The Benefits of Eliminating the Estate Tax


by Chris Clayton, DTN Ag Policy Editor

This could be a big deal for American agriculture because some prominent agricultural groups have been championing the outright elimination of the estate tax for a long time. Eliminating the estate tax could provide an opportunity for farmers and other people with larger asset levels to invest more heavily in agriculture over the next decade.

The family farm is invoked a great deal when talking about estate taxes. “The death tax unfairly targets hardworking American families, small business owners, and farmers that have already been taxed all their lives,” said Senate Finance Committee Chairman Orrin Hatch in a news release introducing Sen. John Thune's bill before the Easter break.

Senate Majority Leader Mitch McConnell threw his support behind Thune's bill as well. “The death tax unduly burdens American families by taxing assets that are handed down from generation to generation, like family farms or small family businesses. It is the federal government’s final insult to tax your family when you have already paid taxes on your property throughout your life,” McConnell said.

Still, there are those factors such as what it would mean to the federal budget deficit if the estate tax were eliminated out-right. The Congressional Budget Office last week projected the estate-tax bill in the House would lead to $269 billion in increased budget deficits over the next 10 years. Since the estate tax only generated $12.7 billion in 2013, the CBO projects higher revenue from the estate tax in future years. A lot of wealthier individuals are apparently aging.

The 2013 data when the estate-tax exemption was $5.25 million. In 2015, the exemption is $5.43 million. You get to double that for married couples.

The IRS provides some really good Excel spreadsheets breaking down estate-tax returns. For instance, the last detailed information was for 2013.

There were 10,568 total returns filed for estates that year with combined total assets of $138.7 billion.

Of those, 5,881 returns with $62.3 billion in assets were not taxable — most of the assets from those returns went to spouses and charities.

There were 4,687 estates, though, that were taxable, with total assets of about $76.4 billion.

Of those taxable estates, 660 decedents, (14{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6}) reported farm assets on their estate-tax returns totaling $1.9 billion in farm assets.

There were 402 estates with farms that had total assets under $10 million.

There were 158 decedents in 2013 each carrying assets in the $10 million-$20 million range that had a combined value of $493.8 million in farms.

Another 78 taxable estates each reporting assets of $20 million-$50 million had farms with a combined value of $316.7 million.

At the top range, 22 taxable estates each with assets of more than $50 million had farms with a combined value of $250.8 million.

Since farm assets accounted for $1.9 billion of $76.4 billion in assets, then farms accounted for about 2.4{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of assets on estate taxes in 2013.

Two other areas of assets could add to those totals depending on how the estate was broken down. For instance, taxable estates reported $5 billion in real-estate assets outside of their personal homes. They also reported $1.7 billion in “non-corporate business assets.”

Because we can't be certain exactly how land and non-corporate business assets are actually used or factored into some of these farm operations, it might be prudent to combine them. In that case, the $5 billion in real-estate assets, $1.9 billion in reported farm assets and $1.7 billion in non-corporate business assets combine to make up $8.6 billion in potential farm and/or small-business assets for those 2013 estates. That comes out to about 11.2{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of all assets from taxable estates.

These 4,687 deceased folks with taxable estates in generally had a wide range of other interests than just the family farm or that small business run by mom and pop. These people were also big into stocks, bonds and cash. These decedents were actually quite diverse with their portfolios.

Taxable estates in 2013 reported carrying at the time of death:

$20.8 billion in publicly-traded stock, 27.2{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of all estate assets;

$9.1 billion in state and local bonds, 11.9{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of all estate assets;

$7.2 billion in cash, 9.4{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of all estate assets;

$6.2 billion in closely-held stock, 8{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of all estate assets;

$5 billion in real-estate (excluding homes), 6.5{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of all assets;

$3.4 billion in mortgages and notes, 4.4{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of all assets;

$3.3 billion in personal residences, 4.3{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of all assets;

$2.9 billion in real-estate partnerships, 3.7{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of all assets;

$2.9 billion in other limited partnerships, 3.7{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of all assets;

$2.8 billion in retirement assets, 3.7{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of all assets;

$1.9 billion in farm assets, 2.4{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of all assets;

$1.7 billion in other non-corporate business assets, 2.2{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of all assets;

$1.7 billion in federal bonds, 2.2{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of all assets;

$1.58 billion defined as other assets, 2.1{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of all assets;

$1.53 billion in corporate or foreign bonds, 2{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of all assets;

$1.33 billion in equity and hedge funds. 1.7{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of all assets;

$993 million in art, 1.3{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of all assets.

When you get down to it and break down the entirety of estates and taxes, those 4,687 folks paid estate taxes in 2013 totaling $12.7 billion.

Looking at it a little tighter, 1,859 estates in 2013 (those with $10 million in assets or more) paid $10.9 billion in taxes while 2,828 other, lesser estates paid the $1.8 billion.

Total gross assets ($76.4 billion) ends up being reduced to adjustable taxable estates of $63.8 billion. The $12.7 billion equates to about 19.9{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of that $63.8 billion in taxable assets.

The initial tax on those estates was actually higher, ($22.4 billion), but then there are allowable tax credits factored in that whittled down another $8.3 billion off the load before arriving at final $12.7 billion.

If all taxable farm estates accounted for 2.4{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of all assets and taxes, then farm assets involved about $305 million in total estate taxes for 2013.

However, since we combined farms, all real-estate and family business assets to come up with about 11.2{f2533179b7c7e7cbdbc11018732de14c82f3d44c9f1e829e9a046cc47141a2e6} of total taxable assets, that would mean farms, land and family businesses translated into roughly $1.4 billion in taxes for 2013.

That $1.4 billion equates to slightly more than USDA spends on administrative expenses for crop insurance for the 2.2 million or so policies sold in 2014. It's also about the same amount of funding about 44,825 or so contracts in 2013 for the Environmental Quality Incentives Program.

That funding probably comes from some other revenue stream, though, and no federal farm program would ever be considered in jeopardy just because Congress attempts to eliminate a burdensome tax on farmers and small businesses such as the estate tax. Congress doesn't consider the need to offset tax cuts, thus they don't actually contribute to the annual budget deficit.

Moreover, the benefit of eliminating the estate tax in its entirety far outweighs any risk to a federal program affecting tens of thousands of farmers not filing estate taxes. Those families large enough to be impacted by the estate tax, if it were eliminated, would be in a position to shift more of their assets away from stocks, bonds and cash to better diversify their portfolios with holdings such as real estate and farms. That is considered one of the main goals of eliminating the estate tax is freeing up all of that wealth from decedents, ($138.7 billion total in 2013) to spend elsewhere in the economy. Thus, landowners and older farmers seeking to sell would have a wealthier group of buyers out there than the typical leveraged younger or beginning farmer.

It's likely more benefits of eliminating the estate tax for farmers will be flushed out better in the coming weeks.

IRS portal for estate tax filings:…



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