American Farms and Hillary Clinton’s Tax Proposal

America’s agricultural resources are among the best in the world. American farmers, or perhaps we should call them America’s agribusiness professionals, produce essential financial crops including wheat, corn, beans, grapes, apples, etc. We are all dependent on their productivity. Indeed, American farmers are among the most productive in the world.

In the modern world, farmers need to develop expertise and knowledge in the areas of mechanics, computers, botany, biology, meteorology, law, and, of course, business. They will need to make decisions about futures, mortgages, tax options, and estate planning. Farming is, I note once again, agribusiness.

American farmland was one of the single best investments in the first decade of this century. Recently, however, prices are down. For example, according to the Purdue Agricultural News, farm values in Indiana have fallen about 13 percent in the last two years.

This decline is due, in part, to falling commodity prices. Soy bean prices are down 45 percent since they peaked in 2012. Corn prices are down 56 percent. Most businesses in America could not survive a 50 percent price decline.

In addition to these current challenges, farmers also need to engage in estate planning. They need to evaluate the extent to which their assets will be subject to estate taxes, as they seek to maintain their acreage, the single most important asset of most farmers.

This requires wise and informed estate planning. Well, good luck with that.

Good planning requires a certain level of predictability. Estate tax rates in America, however, have historically been anything but predictable. It was recommended to some rich Americans that they plan their death for 2010, for that year there were no federal estate taxes. Over the previous 10 years, either the deductible amount or the tax rate changed almost every year.

This level of unpredictability was addressed by the American Taxpayer Relief Act of 2012. This act was passed with bipartisan support (unusual during the Obama administration). The Senate passed the bill 89-8; the House passed the bill 257-167. As one source described it, “the American Taxpayer Relief Act of 2012 was passed, which permanently establishes an exemption of $5 million (with inflation adjustment).”

Except that Hillary Clinton is proposing to both reduce the exemption and increase the tax rate.

I am sure that most Americans would see the figure $5 million (which becomes $10 million for a couple) and conclude that rich Americans ought to be willing to pay a death tax. For small business owners (such as agribusiness professionals), however, financial production and survival often requires significant asset holdings. For farmers, that primarily translates to acreage. Selling or mortgaging acreage to pay estate taxes threatens American farmers, especially when commodity prices are falling.

According to an October 12 column posted at the website of CNBC, Clinton’s estate tax proposal could impact and threaten 90,000 American farms. Many of these are farming business professionals who have planned their estates, assuming the “permanent” Relief Act of 2012 would define the extent of their tax bill, enabling them to make appropriate plans. Instead, however, Clinton threatens a dramatic increase in this tax, an increase that would force many farm heirs to sell or mortgage farming acreage in order to cover their inheritance tax.

Although I have written elsewhere that it is essential that we get our deficit spending under control, it does not seem wise to do so by burdening the livelihood of American agribusiness professionals. I beg our incoming 115th U.S. Congress to maintain the “permanent” estate tax structure as legislated in the American Taxpayer Relief Act of 2012.

Gary L. Welton

Gary L. Welton

Dr. Gary L. Welton is assistant dean for institutional assessment, professor of psychology at Grove City College, and a contributor to The Center for Vision & Values. He is a recipient of a major research grant from the Templeton Foundation to investigate positive youth development.

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