Farmers Hit Hard by the Estate “Death” Tax

On April 16, 2015, the House of Representatives voted to repeal the estate tax. The Internal Revenue Service defines the estate tax as, “a tax on your right to transfer property at your death.”

Advocates for the estate tax decry the perpetuation of inequality due to inherited wealth. The estate tax, often called the “death tax” by opponents, is ineffective in reducing inequality; it does, however, excel at destroying family business, especially agricultural operations. Unlike investments and cash, real estate cannot be as easily placed into trust. Thus, American farmers and small business owners are hardest hit by the tax, while cash-rich Americans avoid it.

The shale gas revolution has created economic booms from Pennsylvania to Texas to North Dakota, but it is a mixed blessing for American farmers. The sudden influx of money to rural areas is increasing the wealth of farms in America and complicating estate tax calculations for farms.

  • Many farm estates have increased in value due to the mineral rights to the land. Farmers saw land values appreciate immediately upon signing leases with natural gas producers and land values have continued to rise. In both Texas and Pennsylvania, land values increased from 1997 to 2012, even after several years of drilling.
  • The increase in land value due to the demand for mineral leases was followed by increases in farm estate values, as many farmers invested their royalties from gas extraction back into their farms. The Federal Reserve Bank of Kansas estimates that three-fourths of farms’ wealth accumulation from energy payments are through increases in land values.

As the U.S. Senate begins debate over the estate tax, it is obvious the stakes are higher than ever. With farms in Pennsylvania and Texas experiencing 10 percent or greater increases in household wealth, the estate tax is a continuing threat to farm families’ ability to pass their farms to their children.

Mike Gajewsky is a research associate at the National Center for Policy Analysis

Comments (2)

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  1. Leanna Netherlands says:

    I find it interesting that you don’t cite how many farms actually pay the estate tax or the minimum worth of the estate that have to pay this tax (only rich people pay it).
    “Only roughly 20 small business and small farm estates nationwide owed any estate tax in 2013. The Tax Policy Center estimates those roughly 20 estates owed just 4.9 percent of their value in tax, on average.
    These findings are consistent with a 2005 Congressional Budget Office (CBO) study finding that of the few farm and family business estates that would owe any estate tax under the rules scheduled for 2009, the overwhelming majority would have sufficient liquid assets (such as bank accounts, stocks, bonds, and insurance) in the estate to pay the tax without having to touch the farm or business.”

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