Have you looked at land, livestock, infrastructure, and equipment costs they tax? People saying that are not "full of shit" and an unexpected death can ruin not only the farming family but the folks they hire.
I totally agree that a tax on inheritances above $5 million will tend to impact family owned businesses worth $5 million though.
Nobody wanted the estate tax to mean "the government gets 10% of Wal-Mart when Sam Walton dies". If that's the outcome that results in some cases, then fix that problem.
The North Dakota farm issue was interesting, as something I wasn't aware of (and thank you for bringing it up!) I'm less interested in engaging with the general libertarian argument against taxation.
How is that different from, for example, $5,000,000 to buy a lot, build a gym, and stock it with equipment?
What? Plenty of small businesses can generate more than $5 million in revenue annually, but still be a small family business. $5 million sounds like a lot for an individual, but for a business, not so much... especially after all the expenses that come with operating a business and having employees.
We're talking about farms here, farming equipment alone could be valued several million dollars by itself. The $5 million figure is the value of the business, which includes assets and projected revenues (not profits!)... it's quite possible for someone to inherit a family farm and immediately be financially ruined... buried under a large income tax bill.
You are muddying the distinction between revenue and value in your first paragraph and correcting my understanding in the 2nd. Why?
There is an argument to be made, that the valuations used are unfair, but if you inherit an actual $6 million operation and are forced to liquidate to pay the $200,000 tax bill, I doubt you are financially ruined. In fact, I expect you are a cash millionaire.
You make the assumption that you are able to sell the operation for the tax value which is a pretty wrong one. Plus, ignoring the people who depended on the continuing operation of the family business is not a good thing. Never mind the psychological damage of destroying what the family has worked for at a time when you need help not the tax man ripping down what you built.
I get that you think it is unfair to tax wealth at death. That's fine. Land and tractors aren't special wealth, that's where my "full of shit" came from. As far as the timing of the tax, there's plenty of people that go through the death of relatives while being completely financially insecure.
Inheriting something like this is not a bed full of roses. It can become quite a nightmare, and it can indeed ruin people who are not prepared to take on that kind of tax liability all at once without any up-front funds to pay it off.
We already acknowledged what makes up that on-paper value.
Most of these family farms are more-or-less "lifestyle businesses"... ie. the family owns and operates the farm for a living, and profits only a normal salary annually after all expenses (equipment, repairs, employees, materials, etc)... which is spent on regular things such as toothpaste, toilet paper, shoes, food, etc.
Just like most people, they aren't banking millions per year...
Farming in America is incredibly expensive... but not incredibly lucrative. There are exceptions to this, with mega-corp-farms and what-have-you... but that's not who we're talking about here.
You don't need to be making enormous profits to plan for that. You'd certainly need to be making a decent return, but it doesn't take such a huge amount of annual profit to set aside enough to cover it.
What you seem to be missing is that I am really skeptical that people are gathering $6 million of paper wealth without plowing hundreds of thousands of dollars of profits into growing their operations. Maybe some unlucky lucky guy inherited a lot of land that then appreciated a great deal. The horror.
That's the mechanics of how they got that big. As for the "why would rational people ever take that deal" question, I think it's because some people really feel an attachment to the land, to the lifestyle, to the ideal of a family farmer, to family tradition, or some combination thereof.
https://www.ers.usda.gov/data-products/farm-household-income...
Many farmers are making small amounts or losing money. They appear to mostly have farm assets less than $1 million.
But when you get to the commercial class (still households), with median farm assets of $2.7 million, they are making median farm income of $146,000; with mean farm assets of $4.1 million, they are making mean farm income of $250,000, which is not the 1% of assets you propose.
There is of course much room for variation inside the data, but it appears that many large farms are able to generate a nice return on assets, even at farm sizes smaller than would be subject to current estate taxes.
I presume you mean something like the people who work on the farm, and who repair the tractors, and such. But if the family has to sell, the person buying it probably wants it for a farm, not just for a B&B with a really big back yard. So they're probably going to need about the same number of people to work on that farm, and someone to repair the tractors, and so on.
Of course it is. A non-luxury house can cost $1 million in certain places. A family farm with a couple of siblings and equipment can easily reach $5 million.
If your yearly profit on investment is 10% then an income of $50,000 / year needs half a million investment. You just need 10 people (3 families and some hired hands) to reach $5 million.
I hope you can agree that parents plus 2 married kids is a family farm.