Question of the day
Tuesday, Apr 25, 2023 - Posted by Rich Miller
* I get emails…
Good morning, Rich,
I’m returning on behalf of the Center for Tax and Budget Accountability and its research partner, Project for Middle Class Renewal at the University of Illinois, with the release of a new report, Reforming the Illinois Estate Tax to Advance Tax Equity and Fund Public Services, which recommends resetting the current Illinois estate tax exclusion of $4 million to a lower level to “strengthen the state’s investment in its residents by generating significant additional resources to provide essential public services.” The report says that Illinois is at a “fiscal crossroads”, with $10 billion in federal subsidies through the Coronavirus Aid, Relief, and Economic Security Act and the American Rescue Plan Act expected to be spent by the middle of FY 2024. “Further aggravating conditions for working- and middle-class residents, Illinois is noted for having one of the most regressive tax systems in the country, placing a much greater tax burden on low-income workers and middle-class families than on affluent individuals, when tax burden is measured as a percentage of income,” the report says. “From a fiscal policy standpoint, few tax options are available that would raise revenue while simultaneously making state-level taxation fairer by responding to the significant growth in wealth and income inequality. One such option, however, is the tax assessed on wealthy estates.”
Between 2002 and 2014, Illinois quadrupled the threshold for assessing the Estate Tax, called the “Exclusion Limit,” from $1 million to $4 million. “This has eroded the tax base with the number of estates paying the Estate Tax in Illinois decreasing from a 2001 peak of 5,100 to 860 in 2020, resulting in an estimated $5 billion of lost revenue over an 18-year period,” the report finds. “Reducing the Exclusion Limit would both broaden the base subject to Illinois’ Estate Tax— thereby generating new revenue from those with large estates—and enhance the tax fairness created by the Estate Tax,” the report says. Among key policy recommendations, which would increase annual revenue by between $150 million to $300 million:
• Lowering the Exclusion Limit to $1 million (returning the limit to its 2002 level) which could generate an average of around $300 million in new revenue annually.
• Lowering the Exclusion Limit to $1.5 million which could generate an average of $221 million in new revenue annually.
• Lowering the Exclusion Limit to $2 million which could generate an average of $151 million in new revenue annually.
The authors add: “We further recommend that the additional state revenue which would be derived from lowering the Estate Tax Exclusion Limits be applied to help fund an expansion of tax relief for low and moderate-income families, like the creation of a child tax credit.” […]
Many thanks, and all the best,
Rick
= = = = = = = =
Richard Melcher
Principal
Melcher+Tucker Consultants
* Text message from Sen. Jil Tracy…
Abolishing Illinois’ estate tax is about allowing family farms and other small family businesses to stay intact. With the estate tax, many are forced to liquidate part of their assets to pay the tax. The Illinois Estate tax doesn’t affect the ultra wealthy who use trusts and other expensive estate planning tools to avoid the tax. True, the Governor may want to avoid the optics, but it isn’t the reality.
She included this link to an Illinois Farm Bureau website…
The Illinois estate tax law is complicated, but in simplest terms, an entire estate in Illinois is taxed roughly 12% to 16% at death when the fair market value of the estate exceeds $4 million per individual. [Attorney Andrew White] finds that some farmers know only about the federal estate tax that they read about in national publications. At the current threshold of $12.92 million per individual, the federal estate tax shelters the vast majority of family farms.
But with farmland values at historic highs, the Illinois estate tax threatens almost every average- sized family farm in the state when a member of the farm family dies and wishes for the next generation to continue the family business.
“We are seeing central Illinois farmland estate appraisals come in as high as $18,000 per acre,” White says. “With farm equipment and a farmhouse that means a family owning as little as 160 to 200 acres could face a tax.” Families who make a living off the land commonly own 200 acres or more.
According to Illinois Farm Business Farm Management, farmers own an average of 23% of the land they farm, and the average size of a modern family farm exceeded 1,250 acres as of 2020.
