The estate tax debate was a great wedge issue in farm country.

If your family land happened to be in an area where property values had increased, you stood the risk of being on the hook for an estate tax bill that would force you to sell some of the land. So the estate tax was portrayed (sometimes accurately, sometimes inaccurately) as being the reason people lost the family farm.

At the same time, any talk of an agricultural carveout got folks going about how Ted Turner was already receiving more subsidies for not farming than they were for farming. Common opinion was that carveout would just push land prices higher as rich bastards with no dirt under their fingernails bought up farm land so they could pass their fortunes on to their kids tax free.

There were, of course, nuanced approaches that could have preserved the estate tax while protecting blue collar farmers. But saving the family farm provided the rhetorical cover people needed to reduce their donors' taxes.

Basically, if 98% of your income comes from farming, and you've lived on the farm all your life, you're exempted just fine. If 0.1% of your income is from the farm, and you've only ever been there twice, well, pay up.

It would be a little more complicated than this, but not much.

Not everyone lives on their farm (mine is 3 miles away from my house). Also a LOT of American farmers have off-farm jobs and spouses with off-farm jobs. So primary income/primary residence wouldn't quite cover it.

However, you could just add something pretty simple like a deferred estate tax on any farm that has produced agricultural income in x of the last y years, with active involvement from the owner (ie, the owner was the farmer, not the farmer's landlord).

First, assess the value at the time of inheritance at whatever it was originally bought for, and estate taxes accordingly. If your ancestors bought a massive farm for $1,000 in the 1800s, then for inheritance purposes, it's worth $1,000 so long as it remains an active farm.

Then, if you sell it (or a portion of it), the increased value is taxed at the estate tax rate instead of the capital gains rate. So if you inherit great grandpa's $1,000 farm, and turn around and sell it to a developer for $20,000,000, congratulations, you now owe estate tax on the increase of $19,999,000.

Likewise, if you don't sell it, but also don't farm it, whoever inherits it will be subject to estate tax at market value.

You could even further incentivize this by allowing anyone inheriting a farm - active or inactive - to sell it to a working farmer at below market rate and only pay estate tax on the sale price. That might lead to some shady dealings ("I'll pay you $5,000 for the land, and buy that antique tractor for $20m so you only have to pay capital gains") that would require oversight, but... all tax exemptions and deductions are abused if they're not subject to oversight.

Ther are very few "family farms" worth 12 million or more, they are almost all Big Ag or very successful ranchers and farmers who likely inherited all their over generations.

There are very few family farms, period, because Big Ag is crowding us out. Me and my tiny meat CSA are so insignificant we can't even legally compete directly with Big Ag.

But you're wrong about valuations.

For starters, let's be accurate about Sinema's vote. She voted to repeal the estate tax in 2015. The exemption in 2015 was $5,430,000, not 12 Million.

What does a $5.4M family farm look like? To be honest, it's not much.

About 5 miles south of me, there's a family farm running 80 head of dairy cattle. It's a grass-fed operation, and certified organic. According to county GIS maps, they own right about 550 acres of farmland for grazing and hay. All the work is done by a husband, wife, their adult son, and his fiancee. They have no outside employees.

Would we agree that's a family farm? I hope we would. And I hope we'd further agree that grass fed, organic, and grazing are better than a grain fed, conventional, confinement operation. It's the kind of set up we'd like to see take back American agriculture from big business.

That farm is currently valued at about $7M.

It would have been worth well over $5M, possibly even $12m, in parts of America both in 2015 and today.

In 2015, the average acre of farm land in the US cost $4,310. That's average. Where I live now, we're at about half of average "thanks" to being remote and having long winters. Where I lived in 2015, it was double the national average price (which is part of why I don't live there anymore). In some localized areas, the presence of developers has driven land values as high as six figures per acre.

On the price of raw land alone, any similar sized dairy operation in California or Delaware was worth nearly $5,000,000 in 2015. So were farms that were a bit too close to cities in places like northeastern Virginia, southern New Hampshire and, as linked above, central Pennsylvania. Add in the value of barns, equipment, livestock, and other capital improvements to the property, and the valuation that 80 head family organic dairy can easily be double what the raw land is.

Property values are the problem with applying the estate tax to family farm operations. Farms, even small ones, require land. They require even more land if they follow beneficial, regenerative agriculture practices and not the factory farm/confinement operation approach. And when land values suddenly shoot up in an area, it can be prohibitively expensive to inherit your family farm because, as it turns out, increasing the "value" of the farmland doesn't actually increase its productivity.

Most of those farmers don't relocate and buy a farm in the middle of nowhere where land is still reasonably priced. If they can't swing the tax bill, they sell and exit the agricultural scene altogether, ceding more of the market share to those Big Ag operations everyone seems to agree are bad.

