Politicians were busy in the waning days of the 111th Congress. Two issues in particular caught our attention at the Center for Rural Affairs: the passage of the Food Safety Modernization Act (S. 510) and changes to the estate tax. Both of these measures affect rural Americans in very real ways, so it’s worth taking a moment to figure out what they mean for us.
The Food Safety Modernization Act (also known as S. 510) passed through Congress on December 21 after months of political wrangling. The to improve various agencies’ abilities to prevent, detect and respond to food safety problems, and is largely a response to the many large food recalls, from beef to spinach to eggs, that have plagued our food system in the past few years.
Included within the act is the Tester-Hagan amendment, which was negotiated between consumer groups and sustainable agriculture organizations. The amendment gives a choice to very small farms, very small food processing facilities, and farms who market directly to consumers - they can either comply with state regulations or with modified federal regulations that are appropriate to the scale of their farm. It exempts from recordkeeping and hazard analysis requirements farmers who sell directly to consumers and have less than $500,000 in annual sales.
There are a number of summaries to what the bill includes (here and here), and I found this series on Grist’s Food Fight particularly informative when trying to look at the various angles of the food safety issue. Though it was written before the law was passed, they cover important questions such as whether we have afood safety crisis, whether the law will better protect us from contaminated food, whether the law willharm small farms, if the Food & Drug Administration (FDA) will have too much or not enough power, and whether the Tester-Hagan amendment will put more kids at risk.
So what does this mean for rural Americans? The law does not, as some Internet campaigns have suggested, ban backyard gardens or end all small farms. The hope, of course, is that the law will mean that the food we buy at the grocery store or that kids eat at school will be free of the most dangerous pathogens. Some farmers and processing facilities will have to keep good records, register their businesses with FDA, and submit to an inspection every few years. It gives FDA the power to issue mandatory food recalls in the event that a company refuses to recall its unsafe products voluntarily, something that they haven’t been allowed to do in the past.
It’s a difficult task to balance protection of public health with that of small farmers, and we’ll see how well this law does once implemented. If nothing else, having more FDA personnel on the ground to inspect food facilities should help to avoid future outbreaks.
The estate tax is another of the issues that Congress took up, this one within the Tax Relief Act. This tax is collected from persons who inherit wealth from someone who has died. The estate tax was repealed for one year starting January 1, 2010 and was set to return in 2011 at the rates set in 2002 - 55% on the largest estates and an exemption for the first $1 million inherited for an individual ($2 million for married couples).
According to the Journal of Accountancy, the following changes will take effect for the years 2010 to 2012:
The estate tax rate is set at 35% for two years (through 2012) and the estate tax exemption is $5 million (adjusted for inflation after 2011). For estates of decedents dying in 2010, an election will be available either to be subject to the reinstated estate tax or to be subject to the modified carryover basis rule. The election between the reinstated estate tax and the modified carryover basis rule is made by the estate, not the beneficiaries, who would be subject to tax under the carryover basis rule.
Back in September before the estate tax provision was passed, Chuck Hassebrook wrote the following about the estate tax:
Some are pushing for raising the exemption to $10 million for couples ($5 million per spouse) and dropping the tax rate on the largest estates to 35 percent. Others would repeal the tax entirely on farmland.
Each of these proposals is overly generous to wealthy heirs and puts farmers, ranchers and small business people who must earn their way at a competitive disadvantage. The overwhelming majority of family farms and businesses would be hurt, not helped.
Farming and business are competitive. The heir of a tax-free $10 million estate has a huge advantage in competing for land and business over those who stand to receive modest or no inheritance. The estate tax helps level the playing field between those whose success is based on being born into the right family and those who must earn success through hard work, brains and determination.
Exempting big estates is a move away from the concept at the core of America’s founding – that opportunity should be based on what we do, rather than who we are. America represented a rejection of feudal Europe, where land was tightly held by the wealthy elite through inheritance, and opportunity was scant to those of modest origins.
So how does this tax provision affect rural communities? Well, from an objective standpoint, it means that if you inherit more than $5 million worth of an estate in 2011, you’ll have to pay a tax at the rate of 35%, and people who inherited that much in 2010 will be able to choose which of two ways they pay.
It also means that family-sized farms and businesses will be exempt from the tax.
The Center for Rural Affairs values fairness. We have always advocated for a level playing field for rural Americans and against policies that hurt family farms, ranches and businesses. If the estate tax holiday had been extended, it would give a big advantage to those who have inherited land compared to those who did not come from farming families. Likewise, if farmland were exempt from the estate tax, we would see a rush to snatch up land, driving up prices and driving out young or beginning farmers getting started.
Having more farmers on the land and more families living and working in small towns strengthens our vision for rural America. The estate tax insures that an average-income family can still make a living and share in the prosperity that they helped to create.
If these last few days of the Congressional session have shown us anything, it’s that compromise and action are still possible in Washington, DC. We hope that trend continues in 2011 and that more policies pass that keep small towns thriving.
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