On January 1, 2013 the individual estate tax exemption is set to fall from $5 million to $1 million, following the expiration of the Bush tax cuts. The maximum tax rate will rise from 35% to 55% of assets. If Congress and the President fail to reach an agreement extending the exemption and rate, the expiration will occur by operation of law at the beginning of the year.
The family farmer will feel the hit, with unique consequences. The farmer’s only asset is in “dirt,” according to a Fox News article covering the expiration of the exemption. The farmer and rancher have no way to liquidate his only asset without selling it off entirely or in pieces. But selling it off in pieces makes the farm less productive as a whole. The alternative for his heirs is to sell off the entire farm to pay the tax:
“The idea behind the estate tax is to prevent the very wealthy among us from accumulating vast fortunes that they can pass along to the next generation,” said Patrick Lester, director of Federal Fiscal Policy with the progressive think tank — OMB Watch. “The poster child for the estate tax is Paris Hilton — the celebrity and hotel heiress. That’s who this is targeted at, not ordinary Americans.”
According to the American Farm Bureau, up to 97 percent of American farms and ranches will be subject to an estate tax if the exemption falls to $1 million.
“We’re not millionaires in the terms of making a million dollars a year,” said Kester who lives in a modest home and whose family — not outsiders or a corporation — runs his ranch. “I have a half-a-million dollars in soil.”
Kester can’t spend it, without selling land. But by selling the land, each year the ranch would become less viable.