Excellent and well reasoned point. I'd argue that exactly this type of scenario is why they increased the limit to $12M, solving nearly all the problems in the scenario you gave

It definitely solved a lot of it. There are still some cases where things should be looked at. That Lancaster County link I provided definitely caused some farms to shut down or relocate when the heirs found out their farms were "worth" tens of millions of dollars (those values plummeted when the real estate bubble burst shortly after that article was written).

On the bright side, that spooked a lot of farmers near me into doing the planning work they were avoiding. These days, a lot of family farms have gone the route of "selling" their farm to the kids over a period of years, usually with a lifetime use clause that lets the parents maintain occupation of the farmhouse, hold a position on the board, etc. I have an S Corp set up to enable exactly that, just in case our few acres wind up being subject to land speculation and it turns out my kids want to take over.

So before I respond, I just want to make something clear here. I don't believe the estate tax, as it exists today, is impacting family farms in America in any significant fashion, and I believe farmers are being used as a smokescreen for wealthy people to dodge taxes.

I'd personally like to see the estate tax restored to the lower threshold, with exemptions made for family owned and operated farms, and I think those exemptions need to be close to what the current estate tax threshold is.

That being said, I do want to acknowledge your point here. You are right that there are very few farms being sold due to estate taxes today, and that's likely due to the changes to the estate tax made in 2012.

But seeing that in 2022 gives us the benefit of a full decade of hindsight that wasn't fully available in 2015 when the bill to repeal the tax entirely was on the floor, and there were family farmers who'd been spooked by the rampant real estate prospecting of the mid-00s and were worried that the changes made in '12 would fall short.

That article is from '17, and reflects the reality of those '12 changes. As noted:

Lawmakers permanently increased the estate tax exemption level to just over $5 million and indexed to inflation in 2012. If they had not done that, only estates below $1 million would have been exempt from the tax.

I think it's also worth noting that "farm exemption tied to inflation" was a route that had been taken before, with mixed results. Actually, it's mentioned in that CNN article.

For instance, Kaufman noted, there's a "special use" valuation that may be used to lower the value of farm land for estate tax purposes. In 2017, the provision lets an estate take up to $1.12 million off the fair market value of a farm property if the market value is higher based on the potential use for the land -- e.g., how much it could fetch for retail or residential development.
In cases where estate tax is owed, normally it's due within 9 months from the date of death. But family members who inherit a farm and plan to continue running it are allowed to take 15 years to pay it off if the farm assets make up 35% or more of an estate's value. What's more, the heirs may choose to only pay interest on the tax due in the first four years, Kaufman said.

This is referring to code 2032A, which was passed in 1976, and took on its current form in 1997 when the maximum reduction was set at $750k, and indexed to inflation. That inflation-indexed provision did not keep pace with rising property values. As the Farm Bureau noted in '18, from 1997-2017, the valuation of 2032A increased 55%, while farmland values increased by over 200% in the same time period.

So I can completely understand why farmers in 2015 would've been like "this new thing is just going to put us in the same position we were in in '08 when property values massively outstripped inflation." And, honestly, it may happen.

But, as I said, that's not a justification to use family farms as convenient cover for literally every rich family. Rather, it should be the impetus for creating a functional farmland exemption to the estate tax, while bringing the estate tax itself back down to a much lower threshold.

I mean... I can't speak to the specific ranchers but, based on "okielawyerdude" I'm guessing Oklahoma? Where the ranchers have thousands of acres of mismanaged pasture that they turn cow/calf pairs out on for ~12 months before shipping the calves to a feed lot in Garden City, KS to be fattened in confinement and coat the local community in a permanent layer of fecal particulate and E. coli?

Cos if those are the ones you mean, I'm not sure they would fit the description in my second paragraph. Just sayin'

It sounds like this farm isn’t valuable as a business but for the real estate.

Exactly so. Which is why I said in another comment that I think the way to solve that is to not apply "property value" to inherited farmland so long as it remains farmed. As soon as someone decides to sell it for market value, hit 'em with the estate tax. But so long as the land is being farmed... it doesn't change the production whatsoever whether the town assessor says the place is worth $1k/acre or $20k/acre.

In my opinion, small, local, family owned farms that steward the land and contribute to the community are a good thing for our food system and for the environment, and we should not be taxing them out of existence or forcing them to relocate.

Did you not read my reply, or are you just choosing to ignore it because it doesn't fit your narrative? Because my post literally addresses every point you've made here, and you seem to just be repeating your initial claim in different words.

I am a farmer. I live among farmers. I agree Big Ag is a bad thing. Forcing small operations to sell out because the local real estate market got hot and the zoning commission decided to change their assessment formula does nothing to counteract the problems of industrial agriculture. If anything, it worsens them.