Recognize ag challenges in tax code

2017-04-15T08:00:00Z Recognize ag challenges in tax codeBy Patricia A. Wolff Illinois Farmer Today
April 15, 2017 8:00 am  • 

The House of Representatives is moving forward with comprehensive tax reform designed to spur growth of our nation’s economy. Many of the provisions of the tax reform blueprint will be beneficial to farmers, including reduced income tax rates, reduced capital gains taxes, immediate expensing for all business inputs except land and the elimination of the estate tax.

The proposed loss of the deduction for business interest expense, however, is a cause for concern. The blueprint can be improved by guaranteeing the continuation of stepped-up basis, preserving cash accounting and maintaining like-kind exchanges. …

Farm Bureau supports reducing tax rates and views this as the most important goal of tax reform. Tax reform must be comprehensive and treat farm and ranch businesses that operate as individuals, pass-through businesses and corporations fairly. …

While lower tax rates are important, the critical feature for farmers and ranchers is the effective tax rate paid by farm and ranch businesses. Tax reform that lowers rates by expanding the base should not increase the overall tax burden (combined income and self-employment taxes) of farm and ranch businesses.

Because profit margins in farming and ranching are tight, farm and ranch businesses are more likely to fall into lower tax brackets. Tax reform plans that fail to factor in the impact of lost deductions for all rate brackets could result in a tax increase for agriculture.

Farming and ranching is a cyclical business where a period of prosperity can be followed by one or more years of low prices, poor yields or even a weather disaster. Tax code provisions like income averaging allow farmers and ranchers to pay taxes at an effective rate equivalent to a business with the same aggregate but steady revenue stream.

Farm savings accounts would accomplish the same object plus allow a famer or rancher to reserve income in a dedicated savings account for withdrawal during a poor financial year.

Currently one of the main mechanisms farmers have to move money from one year to the next is by purchasing new equipment or other inputs. Farm savings accounts would give farmers much more flexibility in money management.

Expensing allows farm and ranch business to recover the cost of business investments in the year a purchase is made. Because production agriculture has high input costs, Farm Bureau places a high value on the immediate write-off of equipment, production supplies and pre-productive costs. …

Debt service is an ongoing and significant cost of doing business for farmers and ranchers who must rely on borrowed money to buy production inputs, vehicles and equipment, and land and buildings. Interest paid on these loans should be deductible because interest is a legitimate business expense. …

Estate taxes disrupt the transition of farm and ranch businesses from one generation to the next. Farm Bureau supports estate tax repeal, opposes the collection of capital gains taxes at death and supports the continuation of unlimited stepped-up basis. …

Patricia A. Wolff is senior director of congressional relations for the American Farm Bureau Federation. These comments are from her testimony to a House Agriculture Committee hearing. Full text is at http://bit.ly/2nS1Io1.

Copyright 2017 Illinois Farmer Today. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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