Economy & Work

The Death Tax Is Hog Wash

The Death Tax Is Hog Wash

Photo by Rich Herrmann / flickr CC 2.0)

Election season has brought the usual flood of TV commercials – generally trying to scare voters about the evils to expect if the opponent is elected. Ads are often marked by outlandish claims and even outright lies but first prize for deception must go to the so-called “death tax” ads. No doubt you have seen them, salt of the earth farmers claiming the death tax threatens the existence of their family farm and of rural communities. Who knows, perhaps these folks believe what the political consultants ask them to say — they have been brainwashed with the claims for so long.

Here is the truth – there is no death tax. There is an estate tax applied at the federal and state level but only to huge estates worth millions in assets. It is almost impossible to find an Iowa farm family or “small business” impacted by the estate tax let alone one forced out of business. Why? Because the current federal estate tax includes a personal exemption for the first $11.5 million in assets – for a couple it is doubled to $23 million. You read that right – the first $23 million is exempt and this is before you do any estate planning or use tools like special farm valuation to avoid taxes.

Do you have an estate worth $23 million or know anyone who does? Congratulations if you do – but for most Iowans these sums are beyond our imaginations. As to small farms needing to sell land to pay inheritance tax, the current land value in southwest Iowa, where I come from, is less than $6000 an acre. I would need to own over 3800 acres before my heirs would face any tax – or about 6 sections or square miles of farmland – I should be so lucky! In 2019 the average Iowa farmland value was $7400 an acre, so you would need to own 3100 acres or almost 5 sections before any possible tax. The most recent Census of Agriculture shows the average Iowa farm size is 355 acres, nowhere near the amount of land needed to trigger the tax.

If you know someone who owns six sections of Iowa land or even five – you may feel for them but the feeling is more likely envy than fear their heirs might need to pay some taxes! Remember taxes are what the government uses to provide for our defense and security. The Census of Agriculture shows only 1500 Iowa farms larger than 2,000 acres – the highest category. It is human nature to want to keep hold of everything we own, but they don’t put luggage racks on hearses. Instead, we have estate planning and anyone worth millions can afford to hire a bright county seat lawyer to plan their estate to avoid taxes. My mentor at Iowa State Dr. Harl, taught us in agricultural law the tricky part of estate planning is getting people to die in order and on schedule – but even that uncertainty can’t stop a good estate planner from limiting taxes a family might owe!

The only time our family was forced to sell part of the farm was to pay my father’s nursing home bills.

It is true death in a farm family can lead to land being sold – but not to pay inheritance taxes, instead it is usually because an off-farm heir wants to sell and cash in their part of the farm. My father spent years paying off his siblings to buy their “shares” of my grandmother’s farm. Rather than losing farmland to a non-existent “death tax” the only time our family was forced to sell part of the farm was to pay my father’s nursing home bills. Increasing health care costs like that are real – a “pre-death tax” threatening all Iowans, farm families, and small business owners alike. Politicians might want to focus on addressing this reality rather than spreading lies about the death tax. Farmers and small businesses have a lot to worry about – with low prices, disastrous trade policies, and a cratered economy due to our inability to control the Covid 19 crisis. Politicians who try to scare voters with “hog wash” about a death tax they will never face should be ashamed of themselves.

Neil Hamilton

Neil Hamilton is an emeritus professor of law and former director of the Agricultural Law Center at Drake University Law School in Des Moines. He was raised on a 200 acre farm in Adams County Iowa, on land that had been in his family since the 1870's. He received his undergraduate degrees in forestry and economics from Iowa State University and his law degree from the University of Iowa. He taught agricultural law at Drake for 36 years, wrote dozens of law review articles on many topics of agriculture and food law, and lectured in over two dozen countries. He is a past president of the American Agricultural Law Association and chaired the Iowa Food Policy Council for seven years. Today he and his wife Khanh operate a market garden farm, Sunstead, near Waukee. He can be reached at [email protected]