Holy Cow! How Senators and Movie Stars Use Livestock to Game the Tax Code
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There are plenty of ways in which members of the 1 percent are able to game the tax code to their advantage. But not many involve cows.
Thanks to a half-dozen heifers he keeps on his land, Sen. Bill Nelson, D-Florida, is a 1 percenter whose livestock helps him gain a tax benefit. As the Miami Herald reported, Nelson was able to save tens of thousands of dollars in property taxes due to the presence of a few cows on property that he owns. Nelson has banked millions of dollars selling parcels of the land, the whole time paying taxes that were far below what he should have paid (according to the market value of the land) because of farm tax credits he was able to claim after letting cows graze on his grass.
"I pay all the taxes owed on the pasture land,” Nelson has said, defending the tax break. But this doesn’t change the fact that the state lost needed revenue on tax breaks that were meant to aid family farmers, but instead went to land that is decidedly not a farm.
Nelson is far from the only wealthy landowner abusing tax breaks meant for farmers in order to gain a financial advantage.
Tom Cruise pays just $400 per year in property taxes on an $18 million estate in Colorado, because a few sheep graze there from time to time. In the same state, actress Goldie Hawn fought to have her land classified as farmland, which lets her pay less than $3,000 in property taxes on 34 acres. After having her land reclassified, Hawn received nearly $38,000 from her county government in refunds for previous tax overpayments.
Over on the East Coast, rocker Bon Jovi receives tax breaks for raising bees on his land in New Jersey, while former presidential candidate Steve Forbes, with a net worth approaching half a billion dollars, claims the Garden State’s tax largesse for raising cattle. In 2000, for property tax purposes, Forbes’ estate should have been valued at $9 million; instead, it was valued at barely more than $100,000, thanks to the cows.
And the list goes on and on. Rep. Jon Runyan, R-New Jersey, receives a 98 percent tax break on his land, because he lets donkeys graze on it and sells firewood. Michael Dell, the founder of Dell Computers, saved $1 million on his property tax bill because he uses his Austin, Texas estate as a deer-hunting preserve for him and his buddies. Even some corporations – including Fidelity – stick cattle on their corporate campuses in order to qualify for tax breaks.
This tax avoidance is able to happen, legally, because nearly every state in the nation has implemented what’s known as “use value” tax policy. Use value lets landowners assess land according to its agricultural value, not according to its actual market worth.
Use value, like many wrongheaded policies, has a good intention at heart. As Citizens for Tax Justice (CTJ) explained, use value is meant to ensure that farmers aren’t pushed into selling their land due to growing property taxes. But the problem is that states have absurdly low barriers for qualifying land as agricultural, letting non-farmers sneak in and collect the tax breaks as well.
For instance, South Carolina sets the bar for qualifying for use value at just five acres of trees or 10 acres of crops. In New Jersey, if you have five acres and $500 in sales, presto!: you own a farm and get to pay a smaller tax bill.
"People recoil when you have people that have one beehive taking advantage of a program, and they're not truly farmers," Republican State Sen. Jennifer Beck (NJ) told the Philadelphia Inquirer. "There's a 'fake farmer' charade, and I think when you look at it, there is a moral aspect here, as well as a public-policy problem."
Indeed, states across the country, New Jersey included, have had to slash their budgets in the wake of the Great Recession. And every dollar lost to a millionaire’s donkeys is one less dollar being spent on schools and infrastructure, or going toward middle-class tax relief.
And it’s not only states that hand out agricultural tax breaks to millionaires. According to the Internal Revenue Service, the U.S. Department of Agriculture paid 3,432 millionaires more than $45 million in farm program subsidies in 2009. The Government Accountability Office found that between 2003 and 2009, more than $300 million in farm program payments went to millionaires. (In October 2011, the Senate voted to end farm program payments to millionaires…for one year.)
Congress, of course, could simply vote to end these programs, though the entrenched interests would put up quite a fight, if the years-long battle to abolish ethanol subsidies is any indication. At the state level, though, where rising property taxes present a real public policy problem, CTJ suggests using a property tax “circuit breaker” in order to end the reign of the faux farmers.
Such a policy, as outlined by the Institute for Taxation and Economic Policy, means that when an individual’s property taxes exceed a certain percentage of his/her income, the “circuit breaker” kicks in, providing her with tax relief. The breaker would be set such that millionaires making a few bucks off their estates would never pay a large enough percentage in property tax to actually trigger it, but actual farmers would reap the benefits.
This would be a better choice than that made by many states, which simply try to tighten up eligibility requirements or force “farms” to make more in sales in order to qualify for a use value assessment. Colorado, for instance, changed its law so that a person’s residence must be “integral” to the farming operation in order for the tax breaks to kick in. Presumably, Tom Cruise and Goldie Hawn won’t be adding silos to their homes in order to preserve their low tax bills, but the law still has large loopholes that the change didn’t address.
The U.S. tax system is already tilted in favor of members of the 1 percent – and that same 1 percent has collected the lion’s share of a decade’s worth of tax cuts at the federal level – so there is no reason that owning a few cows should let them force their tax bill down even lower. If Sen. Nelson wants to keep letting cows graze on his land, that’s his business. But there’s no reason the people of Florida should have to pay for it.