Overview

Agriculture is an uncertain business. Product markets, fluctuating input prices, uncertain weather, insects and disease outbreaks makes running a farm business challenging under the best of circumstances. As a result, farmers need a tax code that recognizes the financial challenges faced by agricultural producers. Farm Bureau supports replacing the current federal income tax with a fair and equitable tax system that encourages success, savings, investment and entrepreneurship. The new code should be simple, transparent, revenue-neutral and fair to farmers. Farm Bureau also supports a long-term extension of the tax provisions that are valuable to agriculture.


Background

Farm Bureau supports replacing the current federal income tax with a fair and equitable tax system that encourages success, savings, investment and entrepreneurship. The new code should be simple, transparent, revenue-neutral and fair to farmers. Farm Bureau also supports a long-term extension of the tax provisions that are valuable to agriculture. Below are highlights of key principles supported by Farm Bureau:

  • Comprehensive – Any tax reform proposal considered by Congress 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. 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.
  • Effective Rates – Any tax reform plan that lowers rates by expanding the base should not increase the tax burden of farm businesses. Because profit margins in farming and ranching are tight, farm 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.
  • Estate Taxes – Farm Bureau supports permanent repeal of federal estate taxes. Until permanent repeal is achieved, the exemption should be increased, indexed for inflation and continue to provide for portability between spouses. Full unlimited stepped-up basis at death must be included in any estate tax reform. Farmland owners should have the option of unlimited current use valuation for estate tax purposes.
  • Capital Gains Taxes – Farm Bureau supports eliminating the capital gains tax. Until this is possible, the tax rate should be reduced and assets should be indexed for inflation. In addition, there should be an exclusion for agricultural land that remains in production, for transfers of farm business assets between family members, for farmland preservation easements and development rights, and for land taken by eminent domain. Taxes should be deferred when the proceeds are deposited into a retirement account. Farm Bureau supports the continuation of stepped-up basis.
  •  Cash Accounting – Cash accounting is the preferred method of accounting for farmers because it provides the flexibility needed to optimize cash flow for business success, plan for business purchases and manage taxes.
  •  Accelerated Cost Recovery – Because production agriculture has high input costs, farmers place a high value on immediate expensing of equipment, production supplies and preproductive costs. This includes fertilizer and soil conditioners, soil and water conservation expenditures, the cost of raising dairy and breeding cattle, the cost of raising timber, endangered species recovery expenditures and reforestation expenses. Farm Bureau also places a priority on Sect. 179 small business expensing and supports bonus depreciation, shorted depreciation schedules, and the carry forward and back of unused deductions and credits.
  •  Renewable Energy – Farm Bureau supports tax incentives to expand the production and distribution of renewable fuel and power.
  • Deduction for Interest Expense – Providing a deduction against current and future interest income equates to eliminating the business interest tax deduction for farmers since it is rare for a farm business to have interest income. Farming is almost completely debt financed with little to no access to investment capital to finance the purchase of land. Loss of the interest deduction will harm farmers’ liquidity, make it harder to purchase land and production inputs and could lead to stagnation in the agriculture sector.
  •  Other Provisions Important to Agriculture – Farmers support the continuation of Section 1031 like kind exchanges, the Domestic Production Activities Deduction (Sect. 199), farm and ranch income averaging, installment land sales, elimination of the UNICAP Rules for plants, and the tax deduction for donated food and donated conservation easements.

 

Legislative Request

Farm Bureau asks Congress to support the following points of tax reform:
•    Comprehensive: Tax reform should help sole-proprietors, partnerships, sub-S, and C corporations.
•    Effective Tax Rate: Tax reform should reduce rates low enough to account for lost deductions/credits.
•    Estate Taxes: Tax reform should repeal estate taxes. Stepped-up basis should continue.
•    Capital Gains Taxes: Tax reform should lower taxes on capital investments.
•    Cost Recovery: Tax reform should allow businesses to deduct expenses when they make them.
•    Simplification: Tax reform should simplify the tax code.
•    Cash Accounting: Continuation of the current cash accounting rules for agriculture.
•    Deduction for Business Income Expense: Continuation of the deduction for business income expense.

Farm Bureau asks for cosponsorship and support for H.R. 631/ S. 205, both titled the Death Tax Repeal Act; S. 976, the Marketplace Fairness Act of 2017, and similar legislation, H.R. 2193, the Remote Transactions Parity Act of 2017; S. 671, the Agriculture Students EARN Act and the companion bill, H.R. 1626, the Student Agriculture Protection Act of 2017; H.R.1090, the Technologies for Energy Security Act; S. 988/H.R. 2853, the Agriculture Environmental Stewardship Act; and H.R. 246, legislation to repeal the Health Insurance Tax.

 

Updated: July 2017
Contact: govcom@pfb.com