The US economy is scheduled to go over the fiscal cliff on January 3 if Congress and the White House cannot agree on a new budget deal. While much if the political discourse in Washington has centered on the fiscal cliff at the expense of agricultural issues, it may surprise many Beltway pundits to realize that farmers are intimately connected to the impending budget fight.
The fiscal cliff is largely the result of last year’s debt ceiling negotiations. In order to raise the debt ceiling, Congress insisted on nearly $2 trillion in deficit reduction be agreed to by the beginning of 2013. These reductions were included as automatic, across the board spending cuts which were initially designed to prod Congress into bipartisan action.
In addition to the mandated spending cuts, the Bush tax cuts are scheduled to expire at the beginning of 2013. The one-two punch of agricultural spending cuts and increased taxes could be punishing to farmers still struggling to recover from the 2012 drought.
In particular, an increase in estate taxes could hurt many farmers whose land values have skyrocketed in recent years. Current estate taxes kick in for estate valued at more than $5 million and is capped at 35 percent. When the Bush tax cuts expire, Clinton-era estate taxes will automatically come back into force, meaning that exemptions will drop from $5 to $1 million and the cap will increase to 55 percent.
Many farmers are worried about the impact of these taxes on their farmland, whose value has significantly increased in recent years. In York County, Nebraska, for example, prime farmland is selling for more than $16,000 an acre, meaning that an average farm, or even a small farm in the right area, could easily be worth more than $1 million. Farmers are hoping that an agreement on the fiscal cliff or a new five-year farm bill could address potential agricultural estate taxes.
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Written by: Justin Ellison / Farm Plus Staff Writer