Statements On Introduced Bills And Joint Resolutions

Floor Speech

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By Mrs. FEINSTEIN (for herself, Mr. Crapo, Mr. Udall of Colorado, Mr. Bennet, and Mrs. Boxer):

S. 3664. A bill to amend the Internal Revenue Code of 1986 to exempt certain farmland from the estate tax, and for other purposes; to the Committee on Finance.

Mrs. FEINSTEIN. Mr. President, I rise today on behalf of myself and Senators CRAPO, UDALL of Colorado, BENNET of Colorado, and BOXER, to introduce legislation that will help preserve the great tradition of the American family farm.

Our legislation is called the Family Farm Estate Tax Deferral Act.

It is designed to prevent the unintended consequences of the estate tax's disproportionate impact on family farms, by providing relief to families who want to continue their family farming and ranching operations.

This is especially important in California, where high unemployment has devastated many of our state's agricultural communities.

Specifically, this legislation would allow qualifying family operated farms and ranches to defer estate taxes if the farm-related income of the decedent in the three years prior to death does not exceed $750,000 annually, and the non-farm related income does not exceed $500,000 per year; the farm is passed down to a family member who has been materially engaged in its management and operations for at least 5 years; the farm generated more than 50 percent of the farm owner's income, or comprised more than 50 percent of the farm owner's estate at the time of death; the farm was owned by the decedent for at least 5 years and is located within the United States.

The family member inheriting the estate continues to use the land for farming purposes; and, at the time of his or her death, the decedent associated with the estate was a U.S. citizen or legal resident of the United States.

The bill also includes a ``recapture'' provision, to ensure that farm heirs are subject to strict oversight and must pay taxes if at any time they sell the land or cease to use the property for farming.

The bill would also encourage the preservation of land and protect millions of acres of open space and wildlife habitat. It does so by incorporating legislation introduced in the House by Representative EARL BLUMENAUER to increase the limitation on the estate tax exclusion for conservation easements to $5 million, up from $500,000.

Farm and ranch estates are estimated to be up to 20 times more likely to face an estate tax burden than other estates.

Roughly one in 10 family farms and ranches confronted estate tax bills last year, according to data from the U.S. Department of Agriculture Economic Research Service.

Let me explain why this is cause for concern, and why our legislation is so important.

Most of the financial value of a family farm or ranch operation lies in its land. Assets such as specialized equipment and production tools have limited resale value and are not likely to quickly generate sufficient liquidity.

It is land--not securities or other more-liquid assets--that comprises the lion's share of many farmers' assets. So, many farmers are quite literally land rich, and cash poor.

The property value of fertile farmland can appreciate greatly over time.

For example, in 1997 the average farm real estate value was $926 per acre; today it is $2160 per acre, according to the Land Trust Alliance. This represents a 133 percent increase in the value of farmland in just over a decade.

As this farmland appreciates, the potential estate tax bill grows.

When a farm estate is passed on to an heir, portions of the land are sometimes fragmented, or even sold to developers in order to manage the tax consequences.

The result is that some farms are rendered inoperable, and heirs face difficult choices in these tough economic times.

Let me share the story of a constituent, Hannah Tangeman-Cheney, whose story illustrates the problem.

Hannah's ranch in Susanville, California, has been owned by her family since 1862, and run by women since 1914.

After her mother passed away, Hannah had to deal with the IRS, attorneys, and appraisers, during this difficult period in her life. Her mother had a will and a trust, but there was still a significant tax burden that Hannah and her sister had to deal with.

It took 2 years for Hannah and the IRS to reach agreement on the value of her ranch since their appraisers came up with different numbers.

Eventually, she reached agreement with the IRS to pay the taxes off over a ten-year period.

Facing these difficult circumstances, Hannah and her sister made the painful decision to harvest thousands of trees.

In all, 13,157 trees were cut--far more than they would have ever dreamed of harvesting under any other circumstances.

Some of the trees took more than 100 years to grow, and the property had not been harvested since the 1950's.

Eventually, she was able to pay off the taxes, but this was a very emotional experience for Hannah and her sister.

They are both environmentally conscious, and their ranch was even certified as part of the ``Green Building'' program with the Forest Stewardship Council.

Our legislation is designed to prevent these unintended consequences, and provide relief to families wishing to keep their farms in operation.

By mandating a $750,000 cap on income in order to qualify, we can ensure that this relief goes to those farmers who need it most, not to major agribusinesses.

To be clear, many Americans have suffered tremendously during this very difficult economic downturn.

But, some agricultural communities have been hit especially hard.

Family farms in many of California's most productive agricultural areas are currently struggling just to make ends meet.

I come from the largest agricultural state in the country.

California has suffered a crippling three-year drought, and many growers have had to fallow their fields to cut their losses.

Many have had to lay off employees, and some have left the business entirely.

These hardships can be seen, and I have witnessed them firsthand, in Fresno County where the unemployment rate is 16 percent.

In Kings County unemployment is 15.9 percent. Tulare County unemployment is 15.8 percent.

Imperial County is suffering under unemployment which has reached 27.6
percent. Within these counties, unemployment in some agricultural communities has touched 40 percent.

Farms and ranches are an important source of jobs in these communities.

This legislation aims to protect family farms that intend to hire, while providing more certainty to thousands of workers across the State.

In 2006, I warned that difficult decisions would be required before the estate tax expired in 2010.

Well, 2010 is here and the picture of our nation's fiscal health is not a pretty one.

We are facing a record $1.3 trillion budget deficit.

The national debt has reached a new high at roughly $13 trillion.

The parameters of the estate tax debate have shifted for most, by necessity.

Full estate tax repeal is out of the question, and our number one priority for allocating federal resources has rightly been shifted to job creation and economic recovery.

But, absent Congressional action, the estate tax will return with ferocity next year at a 55 percent rate with an exemption level of $1 million.

I don't think this is something that many in this body would like to see.

So, any estate tax reform must be well-targeted and balanced to ensure it is fiscally responsible.

As we work to develop comprehensive, permanent, and fiscally-responsible estate tax reform this year, I urge my colleagues to remember that the estate tax was never intended to prevent family farms from being passed from generation to generation.

Our legislation resolves this issue for once and for all, and by safeguarding against loopholes for rich farming conglomerates and agribusinesses, it does so at minimal cost.

Moreover, we take steps forward to protect our precious environment and preserve open space and agricultural lands.

There is no doubt that many family farmers are under financial pressure during these difficult times.

We must take steps to bring relief to the very family farmers and ranchers who have devoted their lives to helping feed and sustain this great nation.

This legislation is a fiscally responsible and targeted effort to ensure that we preserve this tradition for legitimate working farms.

Estate tax reform must be addressed soon, and this issue can no longer be delayed.

I urge my colleagues to support this effort and to enact this legislation as quickly as possible.

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