Fighting for Sound Tax Policy
for Rural America from the National Cattlemen’s Beef Association
Engrained in the fabric of the U.S. cattle industry is the desire to carry on the legacy of the generations before and give the next generation the opportunity to continue that same legacy for years to come. For beginning farmers and ranchers — and all those who are taking over the family business from another generation — the environment is challenging enough as it is. Undue tax liabilities should not be the deciding factor of the next generation’s ability to be successful. “When it comes down to coming home, our biggest expense is taxes. If you don’t have a plan set and ready before the situation of the transition is going to happen, it can be very scary; to take 40 percent of your assets is just a scary number,” said David Schuler of Schuler Red Angus in Bridgeport, Neb. “How do you continue to farm or ranch after that?” This sentiment is felt by many producers across the country. Efforts to eliminate currently available estate tax relief or the long-standing step-up in basis are in direct conflict with the desire to preserve and protect our nation’s family-owned farms and ranches. Farmers and ranchers deserve certainty in the tax code overall. Without it, transition planning for the next generation of producers is nearly impossible. “With the average age of a farmer being 57 to 60, this issue is not just a heavy issue for the individual, but it’s going to be happening a lot for a lot of people across the United States, not just over time, but specifically in the next four to eight years,” Schuler said. An estimated 2,000 acres of agricultural land is paved over, fragmented or converted to uses that compromise agriculture each day in the U.S. Therefore, more than 40 percent of farmland is expected to transition in the next two decades. “There is going to be a huge change in how the inherited land goes to the next generation. This isn’t just an issue that’s been around for a while — this issue is going to balloon harder than it has for the last ten years, in the next 10 to 20,” said Schuler. The current situation in agriculture is one that is immensely impacted by decisions being made thousands of miles away from farms and ranches—behind the desks of lawmakers in Washington, D.C. It is imperative that Congress prioritize policies that support land transfers to 36 California Cattleman June 2021
the next generation of farmers and ranchers. In April, The Preserving Family Farms Act of 2021 was introduced by U.S. Representatives Jimmy Panetta (D-CA) and Jackie Walorski (R-IN). NCBA has long supported efforts to reduce undue tax burden on farmers and ranchers. This bipartisan legislation to expand IRS Code Section 2032A to modernize Special Use Valuations, would allow cattle producers to better protect their family-owned businesses from the devastating impact of the federal estate tax, commonly referred to as the Death Tax. U.S. cattle producers, like Kevin Kester of Bear Valley Ranch in Parkfield, are particularly susceptible to the federal estate tax due to the unique nature of agricultural production, and cattle ranching in particular. “In 1993, when my grandfather passed away, it created a taxable event with the IRS and we ended up owing estate taxes and interest, close to $2 million. At the time we just had cattle, so as you can imagine we were land rich and cash poor. It was really a struggle for more than ten years to find ways to pay off that estate tax burden,” said Kester. Similarly to Bear Valley Ranch, the value of most cattle farms and ranches can be attributed to illiquid assets such as land, farm equipment and other real property. In fact, in the U.S. alone, cattle producers conserve over 680 million acres of land. All too often at the time of death, farm and ranch families are forced to take out loans or sell off their illiquid assets in order to meet their federal estate tax burden. While the current 2032A reduction is 55 percent higher than the value established two decades ago, USDA estimates that cropland values have increased by 223 percent. Agricultural land values – including on-farm buildings – have also risen dramatically, increasing by 241 percent during this same period. Due to the rapid inflation of farmland values, the 2032A deduction is no longer aligned with the needs of modern agriculture – nor does it accomplish Congress’ intended goal of providing meaningful protection to those producers who are most vulnerable to the estate tax. “There’s enough challenges to generational succession in farming and ranching, we just don’t need tax burdens being one of them,” Kester said.
