Members of Congress are again looking to repeal the estate tax, commonly referred to as the death tax among agricultural circles. Although the tax reforms enacted during the Trump Administration offered a limited repeal of the estate tax, this bill would allow for a complete repeal of the estate tax.
The Death Tax Repeal Act of 2021 was introduced this week by Sen. John Thune, R-S.D. with 25 Republican co-sponsors, and Reps. Sanford Bishop, D-Ga., and Jason Smith, R-Mo., who have 120 -cosponsors, however, Bishop is the only Democrat. Some Democrat proposals have threatened an elimination of the estate tax as well as stepped-up basis.
Thune led the Senate’s effort 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.
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 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.
These 74,000 farms operate more than 449 million acres, indicating that nearly 50% of the farmland in the U.S. could face increased liquidation pressure upon the transfer of assets at death. If the estate tax exemption were reduced to $3.5 million, it would require slightly more than 1,100 acres to reach the exemption level. Based on state-level data, more than 243,000 farms, or 12% of operations nationally, would be impacted, writes John Newton, AFBF chief economist in the analysis.
“Given the demographics in agriculture, it’s critical that Congress eliminates the death tax -- or at the very least make the current $11.6 million exemption permanent so that family farms across the country can continue their agricultural legacy,” Newton concludes.
“Kentucky farm families and small businesses have enough to deal with during this pandemic. They shouldn’t also have to worry about an unfair death tax when they pass their livelihoods down to the next generation,” says Senate Republican Leader Mitch McConnell, R-Ky. “Unfortunately, Washington Democrats want to double down on the federal government’s final insult and force more grieving families to visit the undertaker and the IRS on the same day.”
“The estate tax may be the most unfair tax on the books,” says Senate Finance Committee Ranking Member Mike Crapo, D-Idaho. “High federal taxes should not prevent a family farmer, rancher or other business owner from passing the business they built onto their children. This unfair tax must be permanently repealed.”
Bishop, the sole Democrat co-sponsor notes, “I have always believed that the death tax is politically misguided, morally unjustified and downright un-American”, says Bishop. “It undermines the life work and the life savings of farmers and small- and medium-sized businesses in Georgia and across the nation. It is high time that we put an end to this unfair tax and pass this important legislation.”
Forced to divert resources
If the estate tax is not eliminated, instead of spending money to improve their operations, farmers and ranchers, along with all small businesses, will be forced to continue to divert resources to pay for estate planning to account for a shifting and unpredictable tax code, AFBF says.
“Farmers and ranchers already face unpredictable challenges beyond our control yet persevere to protect our nation’s supply of food, fiber and renewable fuel. The tax code should encourage farm business growth, not add to uncertainty,” says AFBF President Zippy Duvall. “Eliminating the estate tax removes another barrier to entry for sons and daughters or other beginning farmers to carry-on our agricultural legacy and make farming more accessible to all.”
An estimated 2,000 acres of agricultural land is paved over, fragmented, or converted to uses that compromise agriculture each day in the United States, the National Cattlemen’s Beef Association says. With more than 40% of farmland expected to transition in the next two decades, Congress must prioritize policies that support land transfers to the next generation of farmers and ranchers. Most farm estate values can be attributed to non-liquid assets such as the fair market value of land, livestock, and equipment, NCBA adds.
“The estate tax disproportionately harms cattle producers because with few options to pay off tax liabilities, many farm and ranch families are forced to make tough choices at the time of death – and in worst case scenarios, must sell off land to meet their federal tax burden,” said NCBA President Jerry Bohn.
Eric Jennings, president of South Dakota Cattlemen’s Association, says typically, farming and ranching operations have large holdings of assets but generate low amounts of cash return.
“A loss of a loved one often results in large estates that do not generate enough income to pay the estate tax without selling part of the operation. It is heartbreaking to see a family have to sell off so much of their parent's farm or ranch that they are unable to continue the operation they have worked into with the intention of continuing their family's legacy. Eliminating the estate tax will help ensure the survival of family farms and ranches,” Jennings says.
Thune’s bill is supported by the American Farm Bureau Federation, the National Cattleman’s Beef Association, NFIB, the National Association of Manufacturers, the Family Business Coalition, the Family Business Estate Tax Coalition, the Policy and Taxation Group, the Associated General Contractors of America, and many others.