TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, June 29, 2010

CBPP: Proposed Unlimited Estate Tax Exemption for Farms Is Misguided

The Center on Budget and Policy Priorities today released Unlimited Estate Tax Exemption For Farm Estates Is Unnecessary and Likely Harmful, by Gillian Brunet & Chye-Ching Huang:

Proponents of repealing the estate tax have made farmers, along with small business, the face of their cause, driving some policymakers to push for special preferences for farms in estate tax law. One of the most radical of these proposed changes is an unlimited estate tax exemption for farmland, recently introduced by Rep. Mike Thompson (D-CA) in H.R. 5475. This approach is seriously misguided, for three basic reasons.

First, there is overwhelming evidence that the estate tax does not pose a significant problem for farmers. The Urban-Brookings Tax Policy Center estimates that fewer than 110 small-farm estates in the entire nation would likely face the tax in 2011 if Congress reinstated the tax at its 2009 levels, as President Obama has proposed. Moreover, estate tax opponents have not been able to produce a single case in which a family farm had to be sold to pay the tax, even before the 2001 tax law began phasing down the tax significantly.

Second, an unlimited exemption for farmland would promote tax sheltering by giving wealthy individuals whose primary occupation is not farming a strong incentive to sell financial assets and buy up large tracts of farmland in order to avoid paying the tax. In examining an earlier proposal to exempt farmland, the Tax Policy Center concluded that such an exemption “would make the estate tax essentially voluntary for the very wealthy,” because of the large tax shelter that it would create.

Third, an unlimited farmland exemption could hurt ordinary farmers by driving up the price of farmland as wealthy individuals sought to buy farmland for use as a tax shelter. This would make it harder for young aspiring farmers to enter the farming industry and for families to hold on to true family farms.

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