* The Question: Lower the estate tax’s exclusion level, or abolish the estate tax, or leave it as it is? Take the poll and then explain your answer in comments, please.
- vern - Tuesday, Apr 25, 23 @ 10:55 am:
I voted to abolish the tax, though I’d like to see that revenue replaced with some other kind of tax on the wealthy. I just don’t like that level of government intrusion into the mourning and estate settlement process. There should be plenty of options for collecting that revenue from living wealthy people.
- TheInvisibleMan - Tuesday, Apr 25, 23 @ 11:01 am:
Lower the exclusion level
–With the estate tax, many are forced to liquidate part of their assets to pay the tax. The Illinois Estate tax doesn’t affect the ultra wealthy who use trusts and other expensive estate planning tools–
Forced, only in so far as that is the consequence of the way they have setup their business.
Setting up a trust is hardly something only the ultra wealthy have access to and use. If you have a business worth 4M or more and do not have it setup in a trust, that’s your choice.
–other small family businesses–
If they don’t have a trust, calling it a family business is just sugar-coating/lying about what in reality is a sole proprietorship. I just do not buy the excuse that someone who claims to want to keep a business in the family, also refuses to setup the business in a trust - to continue to be able to keep all the profits for only themselves and not their ‘family business’. Their family dynamics are the only thing leading to a tax bill for the still living. Maybe focus more on your family dynamics before complaining about the tax code?
- Excessively Rabid - Tuesday, Apr 25, 23 @ 11:02 am:
Only eight states have an estate tax. Of those, California has not imposed it since the 1980s. People affected by this tax move their domicile somewhere else and Illinois loses other revenue. Large farm operations implement business structures to avoid the tax. It’s a bad idea all around.
- Demoralized - Tuesday, Apr 25, 23 @ 11:03 am:
I’m sorry but if your estate is worth over $4 million then I’m not crying any tears for you about having to pay this tax.
- lake county democrat - Tuesday, Apr 25, 23 @ 11:08 am:
What is a little odd is that, as I read this and other things on the estate tax, it’s not that the amount -over- $4 million is taxed but the entire estate is taxed. That’s not how federal tax brackets work. A compromise could be to let the first $4 million go and then just tax what’s over it.
Otherwise, no lowering - first, there are other estates besides family farms and second (and more importantly), this is a generally progressive kind of tax given the exemption. There’s no way I know to substitute something that would mostly affect the rich.
- The Truth - Tuesday, Apr 25, 23 @ 11:10 am:
I hate the idea of lowering that exclusion level. It’s not like there’s this vault of cash hidden in a back barn that counts towards the $4M that a farmer’s offspring could dip into.
Outright abolishing it would serve the mega-rich, though.
- Chicago Blue - Tuesday, Apr 25, 23 @ 11:12 am:
How many of those paying it are actually family farms? Is it a significant amount or this some situation where the Chamber of Commerce is opposing any corporate tax amount by highlighting the impact on Sally Sue’s Tiny Lemonade instead of Walmart.
- DuPage - Tuesday, Apr 25, 23 @ 11:13 am:
Maybe they could exempt family farms.
- Eire17 - Tuesday, Apr 25, 23 @ 11:15 am:
So a business owner takes the risk to start a business. As the business grows he/she are paying taxes all along the way. These people are creating jobs and paying taxes. At the end of it all they have to pay more? Never understood why death was a taxable event.
- Occasional Quipper - Tuesday, Apr 25, 23 @ 11:16 am:
== What is a little odd is that, as I read this and other things on the estate tax, it’s not that the amount -over- $4 million is taxed but the entire estate is taxed. That’s not how federal tax brackets work. A compromise could be to let the first $4 million go and then just tax what’s over it. ==
Totally agree. It’s really not right that any tax laws are written in such a way that a penny either above or below some cuttoff can cause a difference of thousands of dollars in taxes.
- Arsenal - Tuesday, Apr 25, 23 @ 11:21 am:
Man, it’s funny to say “land is worth more than ever, so we need to cut the landowners a break”. I kinda get it, but…good luck in your senior year, guys.
