GOP Tax Bill Lifts Burden From Farmers And Ranchers

Dec 6, 2017

Credit nrcs.usda.gov

The GOP tax reform bill passed last week, continuing the debate among Democrats and Republicans on the feasibility of the tax overhaul. For a small population in America, the tax bill is beneficial.

Farmers and ranchers in America don’t earn high incomes, but many of them are taxed as multi-million dollar businesses. According to the U.S. Bureau of Labor Statistics, farmers and ranchers earned a median annual income of nearly $61,000 in 2010. The top 10 percent of earners in the field made about $107,000 a year, while the bottom 10 percent made less than $30,000.

So why are people who work in the agricultural industry taxed so much?

When you take assets into consideration, farmers are worth a lot, but they’re still different than most businesses. According to Ruby Ward, an expert on taxes for rural communities, most of the value comes from the land the farm or ranch uses to make a profit.

“So if you have a large business that holds a portfolio of stocks and bonds and other types of assets, those assets are very divisible,” Ward said. "It’s somewhat easy to sell a certain portion of those to pay the estate taxes and then move on with the rest of them intact.”

Farm land isn’t as divisible. According to Ward, selling a portion of the farm limits future operations and income. She said the same concept applies to small business with one or two main assets.

In the past, depending on the year and inflation, a single farmer with assets worth around $5 million was subject to taxes. A married couple with assets of around $10 million would also pay taxes. In the new tax bill, those exemption amounts have doubled making it easier on farmers and ranchers. However, that only eliminates one of the financial burdens that come with agriculture.

I spoke with a local farmer, who I’ll refer to as John for privacy reasons, about what it can be like when the financial pressure becomes too much to handle. After John’s father passed away, the financial stress fell on John’s mother who had not been involved with the finances before. Without proper planning and nowhere else to go, the farm was sold. After decades of working on the land tied with the generations of a family legacy, it was gone.

Without retirement savings, John now works as a forklift driver loading semis. He said his son worked on the farm and dreamed of continuing the family tradition.

Q: Why can dealing with finances in agriculture be stressful for someone who isn’t familiar with it. Only 1.5 percent of the population are farmers. Why can it be difficult for someone outside of agriculture to understand that?

A: Many farms are asset rich but cash poor. People see a piece of land and see what it’s worth and that just computes in their mind how wealthy or well-off a farmer is, but in actuality there's so many different rules on how you can distribute that and bring your kids on after you pass away to pass that on to them. If it’s not done the proper way and within the rules, you can really be, it can really hurt the family bad, the family farm.

Q:  How long has your family been farming?

A: My father had farmed his whole life and my grandpa had farmed his whole life. Ever since they came to Utah in 1859, is when it was.

Q: What kind of farm did you grow up on?

A: I grew up on a dairy farm, but in 1998 we moved to the Cache Valley where we were mainly alfalfa and wheat.

Q: Farming can be kind of tough. There’s a lot of things that go into it. Do things like estate tax, the death tax, and the complications of handing down the farm from one generation to another effect the difficulties of farming?

A: When your parents really aren’t interested in discovering avenues they need to take to protect the farm. If they don’t, if they are just depending upon a will or something. There’s going to be a breakdown. I tried and tried to get my parents to look at estate planning and they thought that after they talked to their attorney, they thought that everything was just fine. But, it turned out that it wasn’t.

Brandon Willis, who was the senior advisor to former Secretary of Agriculture Tom Vilsack, said many people outside of agriculture don’t realize that farmers and ranchers aren’t living in a house in the Hamptons.

“Ranchers rely upon their land to earn income,” Willis said. “The margins in agriculture, regardless of what type of agriculture you’re in, they’re exceedingly tight. The estate tax has a disproportionately harmful impact on farmers and ranchers. It’s not the house in the Hamptons that’s being taxed, it’s their ranch. It’s their ranch where they earn income, it’s their ranch where they have a lot of risk. I think that is a very positive thing in the tax bill to lift that exemption. They do not do away with the estate tax. Just the doubling of that is a positive thing for agriculture.”

Willis said the tax bill impacts different people in different ways, but in his experience it’s important to understand positive and negative ways it effects other people. Not just how it impacts individuals.