Accounting machine

WASHINGTON — Patricia Snook, a Texas cattle rancher and timber farmer, laughs at the idea of being thought of as super-rich.

Yes, her farm in Livingston, about 75 north of Houston, is worth more than the $5.4 million. That makes it subject to a hefty estate tax when she dies and the business passes onto her children.

But while many picture the tax as one paid by the wealthy, Snook’s assets aren’t made up of Beverly Hillbilly-style mansions or tricked-out cars.

Her assets are farm land and equipment.

“We’re land-rich and bank-poor,” she said. “We’re not going to Hawaii on vacation or driving around a Cadillac. We’re staying home and driving a Chevrolet pickup.”

The estate tax, also derisively called by its critics as the death tax, is one of the illustrative differences in the tax policies espoused by Republican presidential candidate Donald Trump and Democrat Hillary Clinton.

Trump wants to kill it.

Clinton wants to raise it.

A key question is who, exactly, pays it.

Left-leaning think tanks that advocate keeping the tax say it’s paid predominantly by the wealthy. Eliminating it predominantly favors the rich.

But IRS data provided by the Agriculture Department lend support to the position of House Ways and Means Chairman Kevin Brady, R-Texas, who wants to end the tax. Not all who pay it are the wealthiest in society, or even in farming. 

“People assume the tax affects the Bill Gateses and the very wealthy of the world,” Brady said in an interview.

“Those most harmed by it are family-owned businesses and ranchers,” he said. “Those are the ones that pay the price.”

According to a USDA analysis, most farm-estates that paid the tax last year are among operations making the most money.

But 29 percent of farms that paid were considered small, family farms making less than $350,0000 a year.

Those small operations paid an average of $1.2 million in estate taxes, representing 12 percent of all estate taxes paid by farms.

The small farms taxed last year reflected Snook’s situation. The USDA found 90 percent of their assets were in land and machinery.

Snook’s son-in-law, Mack Ross, said the family is saving for the day that it inherits her farm.

That means an immediate problem of not hiring more people, or repairing damage.

“We have a (feral) hog problem; we have land that’s all torn up,” he said. “But we don’t have the money to smooth it up and replant the gas.”

Brady said most people cannot fathom having enough assets even to be affected by the tax.

“Most Americans instinctively understand it’s unfair, just so unfair, to spend a whole lifetime building up a nest egg, building up a successful business,” he said. “But when you pass away, the IRS swoops in.”

But Trump and House Republicans wouldn’t only end the estate tax for small farms. They would retire it for the very wealthy — including wealthy farmers.

The USDA analysis found that fewer than 1 percent of farms paid the tax, and most that did were big-money operations.

A third of farms assessed the tax were making $350,000 to $1 million. Another 39 percent made more than $1 million.

Of all estate taxes collected from farms, 88 percent came from medium- and large-sized businesses.

But the group of farms affected is relatively small, according to the left-leaning Brookings Institute’s Tax Policy Center. It found just 30 small farms were subject to the tax in 2015.

“Eliminating the estate tax helps very wealthy people, said Chuck Marr, director of federal tax policy at the Center on Budget and Policy, another left-leaning think tank. He called the idea that the tax hurts average farmers and others “a distraction.”

The Tax Policy Center estimated that 5,330 estates owed the tax last year. Nearly 85 percent of the estates were held by the top 10 percent of income-earners; 40 percent of the estates belonged to the top 1 percent.

Dynamics of the estate-tax debate are reflected in the overall tax debate.

Trump’s plan, according to an analysis by the conservative-leaning Tax Foundation, would cut taxes by $11.98 trillion over the next decade.

Doing so generates higher wages and adds jobs, the group said.

But the Brookings Tax Policy Center said Trump’s cuts primarily benefit the wealthy.

The top 1 percent of households by income get an average cut of $275,000, or 17.5 percent. Middle-income households receive an average cut of $2,700, or 5 percent.

Lowest income households get $128, or 1 percent.

The Tax Policy Center said Clinton’s plan would raise revenue by $1.1 trillion over the next decade, mostly by taxing the top 1 percent of earners.

But the conservative Tax Foundation says that will hurt the economy.

As for farms, reducing estate taxes for those making the least money creates another problem, said Rob McClelland, a senior fellow at the Brookings Tax Policy Center.

Larger farms hoping to escape or lower estate taxes would cut back on operations, he said.

That would cost jobs.

Kery Murakami is the Washington, D.C. reporter for CNHI’s newspapers and websites. Reach him at kmurakami@cnhi.com.