Voted to leave it as is. Seems like a good compromise.
- 48th Ward Heel - Tuesday, Apr 25, 23 @ 11:22 am:
If you’re dead *you’re* not paying anything, your heirs who have just received a windfall pay it, same as if they won the lottery. You can’t take it with you, you know.
I agree we could have a special carve-out for actual small family farms, but then other, less hard-working rich people wouldn’t be able to use them as a shield.
- supplied_demand - Tuesday, Apr 25, 23 @ 11:24 am:
==Never understood why death was a taxable event. ==
The death isn’t being tax, the transfer of wealth is being taxed.
- JS Mill - Tuesday, Apr 25, 23 @ 11:27 am:
Leave it.
Farming is the most subsidized industry in America. Every input in Ag comes with a tax break or other cost support. And most “family farms” are a series of interlocking corporations created to maximize federal subsidies and tax breaks.
Wealthy farmers can pay the tax on their estate.
- JJJJJJJJJJ - Tuesday, Apr 25, 23 @ 11:27 am:
I voted to lower the exclusion level. A few questions if anyone could help me out.
1) Do we have any idea how many family farms are affected? Or would be affected by new limits? How many are we really talking about?
2) Why can’t we exempt any wealth from a family farm?
- Excitable Boy - Tuesday, Apr 25, 23 @ 11:29 am:
Calling them family farms is a joke. There aren’t many small timers scraping by raising their family on their 200 acres. These are corporate farms with family names on them. Lower the exclusion.
- OutHereInTheMiddle - Tuesday, Apr 25, 23 @ 11:30 am:
I think some of the comments demonstrate how difficult it is to come up with an agreed definition of a “family farm”.
Is it not a corporation? Almost any sizable business should be incorporated in some way for legal/liability purposes.
Do the family members need to be actively involved in farming? Does that mean managing the business or actually driving the tractor?
Is land ownership a requirement? It’s completely feasible to have a huge investment in a farming operation with out owning any land.
- Barnaby Wilde - Tuesday, Apr 25, 23 @ 11:31 am:
A major policy reason for the estate tax is to prevent the perpetuation of obscene, dynastic wealth through generations of families. Four mil is impacting the upper middle class these days, especially in small business and farm assets. Inflation is making it more so over time. I voted leave it alone, but I think tracking the federal “soak the rich” rates is a better idea.
- Earnest - Tuesday, Apr 25, 23 @ 11:33 am:
Lower it. $1 million is more than most will accumulate in their entire lives, let alone have given it to them by accident of birth. US Census Quick Facts says 12.1% of Illinoisans live in poverty. We can do better for them.
- Jocko - Tuesday, Apr 25, 23 @ 11:37 am:
==many are forced to liquidate part of their assets to pay the tax.==
How many? I doubt they could fill an office…or even a restroom stall
- OneMan - Tuesday, Apr 25, 23 @ 11:40 am:
Voting to keep it the same, would suggest that a larger amount be exempt (and only taxed above the exemption) that is zoned agricultural and has been owned by the same entity or members of the same family for X years.
I was surprised how much farmland is farmed by someone besides the owner in my neck of the woods, when you look into it you can tell that farms got divided up amongst heirs and some held on to it, some didn’t.
or just tax value above X and index X to inflation.
- Siualum - Tuesday, Apr 25, 23 @ 11:45 am:
I voted to leave as is. Farmland gets a significant property tax break, as it is not taxed based on its market value as all other classes of property are, but on a calculated productivity basis, which is far less.
- Candy Dogood - Tuesday, Apr 25, 23 @ 11:51 am:
===Families who make a living off the land commonly own 200 acres or more.===
The Bailey family operates a multi million dollar agribusiness that depends extensively on federal aid and controls several thousand acres of farm land and they refer to their giant agribusiness as a “family farm.” An estate tax that would require the Baileys to sell a portion of their giant farm (which I am certain is structured so that they won’t have to pay) would benefit smaller farmers by breaking up the Bailey family’s monopolistic hold on the land they own.
