Pajaro Valley farmers bemoan U.S. Senate decision to reject repeal of estate tax
By TOM RAGAN
SENTINEL STAFF WRITER
WATSONVILLE — Farmers whose biggest asset is their land were disappointed at the U.S. Senate's refusal Thursday to repeal the estate tax, which often hinders the ability to pass property to children and has forced family farms out of business.
Commonly known in agricultural circles as the "death tax," the Santa Cruz County Farm Bureau and the California Farm Bureau Federation have gone on record opposing it.
The Senate came up three votes shy of repealing the tax Thursday on a 57-41 vote — although lawmakers said they remained hopeful a bipartisan compromise to reduce the tax would occur before Congress recesses for the summer.
Elia Vasquez, a landowner in North Monterey County, plans to meet with U.S. Agriculture Secretary Mike Johanns in Sacramento today as part of a contingency with the state Farm Bureau Federation's labor committee.
For Vasquez, there's much at stake: her roughly 120 acres near Elkhorn Slough just outside of Pajaro. And she doesn't want to see her four children pay exorbitant taxes after her death — a scenario that's forcing family farms to go belly up due to the high value of land in California.
"We already know that everything is expensive in California as it is — especially the land," she said. "Some people don't even realize it until it's too late. You don't work all your life, pass away, then the tax is so much that your children have to sell half the farm because they can't afford it.
"It's just not realistic."
The most common association with the estate tax is that only 1 percent of the nation's population is affected by it — and that it generally only applies to multimillionaires whose families must pay 46 percent on estates valued at more than $2 million.
But in California there are thousands of farmers who are "land rich and cash poor," notes Dave Kranz, a spokesman with the state Farm Bureau.
"Most farmer assets are tied up in land, buildings, equipment, livestock, trees and vines," said Kranz. "They're not like investors with big stock portfolios who can merely sell a block of stock and move on.
"With family farmers, when they're confronted with the death tax, they sometimes have no choice but to sell the land."
In 2001, President Bush began phasing out the estate tax, which is scheduled to end in 2010, then reappear in 2011 under what is called a sunset provision — which is the cause of all the flurry in Congress these past few weeks.
In April, the Republican-dominated House voted 272-162 to nix the tax completely, saying it was fundamentally unfair.
Democrats have largely countered it is equally unfair to lighten the load on the super rich at a time when the United States is at war and facing record budget deficits.
The repeal of the tax would mean $71.6 billion a year in lost revenue by 2015, according to a bipartisan congressional Joint Committee on Taxation.
To Mount Madonna resident Frank Estrada, 71, the estate tax repeal would be good riddance.
He almost lost his land over it a few decades ago, when his father died in 1980, then his mother a few years later.
Estrada and his brother, Richard, 72, had to come up with $750,000 in taxes on the 1,300 acres of timber and ranch land that was left to them.
Ultimately, it took the brothers several years to dig themselves out of a hole, and it entailed recruiting help from a lumber company that agreed to front them the money in return for a few acres of their redwoods.
"In the end we had to pay more than a million dollars in estate taxes when you factor in the interest," he said. "It grew on us like some sort of cancer."
As much as Estrada is grateful to the company for bailing the family out and keeping the land on Mount Madonna in the family, Estrada said his parents probably could have avoided the problem with proper estate planning.
"But we're talking about people who were old-fashioned and who had the land passed down to them and so on and so forth — for generations," said Estrada. "They didn't know how vicious a tax could get.
"But let's face it, they're not going to abolish it. Everybody keeps saying that there's a war on and we have to pay for it."
With the Senate's rejection Thursday, however, comes a little bit of hope in a bill sponsored by Sen. Jon Kyl, R-Arizona, whose alternative is to not tax estates worth under $5 million.
Most estates exceeding $5 million would be taxed at capital gains rates, allowing the small farms and small family businesses to get by.
But whether Kyl's version will be reviewed or come up for debate in the coming weeks before Congress lets out for the summer remains to be seen.
Said Vasquez: "I don't want my children to sell the land. It's a beautiful piece of land in a protected area of California. It's like a little Mediterranean, and I worked hard to get it."
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