Like almost everything else in Washington DC, misinformation is being spread either on purpose or due to a lack of understanding of what is going on with estate tax proposals. Most of the talk you hear in agriculture these days is about how the “base increase” will be eliminated as part of President Biden’s plan for the families. We also face issues like the treatment of capital gains, but this discussion is for another time.
“Augmented base” is a tax term that applies when the property is assessed at the amount it is worth when a benefactor dies and leaves the asset to the beneficiary, and not at the original value or base. Agricultural assets such as land are often passed down from generation to generation and therefore benefit from a strengthened base.
The reality is that as part of the U.S. Plan for Families, the increased base is not threatened with elimination, but rather, the proposal would result in a transfer tax that would have to be paid in order to use the increased base in the event. sale or death.
When I was a CPA and sat across from farmers giving advice on estate planning, we didn’t have to worry about the kinds of issues we were facing today. Things like the amount of the exemption, the tax rate, and valuation questions were central to the conversation, but nothing like what’s on offer with this transfer tax has ever been on the table. table.
Over the years we have fought for an increase in the inheritance tax exemption and to maintain the basic system, and the law is now the culmination of policies that work well for farmers. I would say this transfer tax, which could reach 43.4 percent, is the worst idea that has come up in terms of impact on agriculture in my lifetime. This proposal is a direct attack on agriculture because it will ban the transfer of a family farm from one generation to the next, which is the last thing we should want to do.
If this proposal becomes law, you could find yourself in a situation where, on the death of a farmer, their family will owe more than the equity they have in the farm operation. Just the specter of what is happening would make it difficult for bankers to lend money, as there is no way of knowing what is going on with the value of the deal and its assets.
In 2017, we increased the inheritance tax exemption from $ 5 million to $ 10 million indexed to inflation (currently $ 11.7 million per taxpayer). After 2025, the exemption will amount to just over $ 6 million. While some people will want to make this a big fight, the reality is that keeping the system we have at that lower level would be significantly better than what is proposed in the US plan for families. The inheritance tax, whether it is $ 6 million or $ 11 million, will only affect a privileged few. This transfer tax would affect virtually all farming families and bring uncertainty that would reduce their ability to obtain credit.
This transfer tax proposal probably has no chance of being passed by the Senate in a regular order. However, there is a danger that with the partisanship underway in Washington DC, the proposal could get into a reconciliation bill without anyone in the room really understanding the seriousness of this change and getting passed.
At the end of the day, those of us who support family farms and ranches have a big job to do to justify maintaining the tax system we have fought for over the years. We also need to educate those members of Congress who have good intentions but really don’t understand how devastating these changes would be to maintaining the family farm in America.
We must fight to keep the current inheritance tax system that we have worked so hard to develop and convince policy makers to abandon this idea of transfer tax. If a change like this is enacted, agriculture as we know it will disappear and may never recover.
Colin C. Peterson is the past chairman of the House Agriculture Committee and represented Minnesota’s seventh congressional district as a Democrat from 1991 to 2021. He was one of the few CPAs to serve in Congress. He is president and founder of the Peterson Group.
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