Death Taxes and the Food Supply

The Senate voted along party lines to defeat a motion to prevent reinstatement of the federal estate tax at the old rate of 55% next year. A two-thirds majority was needed to suspend frequently-convenient Senate rules to allow the Solons to consider legislation to repeal the tax permanently. Or, as permanently as any tax is ever repealed in Washington.

Senator Jim DeMint, a Republican from South Carolina, introduced the motion and quoted from a study by former director of the Congressional Budget Office Douglas Holtz-Eakin, who estimates that resuming the “death tax” could destroy 500,000 jobs, an estimate that seems far too low to me. I really do not agree with the Department of Agriculture’s estimate that 10% of farms will be affected deleteriously by the tax. This is a subject upon which I am particularly well-qualified to expound, sitting here on my ranch.

It isn’t just the iniquity of taxing everything we worked our lifetimes to accumulate yet again, or at such a vindictive rate. The problem is what else has been going on in the last twenty years and the fact that Capital Gains taxes are set to rise sharply next year, as well. Creeping inflation and the failure of land to be revalued as part of the collapse of the housing bubble bursting has got farmers and ranchers in a real vice. One of my long term “buy” recommendations is for land if it ever gets knocked down about two-thirds, but I don’t see any sign of that. At present, those who want to buy can’t afford prices of five to ten thousand dollars an acre for land capable of sustaining agriculture or raising cattle. Those who would like to–or need to–sell can’t face doing so at fire sale prices. Even at 50% off, it is difficult to sell. Expenses (realtors, surveyors) are about ten per cent. Add the new 3.84% socialized medicine tax which will apply to real estate sales. I feel as tied to the land as any medieval serf, watching helplessly as the razor-sharp tax pendulum is lowered constantly over my land and my body. I would like to relocate much farther away from “civilization,” and I know that additional taxes will be 9% higher next year. Suppose I grit my teeth and call the realtor tomorrow, knowing there is a fair chance she can move my beautiful acres at half price. That’s a 50% “facts of life tax,” right there. Out of the remaining $5,000/acre I will lose the aforementioned 10% and Uncle Sammy will demand Cap Gains on everything over $1400, that being the appraised value when I inherited half of it in 1992. Call that $360/acre plus the $500/acre, meaning a possible net to me of $4140/acre, and we haven’t discussed the massive costs of moving or the difficulty of finding suitable land and buildings. Those may well be held at present by someone who isn’t willing to accept 41.40% on his investment, although there is a lot of land for sale in the hinterlands. (Yes, my mythical owner might not have such a bite from CG, or he may have bought at $40/acre in 1950.)

Fast forward (many years, we hope) to my wonderful, grief-stricken children having a discussion with a CPA and an attorney, while the tax man rings things up joyously. At $10,000/acre it only takes a hundred acres to reach the former one million dollar level, and who can say where the cut-off will be–if there even is one? By the time they add up all the land, the house, my personal possessions, the cattle, the farm machinery, horses/goats/chickens/pigs/donkeys, barns, the car collection, and perhaps the fish in the lakes, that’s going to be one bodacious tax bill. My kids can either ransom their inheritance for…six or seven hundred thousand, perhaps?…or THEY can put it on the block at fire sale prices. Who can say what the assessed “value” will be by then? Our local Assessor/Collector has raised that every year for the last four.

My plan is to have the ranch producing enough income to pay a resident manager, expenses, and the taxes, at least, because in about thirty years Beauty wants to come do just what I’m doing. What is the point of “building for the future” if everything is going down the tax beast’s voracious maw?

I’m an analyst and I’m not happy with “que sera, sera,” but short of a major, sustainable change in policy what would otherwise be a personal tragedy for a small landholder will have serious repercussions as bigger demands are made on the world’s food supply. FDR had 5.1 million small farms to feed 125 million citizens. At present there are 2.1 million family farms, over 300 million citizens, and probably another 30 million illegal aliens. Into that mix throw the threat of the Food “Safety” Bill which will make it a crime to sell, transport, or give away raw milk, and a crime to butcher an animal for your own use. The “safety” Congress has in mind is Agribiz.’ Food Co-ops are under pressure to close, and butcher shops are shutting down due to even more onerous regulations. I raise registered, pastured beef which should return $4/pound to me. The last time I looked the auction barns were getting ninety-nine cents/pound. If only big meat-packing companies are allowed to process beef and they set the prices at public auctions, what’s the point of raising beef I can’t even eat myself? This will not only reduce the supply of beef but the resulting monopoly will hit food budgets hard.

The same problem will hit all small business owners because of the price of physical plants, machinery, and inventory. A million dollars isn’t the sort of money it used to be. The “share the wealth” crowd needs to realize that destroying the source of production, private sector jobs, and the local tax base is too high a price to pay for the windfall of eating the dead. I wouldn’t bet on it happening.

Linda Brady Traynham
Whiskey & Gunpowder

July 23, 2010

The Daily Reckoning