., and John Boozman, R-Ark., and in the House by Reps. Jodey Arrington, R-Texas, and Henry Cuellar, D-Texas.
Farms with assets above the estate tax exemption often must liquidate some of those assets to meet estate tax obligations, which can reach as high as 40% of the taxable amount. During 2020, the national average value of farm real estate, including all land and buildings on farms, was $3,160 per acre.
According to an American Farm Bureau Federation analysis, the proposed estate tax exemption’s lower level threatens more than 74,000 family farms across the country and nearly half of all farmland. Based on the most recent Census of Agriculture, more than 74,000 family farmers were operating 2,000 or more acres in 2017, suggesting that approximately 3.6% of the more than 2 million family farms could potentially have farm assets that exceed the estate tax exemption.
The United States currently has the fourth highest estate and inheritance tax among developed countries, just behind France. Much of the value in family-owned businesses are in hard assets and must be sold when the owner passes away, thus endangering the ability of a family business to survive between generations, the legislation authors note.
Only 30% of family-owned businesses survive the transition from first to second-generation ownership, 12% survive from second to third-generation ownership, and just 13% of family businesses remain in the family for more than 60 years.
“Iowa’s dedicated farmers and small business owners take tremendous pride in their work, and they look forward to passing their ventures on to the next generation. These folks shouldn’t be prevented from safeguarding the legacy of their businesses due to the punitive estate tax. That’s why I’m proud to support this bipartisan, bicameral bill that would cut the estate tax in half and help remove the unfair burden this mandate creates,” says Ernst, a member of the Senate Small Business Committee and Senate Agriculture Committee.
"Families shouldn't have to sell major portions of their businesses or farms after the death of a parent just to afford the 40% estate tax. Breaking apart a family's livelihood is neither fair or good for the economy, especially since families are often forced to sell to large corporations. My legislation would cut that rate in half, bringing the rate in line with the current capital gains rate and making it much easier to preserve a family's legacy and way of life," says Cotton.
“Arkansas’s family farmers and small business owners shouldn’t be punished for passing what they’ve established, grown and maintained onto the next generation,” adds Boozman. “Our bill reduces this burden and gives these entrepreneurs and job creators more assurance that their years of hard work and investment can be carried on by their children and grandchildren instead of being forfeited to the federal government.”
Earlier this year, many of the same authors joined an effort to permanently repeal the federal estate tax. The Death Tax Repeal Act of 2021 would finally end this tax that has the potential to hit family-run farms, ranches and businesses as the result of the owner’s death.
Efforts were made to repeal the estate tax while Congress considered the Tax Cuts and Jobs Act (TCJA) in 2017. Although the final version of the TCJA did not repeal the death tax, the law doubled the individual estate and gift tax exclusion to $10 million ($11.7 million in 2021 dollars) through 2025, which will prevent more families from being affected by this tax.
After Dec. 31, 2025, the exemption amount returns to $5 million per individual adjusted for inflation, as set by the American Taxpayer Relief Act of 2012. Previously the Economic Growth and Tax Relief Reconciliation Act of 2001 had gradually raised the exemption amount from $675,000 to $3.5 million in 2009.