Despite a slight lowering of rates for the Federal Estate Tax this year, a number of agricultural industries – including meat processors, cattle producers and farmers – would like to see the “death tax,” or Federal Estate Tax (as it is formally known), done away with completely.
Legislation to accomplish this has been introduced in Congress, as it has been for many years. How far it will get in eliminating the unpopular tax is anyone’s guess. The National Cattlemen’s Beef Association (NCBA), a ranchers’ group, is a major backer of the plan. But groups representing some meat processors and farmers trade associations also share the goal of eliminating the federal levy.
The bi-partisan legislation is sponsored chiefly by US Sen. John Thune (R-S.D.) and US Rep. Kevin Brady (R-Texas), joined by Senate Majority Leader Mitch McConnell (R-Ky.) and Democratic Rep. Mike McIntyre of North Carolina. This is even though the kick-in level of the tax was raised to $5.12 million, and has a top rate of 40 percent, an increase from a previous tax level of 35 percent. Historically, these rates have been all over the map, and there was concern earlier when negotiations were underway to avoid the “fiscal cliff” that maximum rates over the exemption could shoot back up to 55 percent for agricultural businesses, farms and ranches.
Not limited to the agriculture industry by any means, industry opponents of the unpopular tax refer to it as “a death warrant for small to medium-size family businesses.” Agriculture and agri-businesses say these kinds of firms shouldn’t be forced to sell their land, equipment or parts of their plants or operations to pay for their tax liabilities and fees for lawyers.
For a long time, midsize, small and very small processors, farmers and cattle producers have targeted the estate tax, which forces operators to sell off part or all of the land, plants and equipment inherited from their parents after their death.
Quite a few medium-size, small and very small meat and poultry processors, as well as others in agriculture, probably have more assets than money. They tend to have land where plants, farms and ranches are located, as well as buildings, equipment for slaughtering and processing and animals instead of a large amount of financial assets. A lot of plants on the smaller scale, as well as farms, are located in areas that are seeing a lot of residential growth, including new housing developments and commercial development not in keeping with traditional agricultural businesses.
Where the “death tax” elimination legislation will go is not certain. While there is a lot of vocal support in Congress for abolishing it, support for such a plan is tempered by concerns over government spending, as well as ensuring income coming into the government is maintained or even increased. That has tended to hold back attempts to enact this kind of legislation. Abolishing the Federal Estate Tax is also seen as a Republican priority, even though it would help medium and small businesses. Ironically, most members of Congress say supporting those size businesses is an important priority for them.
Many families in the agriculture industry throughout rural America are affected greatly by this tax. These families are vulnerable because of the amount of money they have to put up to run their businesses. Whether meat or poultry processors, farmers or ranchers, these capital-intensive businesses are exposed to the high tax every 25 years or so, as deaths occur in the families and they must pay the taxes, again and again. Family owned agriculture businesses not only believe the tax to be unfair, but that it takes away the incentive to build and expand their plants or even remain in business.
There is little doubt that transfer of wealth taxed from one generation of family-owned business to the next is not going to have a beneficial effect on local economies – especially when considering that most of the growth in employment and business development in this country, whether we’re talking about agri-business or other industries, takes place in medium-sized, small or very small, family owned businesses. Therefore, industry’s interest continues to pursue eliminating the Federal Estate Tax once and for all.
Bernard Shire is a contributing editor based in Lancaster, Pa. He also works as a food safety consultant for Shire & Associates LLC.
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