With the Trump administration and Congress turning their attention toward tax reform, the American Farm Bureau Federation is urging members to send a strong message to Capitol Hill for a tax code that recognizes their unique financial challenges.
“Farmers and ranchers have quite a lot at stake,” said Pat Wolff, AFBF senior director of congressional relations.
The goal of Republicans’ tax reform is to lower the tax rate, stimulate economic growth and create jobs.
Farmers and ranchers, however, already have a fairly low tax rate due to their low profit margins and high-risk businesses, she said.
“The tax code is by design revenue neutral. So if you’re going to lower the tax rate, you’re going to have to make that up by eliminating deductions and credits,” she said.
But those deductions and credits are important in agriculture to even out income between good and bad years and to match up income with expenses, she said.
“So lower tax rates are a goal for farmers and ranchers, but they need some important tax tools to ensure benefit from low tax rates,” she said.
There are three such tools in the current tax code — interest deductions, cash accounting and like-kind exchanges — and retaining them is a priority, she said.
Farmers rely almost exclusively on borrowed money for such things as purchasing land, equipment and seed and fertilizer. Right now, they can deduct the cost of interest on that debt, but there’s talk of taking that deduction away, she said.
Cash accounting, which records revenue when cash is received and expenses when they are paid, helps farmers and ranchers manage income and expenses. Like-kind exchanges allow them to defer taxes when they sell an asset and buy a similar one, she said.
All three provisions are important because without them producers can have a lower tax rate but end up paying more taxes, she said.
“The goal is to reduce the amount of taxes farmers pay. It’s how things fit together in the end that matters,” she said.
Farm Bureau also supports a repeal of the estate tax and reducing the capital gains tax.
“Elimination of the estate tax is something farmers and ranchers have wanted to see happen for a long time,” she said.
In recent years, Congress has increased exemptions and fewer farmers and ranchers have to pay the estate tax. So the ball is pretty far down the field, but eliminating it would cross the goal line. She said.
House and Senate leaders and the administration have been meeting once a week for months on the big-picture issues of tax reform. The House Ways and Means Committee will flesh out a proposal and is expected to pass it in October, followed by the Senate Finance Committee in November, she said.
That leaves December to work out the differences, and the process could spill into next year. Tax changes would not be retroactive, so reform is not going to affect 2017 taxes, she said.