Death Tax Revival Murders Yeoman Ranchers

By :: November 1st, 2010

Who needs death panels? Representative Cynthia Lummis (R-WY) claims that ranchers and farmers in her state are planning on ending dialysis or other life-extending medical treatment before the end of the year so they can avoid paying the estate tax. This may cost the Treasury some revenue, but there is a silver lining for deficit hawks. After all, it will save Medicare a bundle.
Many Republicans opposed a provision in an early version of the health bill that would have let Medicare pay physicians to talk to their patients about end-of-life choices. But it seems Wyoming ranchers need more than medical advice. They really need to talk to a good lawyer. If they did, nearly all of these suddenly suicidal cow punchers would realize that pulling the plug is, from a tax planning point of view at least, completely nuts.
To understand why, remember the current state of play over the estate tax. Thanks to the 2001 tax law, estates of all people who die in 2010 are tax-free. But that 2001 law expires on Dec. 31. If Congress does not act, starting on Jan. 1 estates of $1 million or more will be subject to a tax of up to 55 percent.
Thus, we have a specter of a tough and independent Clint Eastwood-like cowboy who chooses to head prematurely for that great roundup in the sky, all to save his hard-earned herd from some Internal Revenue Service bureaucrat hovering over his hospital bed, awaiting that final breath. It brings a tear to the eye.
Except it is all a carefully crafted myth.
Start with the cowboy. Some Wyoming ranchers have been on their land for generations—property stolen fair and square from Native Americans in the 19th century. Others are grazing their herds on federal land while paying cut-rate fees for the privilege. And still others are LA doctors, lawyers, and actors who spend a few weekends a year on their ranchettes, where they enjoy both spectacular scenery and generous income tax subsidies for grazing a few head of someone else’s cattle.
The second myth is that their heirs will lose their ranches to the taxman. To start, there is no serious discussion in Congress of allowing the estate tax to return to 2000 levels. Even President Obama and the congressional Democratic leadership would at least return the law to where it was in 2009, exempting the first $3.5 million ($7 million for couples) from tax and setting a rate of no more than 45 percent. In addition, family farmers and small businesses get an extra $1 million exemption ($2 million for couples) for a total exemption of $9 million. And in the rare case where farm estates do owe tax, they can defer the debt for up to five years and extend payments for a decade after that.
So how many of these yeoman ranchers would lose their land if we returned to the 2009 law? Roughly none. The Tax Policy Center estimates that in the entire United States, about 110 small farm and small business estates would owe any estate tax in 2011. Citizens for Tax Justice estimated that under the 2004 rules (when the exemption was only $1.5 million) only 62 Wyoming estates of any kind owed tax. And not all of them, of course, had farm assets.
Finally, a rancher who chooses to die this year may end up costing his heirs money. Because 2010 is also a year when heirs lose the benefit of stepped-up basis, if they eventually sell the ranch they will end up paying capital gains tax based on its value when it was first acquired rather than on what it was worth at the time of death. While this provision applies to all assets, ranches, where the tax basis is usually quite low, are exactly the sort of property that could get hit.
Over-the-top hyperbole is all part of the political game, of course. But if Rep. Lummis is aware of constituents who are planning on killing themselves to avoid the estate tax, she has something of a responsibility to let them know the difference between reality and myth.

5Comments

  1. Anonymous  ::  6:54 pm on November 2nd, 2010:

    You are assuming that the Republican leadership is willing to play nice so that something passes during either the lame duck or in the next Congress. If they show the same unwillingness to play nice that they have for the last few years, it may be that the automatic repealers will be triggered.
    For too long, competent legislative staff are being passed over for PR types.

  2. Anonymous  ::  3:42 pm on November 4th, 2010:

    Ironically, Mr. Gleckman criticizes the use of “over-the-top” hyperbole to influence a listener in an argument, when he uses several fallacies in this article to influence the reader. To say that ranchers stole their land from Native Americans, are taking advantage of public lands, or are all rich celebrities; is a red herring: ad hominem argument. He is attacking the people rather than the argument, presumably to say they don’t deserve any sympathy. To counter: All lands from North America were taken unfairly from the Native Americans, including the location of Mr. Gleckman’s house; the 2010 federal grazing fee is $1.35 per animal/per month which brings in millions of dollars of taxes for use of public land that would not be available from any other source; not all landowners in Wyoming are celebrities since I am neither rich nor famous.
    I am not a supporter of Rep. Lummis and haven’t voted for her. I don’t think she understands tax law, nor do I think people are planning to kill themselves at the end of the year. We started estate planning in the form of a Family Trust (18 years ago) and have hired a tax lawyer to hold on to our small family ranch. We don’t make a lot of money, so we are land-rich and capital-poor, just like our neighbors. We are real people trying to make a living and hold on to our heritage. That’s not a myth.

  3. Anonymous  ::  3:58 am on November 8th, 2010:

    Mr. Gleckman's article falls in a category of what we in Wyoming understand as BS. I don't know if any residents in Wyoming are planning life ending decisions to avoid estate taxes but, I agree completely with the estate tax problem as presented by Representative Lummis. I did vote for Representative Lummis and believe she is capably representing Wyoming's interest in an environment (Washington , D.C.) that has lost touch with the real world.
    I am an attorney in Wyoming with an estate planning practice. Suggesting that Obama and the Democratic leadership is going do something productive and enact the $3.5 million exemption is wishful thinking. It didn't get done in 2009 or 2010 and the experts I read indicate they expect nothing will done and the exemption level will return to $1 million January 1, 2011. The recent election may help bring about some action to increase the limit but, to suggest Obama and his leadership will take action denies the facts. The Democratic leadership has had the votes to take this action anytime in the last two years.
    The fact is, I have numerous clients who are land rich and cash poor. They or their parents bought the land at $100 to $200 per acre and it is now valued at $1,000 to $3,000 per acre or more. But, they don't want to sell it. Ranching and farming is a way of life and they want the ability to pass it to their children and grandchildren. They are lifetime ranchers and farmers who have significant estate tax exposure when the limit returns to $1 million and at the new rate of 55%.
    I agree with the author– it is time to understand the difference between reality and myth. Unfortunately, the Obama administration doesn't seem to know or care about reality; however, the recent election results are an indication the voters across the nation do understand that difference.
    Frank Stevens
    Gillette, Wyoming.

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