Tax code needs to recognize the special challenges of farming

According to various media reports, odds are good that some sort of tax reform measure will be introduced by U.S. House Republicans sometime during the first half of 2017.

However, just what will be in that measure remains very much up in the air, as is how closely it will track with Farm Bureau policy.

“Lowering the business tax rate will go a long way toward helping our economy. But we can’t stop there,” said American Farm Bureau Federation President Zippy Duvall. “We need a tax code that recognizes the financial challenges farmers and ranchers face – a tax code that encourages the next generation to stay in agriculture.”

Tax reform was one of the major topics of conversation when the INFB board of directors visited Indiana senators and representatives during an AFBF advocacy conference in February, noted Bob White, INFB national government relations director.

Farm Bureau supports replacing the current federal income tax with a fair and equitable tax system that encourages success, savings, investment and entrepreneurship.

“We believe that the new code should be simple, transparent, revenue-neutral and fair to farmers and ranchers,” AFBF says in its position paper on tax reform. Here are some of the “overarching principles” that Farm Bureau believes need to be in an effective tax reform plan. According to the position paper, tax reform should:

  • Help all farm and ranch businesses: sole-proprietors, partnerships, sub-S and C corporations.
  • Reduce rates low enough to account for any deductions/credits lost due to base broadening.
  • Repeal estate taxes. Stepped-up basis should continue.
  • Lower taxes on capital investments. Capital gains taxes should not be levied on transfers at death.
  • Allow businesses to deduct expenses when incurred. Cash accounting should continue.
  • Simplify the tax code to reduce the tax compliance burden.

To be effective for agriculture, tax reform must be comprehensive and include individual as well as corporate tax reform. More than 96 percent of farms and 75 percent of farm sales are taxed under IRS provisions affecting individual taxpayers, AFBF says. Any tax reform proposal that fails to include the individual tax code will not help, and could even hurt, the bulk of agricultural producers who operate outside of the corporate tax code.

Additionally, because profit margins in agriculture are tight, farm and ranch businesses are more likely to fall into lower tax brackets at this point. But, 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.