Inventor and Statesman Ben Franklin once wrote, “The only things certain in life are death and taxes.”
But that is definitely NOT the case in Washington these days as America teeters on the edge of the Fiscal Cliff.
Unless Congress and the President come to terms on some form of compromise, more than $100 million in across-the-board spending cuts and $500 billion in tax increases take effect New Year’s Day.
Last week, in a rare display of unity, Congressional leaders from both sides of the aisle appeared confident of their ability to hammer out a deal. But the devil is in the details...
Partisan bickering dominated the rhetoric this week and by Friday a compromise appeared to be nowhere in sight. And as policymakers search desperately for new sources of revenue many Americans are considering the implications of significant changes in what is often referred to as the “Death Tax.” Paul Yeager explains.
Farmland sales are happening all over The Heartland for a variety of reasons.
In some cases, farmers are looking to expand their operations. Others are speculating on land values. And still others are trying to get ahead of looming tax increases that go into effect if policymakers fail to come to terms on hundreds of billions of dollars in tax increases caught up in fiscal cliff negotiations in Washington.
Jeffrey Obrecht, who bills himself as “The Dirt Dealer,” is close to $56 million in sales this year for his company, Farmers National.
Jeff Obrecht, the Dirt Dealer, Farmers National Company: “Quite a bit that’s coming on the market that is being driven by the tax incentives of whether they go up 5% plus 3.8 Obamacare deal. No matter how you look at it today, versus January 2nd, that farm January 2nd needs to be worth 8.8% more money than it is today to stay even with the board. That’s what’s kind of driving this.”
Obrecht says sellers are willing to pay today’s “certain” tax rate and avoid the “what if” rate looming if America goes over the fiscal cliff.
The Federal Estate Tax, currently at 35%, could roll back to 55% if no action is taken. That rate has the attention of many in rural America.
Currently, estates valued up to $5.1 million, are able to avoid all estate taxes. Those with higher values are taxed at the rate of 35 percent. But that all changes next year unless policymakers intervene. Effective January 1, the threshold drops to $1 million and anything above that is taxed at a higher rate of 55 percent.
Family-run manufacturing companies, like Iowa-based Sukup Manufacturing, are paying close attention to the issue.
Charles Sukup, President, Sukup Manufacturing: “It has big ramifications for us as a company.”
Charles Sukup serves as president of the grain drier and bin maker. His father, Eugene started the company almost 50 years ago. And today, the Sheffield, Iowa plant employs more than 500 workers.
Charles Sukup, President, Sukup Manufacturing: “It just seems fundamentally unfair in one sense, that these capital intensive industries, like manufacturing, farming that you have to put a lot of money in order to be and have capital equipment in order to have an operation, that they’re put in jeopardy every 25 years, as deaths occur in generations, and get taxed over and over with it. The other thing, beyond fairness, what is best for America, what do we want have an incentive for? I don’t think making it harder, discouraging family business from continuing is something that is good for America in the manufacturing.”
For Sukup Manufacturing and other family-run companies like it, that transfer of wealth, taxed at a higher rate, could dramatically reduce the impact on local economies.
Charles Sukup, President, Sukup Manufacturing: “If you don’t manufacturing have wealth generation of creating something out of some very basic elements, you can’t have much of a service economy.”
Charles says an elimination of the Estate Tax would be ideal, but admits that isn’t politically likely.
Sukup says an Estate Tax exemption for family businesses would be a start. He says small businesses are the backbone of the economy and taxing them multiple times could stifle companies like his.
Charles Sukup, President, Sukup Manufacturing: “We’ve reached that point, the more you tax, the less you get of something, generally, and you create less of an incentive for people to go out. A lot of people feeling were at the tipping point now, we need to incentivize to take some risk to be entrepreneurs, to start business and start jobs and not count on somebody else doing that for them.”
For Market to Market, I’m Paul Yeager.