The Effects of the Federal Estate Tax on Nonindustrial Private Landowners
Abstract
The federal estate tax is designed to tax the accumulation and transfer of wealth. Between 1987 and 1997, the estate tax was as high as 55% of assets above $600,000. Timber and land values have increased significantly in many areas of the U.S. in recent years, and in some circumstances heirs liquidate timber, or sell or develop portions of inherited timber and agricultural lands to pay federal estate taxes. To better understand how the estate tax is affecting timberland owners, a survey was conducted of members of the Mississippi Forestry Association in 1998. Survey questions involved estate values, and estate tax liabilities that were incurred between 1987 and 1997. Respondents were asked if it was necessary to harvest timber, or to sell land to pay federal estate taxes. Responses were obtained from 1,365 people (a 65% response rate), and results indicate that the federal estate tax was a contributor to the conversion of forest and agricultural lands to other uses during this period. One hundred eighty-one of the 1,365 respondents were involved in an estate between 1987 and 1997. Forty-seven percent of the estates exceeded the $600,000 exemption; twelve percent of the estates exceeded $3 million and were taxed at the highest marginal rate. Thirty-five percent of the estates paid federal estate taxes. Approximately seven percent responded that timber was harvested or land was sold to pay federal estate taxes.