Illinois death tax hits family farms where it hurts

Illinois’ estate tax only generates about $300 million in revenue, while potentially costing the state more than $1.5 billion in annual GDP growth.

Illinois takes pride in its farmland. The state has some of the world’s richest soil, and 3 of every 4 acres in Illinois are dedicated to agriculture.

But Illinois’ agricultural heritage is about much more than land and crops. It’s about families.

The state’s Centennial Farms program honors those who have held an Illinois farm in their family for a century or more. More than 9,200 farms across the state have earned this designation. (Full disclosure: the Berg family farm outside of Effingham is one such place.)

But passing a farm down from one generation to the next isn’t easy. And Illinois makes it even harder. In the Land of Lincoln, that moment comes with a hefty “death tax” that forces families to worry rather than reminisce.

Illinois’ estate tax puts family farms and other small businesses at a competitive disadvantage. It punishes hard-working families.

And it threatens what makes Illinois agriculture great.

Given the average value of Illinois farmland, about $7,500 an acre according to the U.S. Department of Agriculture, a farm a little larger than 500 acres would be subject to Illinois’ estate tax when the owners die and the estate passes to their children. That’s not even counting farmers’ assets that aren’t land: The value of tractors, combines, barns, silos and more is tallied up, too.

Illinois’ estate tax tops out at 16 percent. And don’t forget the federal estate tax, which maxes out at 40 percent. Even with clever accounting, that can be a tough pill to swallow.

“We’ve seen numerous members of ours over the years have to sell off portions of their farm to pay this tax,” said Kevin Semlow, director of state legislation at the Illinois Farm Bureau.

The bureau has represented Illinois’ farming families for 100 years, and among its 80,000 members are those hit hardest by Illinois’ estate tax.

“If you have to take a portion of what you own to pay taxes, you’re tearing apart the farm. It’s not fair to those folks,” Semlow said.

Illinois is one of only 15 states that charge an estate tax in addition to the federal death tax.

Semlow added that the estate tax threatens the ability of Illinoisans to keep farms in their families, because farmers’ biggest asset is their land.

Illinois farmers are often “land poor.” While farmland can be very valuable, cash on hand is a different story. This makes the estate tax especially burdensome, since the land farm families are forced to sell is what pays the bills.

But not all farms suffer equally under Illinois’ estate tax.

Larger corporate farms such as those owned by Tyson Foods have to pay a corporate income tax, unlike family farms and other Illinois small businesses. But those major corporations aren’t hit by the estate tax. And while farmers’ roots are planted in Illinois soil, wealthier individuals can easily avoid the estate tax by moving to a Sun Belt state.

While Illinoisans bear the obvious burdens of the estate tax, its hidden effects are just as bad.

The Tax Foundation estimates the federal death tax costs the U.S. five times more in gross domestic product than it collects in tax revenue each year. So while Illinois’ estate tax only generates about $300 million in revenue, it could be costing the state more than $1.5 billion in annual GDP growth.

That’s an awful trade-off.

It makes sense that Indiana, Ohio and North Carolina have all repealed their death taxes in the past few years.

Illinois has had this debate for decades. And sometimes, politicians come down on the side of fairness.

Take 1982, when Illinois eliminated its inheritance tax. Then-Gov. Jim Thompson took a stroll down the block from his Chicago home to sign the bill at a local family-owned grocery store.

Thompson described the tax as “unfair,” according to the Chicago Tribune. “It strikes hardest at family-owned businesses in the state and family-owned farms,” he said.

Illinois lawmakers knew farmers and small-business owners already paid their fair share in taxes.

Those family legacies needn’t belong to the taxman, too.