Why does a multimillionaire like Darren Bailey need another state or federal handout to support his business?
He does not appear to be skipping any meals and quite frankly I think we have better priorities to focus on rather than shoring up Darren Bailey’s kids and grand kids to be richer than everyone else in their county.
- HLV - Tuesday, Apr 25, 23 @ 11:51 am:
Abolish the death tax. That money was already taxed so you want to tax it again? Plus it will keep seniors in Illinois rather than seeking Florida residency for this precise reason.
- Chris - Tuesday, Apr 25, 23 @ 11:52 am:
How about another way:
Provide an exemption for bona fife family farms. Might be hard to get the definition right, but it also flushes out the posers.
- Red Ketcher - Tuesday, Apr 25, 23 @ 11:54 am:
Keep it as is ,for reasons stated by others
- H-W - Tuesday, Apr 25, 23 @ 11:56 am:
I voted Leave It As Is.
As much as I hate the saying, “the truth is somewhere in the middle,” in this case, there are good arguments to be made on both sides.
I personally would prefer we err on the side of protecting family farms. While the Farm Bureau estimate is an upper limit of $18,000 per acre, in reality, most family farms are not working $18,000 an acre soil. In addition, not all acres owned are tillable.
I was glad to see the estimate that most family farmers own an average of 1250 acres. That seems about right, based on my anecdotal evidence.
I live on what was once a federal tract, designed for the veterans of the War of 1812. McDonough County is 24 square miles by 24 square miles. I live on one of those square miles, in a farm house on three acres of land. The entire square mile is 640 acres, which was originally deeded as 16 forty-acre plots.
The farmer I bought the home from retired, and had lived here for more than fifty years. He told me when he bought the farm 70 or more years ago, there were lots of homes per square mile. Today, I have one of three homes still standing on the square mile.
The family farm Mr. James worked was one of the biggest in the county. He owned and worked 160 acres when he moved into his house. Today, 160 acres would only sustain a family if they owned their own equipment (most of my friend find it cheaper to rent equipment that to purchase it today).
Beyond the politics of this debate, I do not see rich farmers running around over here. I see young men and old men, along with their wives and daughters, living a middle class lifestyle. But to do so, they tend to own 300 to 1,000 acres or so, and farm an additional several hundred acres owned by people in Chicagoland and elsewhere, who do not live here but instead purchase labor to sew and harvest their land.
Maintaining the few remaining family farmers seems proper to me. Taxing above $4 M seems reasonable (otherwise farms would be collapsing currently). And until I see farmers wearing suits and driving limousines, I’ll not assume the average farm family is too rich.
- Benjamin - Tuesday, Apr 25, 23 @ 12:01 pm:
I voted for lowering the exclusion, but, as other commenters have mentioned, this just means wealthy individuals will harbor their assets in other states. It’s essentially a chump tax for rich people who don’t have their financial act together (or who are so rich they don’t care).
As for family farms being at risk, the answer is simple: exclude farms where the deceased resided (i.e., not an investment they monitored from their corner office on Wacker Drive) from the valuation of the estate. But I’m guessing Republicans don’t want to hear this solution because it defangs their argument against taxing the rich.
- OutHereInTheMiddle - Tuesday, Apr 25, 23 @ 12:17 pm:
==exclude farms where the deceased resided==
Not that simple.
Farmers today may have fields that are 20, 30, 40 miles apart. You generally cannot purchase property contiguous to where you live.
Also, an elderly land owner would have to choose between moving to town for convenient access to stores, etc. or staying on the ‘home place’ to preserve the exemption?
- Payback - Tuesday, Apr 25, 23 @ 12:29 pm:
“Calling them family farms is a joke. There aren’t many small timers scraping by raising their family on their 200 acres.” You know this how? The hatred and resentment that we see for those that produce food and feed the world is sickening.
My relative was killed in a farming accident ten years ago that devastated our family, and we didn’t get a proclamation from the governor in memoriam, or a “Scott’s Law” special statute like when cops die. Show some respect, if you like eating. Or, you can break up family farms, and let agribusiness control the food supply.
