Politics & Policy

Taxed to Death

Estate-tax hikes will spell doom for family farms and ranches.

Democrats are marketing an impending estate-tax hike as a way to force frivolous American heiresses to pay their fair share and contribute to society. That’s only a small part of the story, though. Much of the tax revenue will actually be collected from small-scale farms and ranches in the American heartland. For these families, it will be devastating.

Many family farm and ranch owners are far from rich, regardless of how they look on paper. They clip coupons and live harvest to harvest, investing a lifetime of profits back into the family business. Around 85 percent of their assets are illiquid, according to national statistics.

But unless Congress intervenes before January 1, the estate-tax exemption will sink from $5 million to a mere $1 million, counting all assets, liquid and illiquid alike. Meanwhile, the top estate-tax rate will rise from 35 percent to 55 percent. Family farms and ranches, habitually cash-poor, will have no way to raise that kind of money when the head of the household dies.

Jw Nuckolls, who has raised sheep and cattle for 52 years in the Black Hills of northeast Wyoming, says he hopes to pass his ranch to his eldest son, who already works the land beside him. Nuckolls has planned ahead and taken out life insurance to help his family pay any inheritance tax, but it may soon be too little.

“Our home ranch is right next to the Devil’s Tower National Monument,” Nuckolls explains. “The land prices have really skyrocketed to a level that’s probably 20 times the value that you could pay for that land and run livestock on it economically.”

But the federal estate tax will count the land at market value and impose an estate tax accordingly on the surviving relatives. Nuckolls says many families will be forced to put the land and equipment up for auction. Some of the family farms and ranches will be absorbed by big agricultural businesses; others will be purchased and turned into condos and shopping centers. Either way, the family trade dies.

That’s the concern of Sharleen Castle of Wyoming’s Plumbago Canyon Ranch. Her husband’s immigrant ancestors homesteaded the land in 1887, and it’s been in the family ever since.

“They came with a wagon and a milk cow,” she says. “We have an original stone house that they lived in, and we have lots of really neat stories. We have saved the furniture, the rocking chair, the things that he made for their little family. The quilts, the padded pillowcases, the things that made this home out there. They planted a lot of trees, and if you go up on the hill above it and look down, you can see how they planted.”

Plumbago Canyon Ranch is beautiful in a stark, Western way. The plains give way to hills, and grazing grass sprouts up among rocks. The ten sections of land are roamed by elk, deer, antelope, and an occasional mountain lion. The sky is huge. Cherished black-and-white family photos depict a view that hasn’t changed much in decades. Sharleen says she wants to give this much-loved property to her grandchildren, ages 6, 8, 9, and 11, who would be the sixth generation to live on the family land. Each of the children has cattle on the ranch. They’ve already learned to brand and ride horseback, driving their cows across the range.

“There’s just a deep love of the land, and of the cattle,” Sharleen explains. “My niece got married here. It’s everything to us. We all come home together for Christmas and holidays, we come together in the summer . . . It’s just a part of who we are.”

Sharleen says that although she’d be “set financially” if she sold the property, an estate tax would be more than her family could make in a lifetime. Already she has had to work full-time at a bank to make the family finances work. She and her husband never go on vacation, she says, but that’s all right, because she’d rather be at the ranch than anywhere else in the world.

The ranch only generates enough income to support a single family, so keeping the land in the family as it grew was a severe struggle. But if the estate tax increases as scheduled on January 1, the Castle family’s days at Plumbago Canyon Ranch may be numbered.

“That would mean coming up with money you can’t even get in a loan,” Sharleen says, fighting tears. “That would mean your children and your grandchildren would only have the stories. They would not have the connection. . . . We have to do everything in our power to make sure that doesn’t ever happen.”

Such heartache is playing out across the nation. The American Farm Bureau Federation reports that all but 2 percent of the country’s 2 million farms are owned by individuals or families.  And the National Cattlemen’s Beef Association has noted that the estate tax is “one of the leading causes of the breakup of multi-generational farms and ranches.”

The cowboy, in the end, might well die at the taxman’s hand.

— Jillian Kay Melchior is a Thomas L. Rhodes Fellow for the Franklin Center for Government and Public Integrity.



The Latest