Cattlemen for Tax Reform

America’s tax code badly needs an update

Devastating regulations, such as the Death Tax, are impeding growth and jeopardizing the long-term viability of family ranching operations. But the current system also includes critical provisions that account for the unique needs of agricultural producers. Cattlemen and women across the country – and the rural communities that depend on them – cannot afford a one-size-fits-all approach. We are fighting for a tax code that protects family-owned ranches and revitalizes rural America.

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John Dudley, Texas

“People have been paying their taxes. They’ve been paying the ad valorem tax, they’ve been keeping the school running, the hospital running, the local water system running. They’ve been paying their income tax. They’ve been doing their share.”

Tim Koopman, California

Tim Koopman’s family survived two fights with the death tax. But that was before urban expansion and Silicon Valley billionaires threatened to ruin the land.

Kerry Lightsey, Florida

A death tax bill forced Kerry Lightsey to sell his ranch. Now that same land is a living testament to suburban sprawl. Instead of pristine pasture that provided for cattle and Florida’s wildlife, the land has been converted to a massive apartment complex.

Pete Bonds, Texas

Rancher Pete Bonds has a simple message for Congress when it comes to the death tax.

Buck Wehrbein, Nebraska

“We move forty to fifty thousand cattle through here a year, and that’s $75-$100 million dollars and there’s interest on almost all of that money, so to lose the interest deduction would be actually catastrophic for us. It’s kind of almost beyond what I could get my brain around.”

Jay Wolf, Nebraska

“You’d think in operating a business like this, the most important decisions would be strategic decisions about buying or selling cattle or buying and selling land,” Wolf says while sitting in his pickup truck surrounded by his cattle. “Instead the most important decisions I’ve made have been estate-planning decisions, and they have impacted our ability to maintain our operation more than anything else – and that doesn’t really seem right.”

Kevin Kester, California

Kevin Kester’s family has been ranching in California since the 1860s, but it’s not weather conditions or market volatility that keeps him up at night. The death tax harmed his family and community before. Now he’s worried it could happen again.

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As my husband and I planned for the future of our family owned livestock market, we came to the hard realization that buying our father out of the business would be necessary to reduce the Death Tax that we would owe. It was not the best business decision, but we simply could not afford the alternative.

Without a doubt the biggest challenge that keeps me up at night is trying to figure out how to pass the ranching operation – our family operation on to the next generation.

Keeping the deductibility of interest expense is critical. Cattle feeding is a highly capital-intensive business that requires massive operating lines to function.

Say you are on the lower end of the range, at $50 million that you are borrowing to [run a feeding operation]. You are looking at $210,000 per month in interest expense. If you take away the deductibility of interest expense, I still have to pay my lenders $210,000 every month, but now for the purposes of the IRS I have $2.5 million more dollars of income that I am going to be taxed on. Assuming a 40% rate in a good year, that’s an added $1 million in tax burden just by losing interest rate deductibility.

Stepped-up basis seems like a foreign concept and a lot of people don’t understand what it is. But what our elected representatives need to understand is that stepped-up basis impacts virtually every operation at the time of a death, whether it is a very small producer or a large producer. Doing away with stepped-up basis would be devastating on the farming and ranching community.

There isn’t an easy fix for a family that is facing that kind of a [Death Tax] burden. We see a lot of folks going through a lot of complicated planning, that costs a lot of money, and putting operations in structures that are not particularly good for the business. But they are doing it to be able to preserve their son or daughter, or niece or nephew, being able to come into the operation.

I have a lot of clients that have a big balance sheet that would look impressive to somebody. But what people don’t realize is that they need the land, that equipment, and the livestock to maintain the operation but they don’t have a lot of liquidity.

I don’t know very many businesses that can give away 40% of the base value, every generation, and survive. It is literally double taxation. It is the most unfair arena of our tax system.

Cash accounting is important because of the variability in revenue from year to year to year. Losing cash basis accounting in agriculture would be a real tough thing for us.