Farmers and ranchers are disadvantaged under the current income tax system. Their special tax problems fall into three categories:
1. The confiscatory tax imposed on the sale, gift, or bequest of the farm or ranch.
2. The alternative minimum tax
3. The failure of the current tax code to consider fluctuations in year-to-year income.
The current capital gains treatment causes problems with non-liquid assets. It imposes a tax of as much as 15% (which increases to 20% in 2009) on the sale of farms and ranches and depreciated machinery and equipment. This makes it very costly to pass the property on to future generations, since estate taxes are 45% in 2007. So if they sell, they get hit with a capital gains tax and if they want to pass it on to their heirs, they get hit with a 45% estate tax.
Farmers and ranchers spend countless hours and dollars creating estate plans in order to avoid this estate transfer tax.
And then they get hit every year with the alternative minimum tax (AMT), in my opinion a tax upon a tax. It certainly takes away any incentive of trying to make more money.
The FairTax eliminates all federal individual and business taxes. It will also lower the effective tax rate on farming households, since the FairTax exempts the basic necessities of life from taxation, up to the poverty level, as determined by the Health and Human Services poverty level each year and paid out to each head of household, in advance, on a monthly basis.
For a more in-depth look at the FairTax handling of farms and ranches, go to http://www.fairtax.org/ and poke on the research button. Find the white paper on the Impact of the FairTax on farming and ranching. There is much more information there.
Bottom line: The FairTax would be a real god-send to farmers and ranchers as well as you and I.