Tax and the Myth of the Family Farm

Abstract

With income and wealth inequality at historically high levels, policymakers have looked to the tax system as a potential road to reform. Specifically, new taxes on wealth or inheritances could raise much needed revenue and reduce intergenerational wealth disparities. Yet looming behind recent proposals to strengthen the progressivity of the tax system is the specter of taxing family farms out of existence.

In the minds of voters, the family farmer is a sympathetic taxpayer who is cash poor but holds valuable property. Federal taxes that are based upon property values (like a wealth tax or an estate tax), rather than on cash income, appear to pose a risk that the family farm would have to be sold to fund such a tax. Yet, there is no empirical evidence that any family farm has ever been sold in the United States to fund federal taxes. Further, recent proposals to enact progressive tax reforms go out of their way to exempt farms, making the risk of taxing the family farm out of existence virtually zero.

This Article proposes that the threat of taxing family farms out of existence is a myth, but one worth exploring. It is the first to offer a comprehensive account of the outsized role that family farms play in shaping tax policy. In the end, the story of taxing the family farm is not a story about farmers at all. Rather, the family farm reflects our collective unease with the idea of taxing “paper gains”—that is, taxing the value in assets before they are sold, such as through a wealth tax or an estate tax. Arguably, no one better represents the pitfalls of taxing paper gains than a farmer holding valuable land that has been appreciating for decades.

When viewed in this light, the family farm narrative is not just an interesting story, but also symbolizes a fundamental crossroads in U.S. tax policy. Voters express strong support for higher taxes on the wealthy, yet do not appear to support specific tax policies (like a wealth tax) that would achieve more redistribution. Policymakers interested in reducing inequality must reckon with the fact that even the most progressive voters may resist taxes on anything but income. To that end, the Article concludes by offering concrete reform proposals that account for the myth of the family farm.

Keywords: Tax, taxation, tax policy, tax reform, wealth tax, estate tax, farm

JEL Classification: E62, H20, H21,H22, H24, H25, H26, H29, H30, K34, A12, K42, K34, O33, O35, O38, J38, J30