We’ll likely be voting this November on an initiative to phase out Oregon’s Estate Tax. If the initiative passes, the “death tax” will be reduced each year until it is finally eliminated for persons dying after January 1, 2016. Most farm organizations strongly support repeal. This puzzles me since I believe a good argument can be made that the great majority of farmers risk paying more taxes. Instead of repealing the estate tax, we should be concentrating our efforts on raising Oregon’s estate tax exemption to the current federal level — $5.12 million for an individual and $10.24 million for a married couple.
According to a recent USDA study, 0.5% of all farms and 4.2% of “commercial” farms pay federal estate taxes. Most estates that include farmland are well under the exemptions and pay no tax. However, most farmers do benefit from the “stepped-up basis” provisions of the estate tax law. The “stepped-up basis” rule allows inherited property to be valued for tax purposes at its fair market value at the time of the death of the previous owner, i.e., its tax “basis” used in computing capital gains tax is increased to the “fair market” value at the time the assets were inherited.
Although few farmers plan to put their farms up for sale, the “stepped-up basis” still reduces taxes. Children and grandchildren often inherit parts of the farm after they have moved away and lost interest in farming. Family members who continue to farm usually end up buying out these non-farm heirs. The capital gains tax paid on sales within families is much reduced by the “stepped-up basis.”
The “stepped-up basis” is easy to justify for estates that pay estate tax. The estate tax is calculated based on the fair market value of assets at death. Without the “stepped up basis,” capital gains taxes on subsequent sales would amount to a double tax on part of the asset’s value (the difference between fair market value at death and the price originally paid by the decedent).
If the estate tax is eliminated and the stepped-up basis continued, wealthy taxpayers who are able to hold assets until death would avoid all capital gains taxation. This seems unfair to many and may explain why the “stepped-up basis” was eliminated when the federal estate tax briefly expired in 2010.
I’ve probably already lost you in this maze of tax law. To summarize, if the exemption is raised to $5 million, few farmers will be subject to the estate tax. Totally eliminating the estate tax risks losing the “stepped-up basis”—which benefits most farmers.
Several months ago, I updated my data on the white wheat basis relative to Chicago futures. I believe the basis graph helps illustrate the effect of the long-only index funds on our basis. The funds became dominant players in the Chicago futures market after 2005, but their early effects were masked by the two back-to-back years of Australian drought.
Last summer, my nephew visited us. He recently established a successful website in China used by musicians and other artists to promote their works — so he’s very knowledgeable about websites and blogs. He informed me my website badly needed an appearance upgrade and recommended a hosting switch from using iWeb hosted on the Apple’s me.com site to WordPress. He offered to help and developed what you see here. Making the needed changes would have been much more difficult without him and I greatly appreciate his help.
During the last year, I haven’t updated either my old or new sites. My old site was available until Apple closed down its web hosting at the end of June. I’ve had difficulty figuring out how to redirect my domain name “tomccoy.com” to my new site and only accomplished that yesterday. Also, I’ve been chairman of the the Oregon Wheat Commission during the past year and one of my responsibilities has been writing a bi-monthly “Chairman’s Column” for OregonWheat magazine. The columns have given me plenty of opportunity to express my views about current developments in the wheat industry and even about healthcare reform. I will post some of my columns here soon.
One of the main reasons I stopped adding blogs during the past year is the death of Raleigh Curtis. Debates with Raleigh stimulated many of my past posts. I miss him. Raleigh’s successor, Jeff Kaser, is doing a great job carrying on Raleigh’s work. However, Jeff’s style is less inflammatory and I haven’t felt the same urge to follow up our discussions at marketing meetings with new blog entries.
During the last three months, I’ve been involved with the Columbia Gorge Health Council’s efforts to reform the way Medicaid is delivered in Oregon. We’ve been working to set up a new Coordinated Care Organization (CCO). This may seem a strange activity for a retired wheat farmer. However, the year I spent on the AFBF Deficit Task Force made me a passionate advocate of health care reform. The average total cost of health care for a family of four in the U.S. is now $20,728 with median income just over $60,000. Our health care system is self destructing due to rising costs. I’ll have more to say about this in subsequent posts.