- Lurker - Tuesday, Apr 25, 23 @ 12:30 pm:
It should not be below the Federal amount, so I voted abolish.
- TheInvisibleMan - Tuesday, Apr 25, 23 @ 1:15 pm:
“The hatred and resentment that we see for those that produce food and feed the world is sickening.”
You are making up an enemy, because one doesn’t exist.
Nobody hates farmers. Well, I’m sure some people do, but that’s not coming through in any of the comments I see.
For a inheritance tax to be imposed, the farmer will be *dead*. He or she isn’t going to care about paying taxes anymore, because dead people don’t care about anything.
Now if this is a REAL family farm, then it is already setup in a trust to benefit the entire family financially. If it is NOT setup this way, it is not a family farm and you can call it one all day long to try and pull on heartstrings, but it isn’t going to change the reality that the living people inheriting the farm are the ones paying tax on money they didn’t even have much less work for, the day before.
Actual family farms, aren’t going to be impacted by this even today. People who use deception to pretend they are a family farm when they aren’t because it is good marketing, will be impacted.
Does that make sense? Legal family farms, will be fine. Nobody here hates them.
- ChicagoBars - Tuesday, Apr 25, 23 @ 1:19 pm:
Update it, it should match the Federal exemption tbh. Decent farmland prices have soared even when the family has held it for generations. It’s hard enough for the small to mid-size farms to keep passing down from generation to generation without a more restrictive Illinois standard for estate taxes - especially when it’s outside mega-farms driving up those crop land prices.
Some good U of I graphs here on the sharp climb in IL farmland value since 2005. https://farmdocdaily.illinois.edu/2022/08/illinois-farm-real-estate-values-increases-1000-per-acre-for-2022.html
- Jibba - Tuesday, Apr 25, 23 @ 1:25 pm:
Just because a farm’s major asset is the value of the land does not mean it should be exempt from taxes. Land is not “different” than money or other assets.
- Candy Dogood - Tuesday, Apr 25, 23 @ 1:54 pm:
=== Land is not “different” than money or other assets.===
This is a very important rural issue, though, because right wing farmers don’t want to dilute their votes by owning less land. /s
- very old soil - Tuesday, Apr 25, 23 @ 2:44 pm:
The amount of land leased under a crop share or cash rent basis varies by geographic region in the state. For example, in 2020, farmers in northern Illinois cash rented 63% of their land and crop shared 19% while central Illinois farmers cash rented 45% and crop shared 40%. Farmers in the southern part of the state cash rented 42% of their land and crop shared 36%.
The amount of land owned by farm operators also varies by geographic region in the state. Southern Illinois farm operators own 23% of their land while central Illinois operators own only 15%. Operators in northern Illinois own 18%.
From 2016 to 2020, the amount of land owned by operators has stayed the same. On a statewide basis, operators owned 23% of their land in 2020.
https://agupdate.com/illinoisfarmertoday/news/state-and-regional/data-digs-into-illinois-farmland-ownership/article_17f89072-c3dc-11eb-80d1-9bf26060b683.html
- Cool Papa Bell - Tuesday, Apr 25, 23 @ 11:13 pm:
=I do not see rich farmers running around over here. I see young men and old men, along with their wives and daughters, living a middle class lifestyle. But to do so, they tend to own 300 to 1,000 acres or so,=
I’ll just say if you own 1,000 acres of even class B soils in McDonough County you are “worth” 13,500,000. If you own all of it you could just rent it out for, being conservative $350 an acre, and gross $350,000 a year while being a land lord.
To the post - I voted to lower it. I agree with @JS up the posts here, he makes great points. But I think farmers get such a free ride on the gov’s money they don’t need another tax cut.
I’d offer to keep it the same or get rid of it - IF - land was taxed a much more realistic rate of its value. Farm land is not taxed like most property you and I own.
- Anon E Moose - Wednesday, Apr 26, 23 @ 7:22 am:
Those poor millionaires…