Though the burden on family farmers has long been a prominent part of the debate surrounding the federal estate tax, Donald Trump’s plans to eliminate it will have only a muted impact on US farmland markets, according to agricultural economists and national statistics.
During his presidential campaign, Trump characterised the estate tax as punishing to families who have achieved the American dream and said that it “falls especially hard on small businesses and farmers”.
“No family will have to pay the death tax. American workers have paid taxes their entire lives, and they should not be taxed again at death – it’s just plain wrong. We will repeal it,” Trump said in an August speech to the Detroit Economic Club.
Charles W. Herbster, chairman of Trump’s Agriculture and Rural Affairs advisory committee, confirmed to Agri Investor that the elimination of the estate tax was among the most significant agriculture-related changes that could be expected under the Trump administration.
Under current code, each individual taxpayer is able to pass up to $5.45 million tax-free onto their heirs, while inheritances above that amount are subject to a 40 percent federal estate tax.
But University of Iowa assistant professor Dr. Wendong Zhang, who leads research on the University’s Iowa land value and farmland ownership and tenure surveys, told Agri Investor that while the repeal could have some impact on the supply of farmland, it would be minor because a very small percentage – less than 1 percent – of farms are large enough to be subject to the tax.
Gradual increases in the amount of allowed untaxed inheritance since 2001, coupled with decreases in the rate at which larger ones are taxed, means that the federal estate tax currently applies only to a small number of farms, he explained. Other sources noted that there are ways to structure the ownership of the farms to avoid the tax.
The Urban-Brookings Tax Policy Center estimates that of the 2.6 million Americans who died in 2015, only 5,300 estates will subject to the federal estate tax; and the USDA’s Economic Research Service estimates that only 0.8 percent of farm estates will be subject to federal estate tax this year.
“If the repeal happens, then there’s a possibility that it will encourage the farmers in the really large farms who are subject to the higher estate taxes to take the benefit and keep the farm in the family. To the extent that hurts the land access for beginning farmers, that could potentially affect the market supply a little bit,” Zhang said.
Political considerations likely explain why farmers are so often part of efforts to promote a change that would have a larger impact on traditional financial assets, Bruce Sherrick of the University of Illinois TIAA Center for Farmland Research, told Agri Investor.
“Any time you can pull on the heart strings of the American family farm image, I think you invoke that where you can,” he told