baltimoresun.com
Our view: A proposed estate tax break would accomplish little
6:00 AM EST, January 17, 2012
Last year, Gov. Martin O'Malley testified in favor of legislation
that would allow small farms to be excluded from Maryland's estate tax.
The bill failed, but it's almost certain to get serious consideration
this year since Senate President Thomas V. Mike Miller recently endorsed
the proposal, too.
The argument in favor of such an exemption is
compelling. Farm estates typically feature high-value land with far less
in cash and other liquid investments. Heirs may be forced to sell the
land to meet the tax obligation, thus accelerating loss of crop land as
more is converted into tract homes, shopping centers and other forms of
sprawl development.
We are certainly sympathetic to the desire to
preserve farmland. But like most issues touching on taxes — and the
particularly arcane field of estate and inheritance taxes — the reality
is more complicated than backers of this legislation suggest.
Two
years ago, the legislature approved a pilot program with similar
designs. When farmers died, it would allow their heirs to postpone
paying up to $375,000 in estate taxes (roughly enough to cover land
worth about $4 million), essentially by providing an interest-free loan
that wouldn't have to be paid off for seven years. Last year, the
program was further sweetened — the tax payment could be deferred longer
if the decedents agree to place the property in a permanent agriculture
easement.
The program applied to all farmers who passed away in
2011 and beyond. Admittedly, it's still early (taxes don't have to be
filed for nine months after someone dies), but as of today, how many
people have so far asked the comptroller's office about applying for the
tax deferment?
One.
That's right. If farm families are
getting slammed by Maryland's estate tax, they aren't exactly coming out
of the woodwork to seek redress. That's not to suggest there isn't
Maryland farmland being sold by heirs every month of the year — but how
often is the estate tax the real culprit?
Unfortunately, there
aren't any reliable estimates of how often farm families are forced to
sell inherited land because of estate taxes, only anecdotal accounts.
It's certainly been a concern over the last decade, however, and
Congress has gradually increased the exemption offered farm estates on
the federal estate tax to the current $5 million (or $10 million for
couples).
Maryland's estate tax applies after the first $1
million, but estate tax bills for properties with gross estate values of
between $2 million and $5 million produce tax bills averaging less than
$140,000. That might pose a burden to cash-strapped heirs, but it's
hardly a game-changer.
As the measure was offered (and rejected by
the state legislature) last year, the proposed estate tax exemption
certainly includes reasonable limits. The tax wouldn't be lifted unless
the property owners pledged to use the land for farming only and not
sell it to developers. And it applies to no more than $5 million in
property value.
Still, it appears to be aimed at helping families
under the same circumstances as those assisted by the tax deferral that
nobody so far seems to want. Budget analysts concede that the exemption
probably wouldn't cost the state treasury much — perhaps a few million
dollars per year. But that's little more than a guess and may be an
overestimate.
So why bother? Is this really going to save Maryland
agriculture? Or is it going to represent a tax exemption for one small
business — farming — at the neglect of all others? Surely, families of
other small business owners — from plumbers to dentists, and perhaps
even tax attorneys — would love to get similar treatment.
Instead,
the effort looks suspiciously like the kind of legislation lawmakers in
Annapolis love to pass — a sop to a favored group that sounds like more
than it really is. Legislators will be able to say they stood up for
farm families without having done much. Ultimately, the consequences of
their actions, good or bad, are negligible.
At a time when Mr.
O'Malley is under heavy criticism for supposedly declaring a "war" on
rural counties (merely by attempting to protect their land and water
from polluting septic tanks and unregulated development), the estate tax
break might be seen as a peace offering. And while the goal of
preserving farms is commendable, it's better to wait and see if the
existing estate tax deferral program provides relief before adopting a
tax exemption of questionable merit.
Copyright © 2012, The Baltimore Sun
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