Explaining: The Death Tax

Talk to most people about the impacts of the Death Tax, and images of jet-setting billionaires and wealthy business moguls will likely come to mind. But in its present form, the Death Tax (also known as the federal estate tax) preys on a forgotten victim: family-owned ranches.

A Death Tax is a tax imposed on assets left to heirs. Today it represents one of the primary obstacles for keeping family-owned ranches and farms intact and viable. To understand why, consider that ranchers – like many agricultural producers – rely on a land-rich, cash-poor business model. According to the U.S. Department of Agriculture (USDA), 91 percent of all farm and ranch assets are illiquid, meaning they cannot be easily converted to cash. When family ranchers are hit with the Death Tax, they are often forced to sell off land, farm equipment, parts of the operation or even the entire ranch to pay off their tax bill. In addition to hampering economic growth in rural communities, the Death Tax puts the dream of passing on a family-owned ranching operation out of reach.

The Bottom Line

U.S. livestock producers understand and appreciate the role of taxes in maintaining and improving our nation; however, they also believe that the most effective tax code is a fair one. For this reason, NCBA ardently supports full and permanent repeal of the Death Tax.

Why it Matters

  • The Death Tax undermines the ability of ranchers to pass on family-owned operations to their children and grandchildren, hurting rural communities that depend on agriculture
  • Managing grave tax liabilities diverts precious time and resources away from critical business decisions, such as expanding herd size or hiring new employees
  • Eliminating the Death Tax would make succession planning significantly less complex and be a boon to local rural economies supported by agriculture

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.

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.

  • For more information, please contact the
    National Cattlemen’s Beef Association.

    Ed Frank at 202-879-9125
    Max Moncaster at 202-879-9124

    1275 Pennsylvania Avenue NW
    Suite 801
    Washington, DC. 20004