WASHINGTON - William McQuillan faced a hefty tax bill when his father died last summer.
Now Mr. McQuillan, chairman of City National Bank of Greeley, Neb., is lobbying Congress to change the estate tax laws and working with farmers and other customers to help them prepare their estates.
"The estate tax certainly hit home for me," he said. "There are three or four instances where I am trying to help other people plan so that they can continue farming and it is going to be difficult for them to do it."
Currently, the first $600,000 of an estate is tax free. Mr. McQuillan and other bankers are asking Congress to support a provision in the Republican "Contract with America" that would raise the threshold for estate taxes to $750,000.
"The history of America is family-owned businesses," said Herb Spira, tax counsel for the Independent Bankers Association of America, which supports the change.
"For those family-owned business to continue to operate, they need to have a way to transfer the business without having 25% to 50% of it taken away," he added.
The lowest tax rate of 18% applies to estates worth between $600,000 and $610,000 when they are passed on to a younger generation. Estates valued at $1 million are taxed at 41%, and estates worth more than $3 million are taxed at the highest tax rate, 55%.
In Illinois the average farm is 368 acres and the land is worth $605,000, which leaves a farmer's children with a tax bill of more than $108,900 when they inherit the farm.
In Iowa, where farmland is cheaper, the average 333-acre farm has assets worth $550,000. According to the 1992 Census of Agriculture, about 26% of Iowa farms had land worth more than $500,000 and 9% had land worth more than $1 million.
Although family farmers enjoy strong political support on Capitol Hill, the deficit-cutting mood makes it difficult for members of Congress to justify the loss of revenue from altering the estate tax.
Revenue from estate taxes added $12.5 billion to federal coffers in 1993, double the $6 billion collected in 1983. The increased revenue is due to an escalation in the value of farm land and an expanding aging population of farmers that die and leave their farms to their children.
According to the American Bankers Association, the taxes generated from estates valued between $600,000 and $1 million accounts for 5% of the total revenue the federal government receives from estate taxes and .03% of the federal government's total revenues.
But in this age of austerity, members of Congress, bankers, and farmers all say that every penny counts.
If the estate tax threshold is not raised, McQuillan said, families will be forced to sell their farms to large corporations and rural bankers will see their customer base eroded.
"The problem is when they try to get their kids to continue farming and the estate tax is due, they have to leverage the farm or sell the land."
But John Dean, chairman of Glenwood State Bank of Iowa, said the situation is worse for farmers who borrow to pay the estate tax. Farm income is so low that farmers are forced into a cycle of poverty.
"If you have a 15,000-acre farm you have a tax of about $300,000 and the interest payment on the tax is almost as much as the farm makes."
Mr. Dean, 70, also said he hopes the estate tax will not be too much of a problem for his son and son-in-law when they take over the family bank.
Ms. Oppenheim writes for the Medill News Service