A lot of time has been spent discussing how the fiscal cliff will impact our nation's economy. In Nebraska, a large part of our economy is based on agriculture, so it's worth studying how these tax increases and automatic spending cuts will affect our state's ag producers.
Along with the many expiring tax provisions we face at the end of the year--like the child tax credit and the marriage penalty--two major changes stand to cause grief for farmers and ranchers across the state and country if the fiscal cliff is not avoided. The estate tax and capital gains tax rates are scheduled to revert to alarming levels in January and have already caused much uncertainty as producers plan for their future.
The estate tax currently provides an exemption for all estates valued at $5 million or less. Anything valued in excess of $5 million is taxed at a rate of 35 percent when it is passed to beneficiaries. If this tax policy is left unaddressed, those rates will significantly change come January. The exemption will drop to $1 million, with anything above that taxed at a staggering 55 percent. A $1 million threshold might seem like a lot, but rising farmland prices are pushing the value of ag operations into the stratosphere. The average price for an acre of farmland has ballooned from $1,503 in 2010 to $2,425 today, according to the University of Nebraska Department of Agricultural Economics. Nebraska's average farm size is 966 acres. Thus, one could estimate the average farm value based on land alone at more than $2.3 million, well above the lowered exemption.
Farmers and ranchers, many of whom have had land in their families for generations, should not be forced to pay Uncle Sam more than half the value of their estate. And producers should not be forced to sell land to avoid the impacts of the fiscal cliff. Unfortunately, I've already heard from Nebraskans who are facing this very dilemma.
Another big issue if the fiscal cliff is not addressed is capital gains tax rates, which would increase from 15 percent to 20 percent next year. Ag producers already stand to pay significantly more in capital gains taxes at the current rates because of the increased land values. Tacking on an additional five percent would further burden ag producers. Absent some change in policy, estimates are that an average acre of land purchased in 2010 and sold in 2013 would incur a capital gains tax of about $185--nearly $50 per acre more than the current rate.
Although these changes would begin next year, they are already causing heartburn for ag producers who are trying to plan for the future of their farms today. Congress and the President have an obligation to act. No more kicking the can down the road.
Our state's ag-based economy has been a bright spot in an otherwise dismal national economic landscape. Allowing our farmers and ranchers to fall victim to such draconian policies is not only unfair to them, but dangerous for our country's economic recovery. The fact that Congressional Leaders are meeting with the President is a good sign. But there is much progress needed. I am optimistic that a solution is within reach, and stand ready to do all I can to ensure that farmers, ranchers and all families are not left paying the price for failed leadership in Washington.