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THE IMPACT OF INCOME AND ESTATE TAX ON U.S. FARM STRUCTURE
Abstract
Over the past few decades the U.S. farm structure has undergone substantial changes. The Average farm size has increased, while the number of farm units has declined. In terms of business organization, the percent of partnerships declined while that of individual operators and farm corporations increased. Scale economies and agricultural commodity programs whose benefits are linked to output levels have been offered to explain the increase in the average farm size. The favorable tax treatment of farm corporations relative to owner operators has been given to explain the rapid formation of farm corporations. The study had two objectives: to determine the differential impact of income tax rules on the rate of growth of after-tax net worth of a sole proprietor and farm corporation, and to determine the effect of using an estate plan on optimal transferable net worth. Using data and income tax rules for years 1950 and 1980, a polyperiod linear programming model was used to derive an optimal growth path for both farms. The objective function was to maximize net worth. The results showed that the rate of growth in acres and after-tax net worth of the farm corporation was higher than that of the sole proprietor. The higher rate of growth of the corporation was due to a lower tax liability relative to that of the sole proprietor, caused by the corporation's lower average tax rates and greater deductions. The advantage of the farm corporation increased with farm size. The use of an estate plan reduced the rate of growth relative to the model that did not have an estate plan because of capital withdrawals. However, the intergeneration transferable net worth was higher for the farm with the estate plan. In general the results indicated that current laws favor farm corporations, and have probably encouraged their rapid formation. If the tax laws are not changed, the number of farm corporations will continue to increase.
Subject Area
Agricultural economics
Recommended Citation
MONJI, ROMANUS GALLUS, "THE IMPACT OF INCOME AND ESTATE TAX ON U.S. FARM STRUCTURE" (1982). ETD collection for University of Nebraska-Lincoln. AAI8302108.
https://digitalcommons.unl.edu/dissertations/AAI8302108