Tax extenders: Too popular to kill?

By Derrick Cain

© Copyright Agri-Pulse Communications, Inc.



WASHINGTON, April 9, 2014 - After the Senate Finance Committee easily approved a package of what Chairman Ron Wyden, D-Ore., suggested would be the “last” package of one-year tax extenders, the focus this week turned to the House Ways and Means Committee which appears headed down a very different path. The draft bill, offered by Committee Chairman Dave Camp, R-Mich., aims for much broader tax reform, which he says would create up to 1.8 million new private sector jobs, and simplify the tax code by establishing two individual income brackets. A section-by-section summary of the bill is available here.

Lets Talk Food

At the hearing, lawmakers focused on whether to extend or make permanent dozens of tax incentive provisions, which are incredibly popular with many businesses and farmers. But the popularity comes with a hefty price tag. As a result, some lawmakers are reluctant to consider anything more than a one-year extension - depriving farmers and ranchers of the certainty they'd like to see.

“Farm and ranch business planning, which is already difficult, becomes nearly impossible with a temporary and uncertain tax code,” noted AFBF President Bob Stallman in his written testimony yesterday.

The committee discussed a small business expensing tax provision, one of the many so-called ‘tax extenders,' that allows farmers to deduct all or part of the cost of new or used business property. Under current law, farmers can recover, through annual depreciation deductions, the costs of investments in property and equipment. Under tax code Section 179, farmers are now only able to expense up to $25,000.

A proposal from Camp would set the expensing limit at $250,000, which was the level in 2008 and 2009. The level was upped to $500,000 from 2010 to 2013. After last year, the limit dropped to $25,000 after the provision expired.

Bob Stallman, president of the American Farm Bureau Federation, told lawmakers that a $500,000 limit is “much more modest than people think.” He said farmers accelerated purchases before the incentive expired at the end of last year. “I know [farmers] are in a holding pattern now,” Stallman said. “If made permanent it would create certainty and unleash cash.”

Stallman said while farmers have enjoyed relatively high commodity prices, sometimes volatile weather conditions and unpredictable markets can create huge fluctuations in farm profitability. “It's not uncommon for a producer to have a very profitable year followed by several poor years,” Stallman said.

Committee ranking member Sander Levin, D-Mich., asked Stallman how important it is to the agriculture sector to raise the limit to $500,000, rather than $250,000.

“The difference is the cost of equipment. Ten years ago, $250,000 bought you a lot of equipment, but not so much anymore,” said Stallman, a rice and cattle producer from Columbus, Texas. “I'm about to buy a tractor, but I'm waiting to see what happens here.”

Rep. Ron Kind, D-Wis., sought to find some middle ground in asking Stallman about accepting a $250,000 limit for single-purpose buildings. Stallman said many of those buildings require expensive equipment.

“This has to do with new technology and equipment that get more expensive each year,” Stallman said.

The underlying bill would reduce the current seven individual income tax brackets, ranging from 10 percent to 39.6 percent into two brackets of 10 and 25 percent for virtually all taxable income, ensuring that more than 99 percent of taxpayers face maximum rates of 25 percent or less. The plan would reduce the corporate rate to 25 percent. Camp's bill also includes a recommendation to increase, by 6 cents per-gallon, the 20-cent-per-gallon user fee paid for by inland waterways towboat operators into the Inland Waterways Trust Fund.

However, the appetite for comprehensive tax reform appears to be waning - especially with Chairman Camp's announcement that he will retire after this term. That puts the focus back on moving a one-year extension of tax extenders - estimated in the Senate version to cost at least $67 billion over ten years.

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