At a time when commodity prices have reached record lows and land values have skyrocketed, estate taxes are one of many factors being blamed for driving families to sell their farms. The majority of a farm's value is tied up in land and as land values increase, critics of the tax say, so does the likelihood the farm will exceed the estate tax exemption threshold.
‘‘To hear some politicians describe (the threshold), it's a lot of money,'' said Jack King, of the California Farm Bureau Federation. ‘‘But when you have 500 acres in a ranch you get up there very quickly. Like any small business, you have a lot invested. … In farming you need all that just in order to earn an honest living.''
The estate tax is the most progressive of the federal taxes, which means it is paid primarily by the estates of wealthy individuals, said Joel Slemrod, an economist at the University of Michigan. The tax is levied on fewer than 2 percent of Americans who die, according to a report by Slemrod and William Gale of the Brookings Institute, a nonpartisan think tank. Half of the estate tax payments are made by beneficiaries of estates greater than $5 million.
Still, opponents of the estate tax say it is a form of double taxation, because it is levied on assets that were already taxed as income.
‘‘I realize that everybody needs to pay their taxes,'' said Sharp. ‘‘But it's almost like you never own your own ground. You've owned it and paid taxes on it all along. In the end they ask for more money for something you've already paid for.''
Individuals and business owners can protect a large part of their assets with ‘‘minimal'' estate planning, according to Gale and Slemrod. Practices include making tax-exempt gifts to family members and purchasing life insurance to cover tax payments. Owners of qualified businesses may extend payments over 14 years, lessening the immediate burden on beneficiaries.
The Jack Brothers' Imperial Valley farm has survived through three generations, thanks largely to extensive estate planning, said Alex Jack, who runs the family farm.
‘‘We've been pretty fortunate because the parents of each generation have lived a long life,'' said Jack. ‘‘They got to a point in life that they needed very little income and started passing things on to kids.''
But estate planning is costly, Jack said. He estimated his family spent $150,000 over 10 years on accountants' and lawyers' fees to get his grandfather's estate in order.
The cost of estate planning can be a heavy burden for farmers experiencing the prolonged downturn in the farm economy, according to Bob Stallman, president of the American Farm Bureau Federation.
‘‘Times are tough in agriculture, and farmers are finding it difficult enough to pay for seed, fertilizer, fuel and other operating costs without having to worry about costly attorney and accountant fees for estate planning,'' said Stallman.
Many Democratic legislators agree the estate tax is a burden but would prefer raising the exemption level for the tax instead of repealing it.
Democrats will soon introduce an alternative to Bush's tax plan that will include a proposal for estate tax relief, said Senate Minority Leader Tom Daschle, D-S.D., at a news conference last week. Last year Democrats proposed a bill that would have raised the exemption to $4 million for couples and $8 million for small business owners. The bill would have eliminated the estate tax for all but about half of 1 percent of all taxpayers, said Daschle.
‘‘We think that goes a long way to addressing the problem and doesn't bankrupt the system,'' he said.