This letter is a response by Craig Hill, Iowa Farm Bureau Federation president, to U.S. Agriculture Secretary Tom Vilsack’s Sept. 9 Wall Street Journal op-ed column about the effect of proposed estate tax changes on farmers. A condensed version of Hill’s response was published in the Sept. 16 edition of the Wall Street Journal.
Today, my grandchildren represent the sixth generation living on our family’s century farm, in the home built by my great grandmother. Like many other farm families, this is a great source of pride, and we hope the farm will remain in our family for generations to come. Over the years, our farm has fluctuated in size — sometimes growing, sometimes shrinking — but always persisting.
Changes in tax policy to limit or eliminate stepped-up basis would have a devastating impact for family farms across the country. The change would severely limit a family’s ability to pass a farm from generation to generation, and it would ultimately push more land ownership into the hands of investors, not farmers. While we respect Secretary Vilsack’s dedication and service to agriculture, we fundamentally disagree on the impacts of the proposed tax changes.
One of the things Secretary Vilsack got right in his Sept. 9 Wall Street Journal opinion piece is that stepped-up basis allows you to limit your tax burden on the increased value of land. This is a critical tool for agriculture because many of our farms were initially purchased generations ago.
In fact, this year at the Iowa State Fair, we recognized over 450 farms that celebrated 100 years of family ownership in 2021, and 205 with 150 years of family ownership.
Asset rich-cash poor
The secretary knows full well that agriculture is an asset-rich and cash-poor enterprise. That’s why farmers everywhere took issue with Secretary Vilsack’s claim that no real farmer would be impacted by the tax changes proposed by the administration.
According to the secretary’s own agency, the average farm size in Iowa is 335 acres. Iowa State University data tells us that the average farm sold for $419 an acre in 1970. Today, that value is 17 times higher. If you eliminate stepped-up basis, it would only require a sale of 154 acres to reach the proposed $1 million exemption. If you raise that exemption level to $2.5 million, it still only takes 350 acres. In Iowa, there are over 18,000 farms over 500 acres.
That is a lot of real farmers who will be facing real tax increases if stepped-up basis is eliminated.
Not felt by investors
The impact of this policy isn’t going to be felt by wealthy investors or real estate moguls who have the resources to avoid these taxes. Instead, it will be the farmer who relied on his land as his retirement and the young farmer who wants to buy the 400 acres that she has been renting from the neighbor but can’t afford the tax bill.
Farmers care for, invest in and are stewards of our land, but these tax changes threaten to keep them from doing just that. Cash flow on most farms is much too small to pay such a large increase in capital gains taxes. These taxes would cause further consolidation in agriculture with small farms more likely to be forced out of business by the tax liability.
Farm families didn’t work on their land for generations managing through droughts, floods and volatile market swings just to face an enormous tax bill that forces them off the land. I hope Congress and the administration are paying close attention to this issue. I know farmers are.
Hill is a fourth generation Warren County crop and livestock farmer.