July 11, 2005

CBO FINDS TINY NUMBER OF FARMS FACE ESTATE TAX
by Matt Fiedler and Joel Friedman

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A new report by the Congressional Budget Office (CBO)[1] lays to rest the myth that the estate tax imposes a significant burden on America’s farmers and forces many of them to sell their farms to pay the tax.  In a thorough analysis of IRS data, CBO finds that with the amount of an estate that is exempt from the estate tax in 2005 — and particularly with the higher exemption levels that will take effect in coming years — exceedingly few farms will face the estate tax.  In addition, CBO finds that only a miniscule number of estates could possibly be in a position of having to sell any part of the farm to pay the tax.

Taxable Farm Estates in 2000
Under Different Exemption Levels

Exemption Level

All Taxable Farm Estates

Those With Liquidity Constraints

$1.5 million

300

27

$2.0 million

123

15

$3.5 million

65

13

Source: Congressional Budget Office


End Notes:

[1] Congressional Budget Office, “Effects of the Federal Estate Tax on Farms and Small Businesses,” July 2005.

[2] CBO defines a farm estate as one where the decedent worked as a farmer in either the “agricultural crop” or “livestock” industry.  CBO notes that, because the estate tax affects only the largest estates, farm estates “belong to wealthy people in farming industries, not to subsistence farmers or migrant workers.”  CBO also finds that using alternate definitions of farm estate would not alter the report’s conclusions.