Wednesday, October 13, 2010

Halvorson says "This isn't the time to give Lindsey Lohan and Paris Hilton tax cuts", but what about small, family farmers?

In a recent debate with Adam Kinzinger, Congresswoman Debbie Halvorson said--referring to the Bush tax cuts and the fact that they expire at the end of 2010--"This isn't the time to give Lindsey Lohan and Paris Hilton tax cuts."

Ok, fair enough.  Most Americans probably don't believe Lindsey Lohan and Paris Hilton are in need of tax relief.   

I think this quote--while memorable and a little funny--will miss the mark with some members of the 11th Congressional district.

The district is home to many farms, and some of those farms have been in families for generations.  A good portion of 11th Congressional District farms are near Chicagoland, and, as such, when they are appraised at a farmer's death, may be appraised at development prices.   Now, development has obviously dropped off, but the possibility of future development may still affect the appraisal.  If the appraised value of the farm--which may also include farm equipment--is over the exemption, which unless Congress acts will return to 1 million in 2011, then the heirs--heirs who may have worked on the farm for decades--will owe a 55% tax on anything over the 1 million dollar exemption.

The Illinois Farm Bureau is advocating for estate tax reform:

"The facts on estate taxes
In 2009, the estate tax rate was 45%, with a $3.5 million exemption. The tax expired on Dec. 31, 2009, but returns on Jan. 1, 2011, with a top rate of 55% and a $1 million personal exemption.

The return of the estate tax and the higher rate and lower exemption could result in as many as 10% of farms and ranches owing estate taxes in 2011, compared with about 1.5% of agricultural operations in 2009. (U.S. Department of Agriculture, Economic Research Service)

The estate tax burden falls heavily on farmers because agriculture takes a lot of capital assets, such as land and equipment, to generate the same dollar in income that another type of business could generate with less.

Estate taxes can destroy family businesses when the tax forces surviving family members to sell land, buildings or equipment to generate enough money to pay the tax.

While planning to try to reduce what a farmers family partners would have to pay diverts money that could have been reinvested in the farm, the uncertainty surrounding the tax has left many family-owned businesses and farms guessing about their estate tax liabilities and unable to make prudent business decisions.

A higher exemption and lower rate will give family farms and ranches a better chance to remain in operation when transferring from one generation to the next.

Farmers and ranchers are calling for a permanent estate tax provision that would increase the exemption level to $5 million and adjust it for inflation and reduce the maximum rate to 35 percent.

Estate tax reform must also include stepped-up basis, which limits the amount of property value appreciation that is subject to capital gains taxes if the assets are sold. Because farmland typically is held by one owner for several decades, setting the basis on the value of the farm on the date of the owners death under stepped-up basis is an important tax provision for surviving family members.

Obviously the estate tax is only one part of the Bush tax cuts that are set to expire at the end of this year.  It will be interesting to see to what extent voters of the 11th Congressional agree with Halvorson regarding tax policy.

What do you think?  Add your comments below!