New farm bill could lead to taxmageddon
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WASHINGTON, June 27, 2012 - Agricultural businesses, including farmers and ranchers, face major uncertainty over whether or not the 2012 Farm Bill will find its way to the President's desk and win approval before the current bill expires Sept. 30. But there are other, and some say bigger, threats to farm prosperity looming on the horizon. Several tax provisions are set to expire at the end of 2012 and there's no agreement ‑ at least yet ‑ on how to address numerous provisions that are important for agriculture.
“The longer we wait, the more uncertainty we bring and the more difficult it is to plan,” Senator John Thune, R-S.D., said at a National Council of Farmer Cooperatives (NCFC) conference last week. “Whenever you have that kind of uncertainty it creates a lot of disruption in the market.”
He said the “big pile-up” waiting at the end of the year includes pending solutions for expiring tax provisions and for the sequester put in place with the Budget Control Act.
“We have all this stuff to settle,” he said. “What I am hoping will happen is that sometime between now and the end of September, there is enough pressure that comes to bear to address these issues.”
He said tax reform is “long overdue,” noting that Congress has amended the tax code 15,000 times, but not in the past 25 years.
“Tax reform needs to happen, irrespective of who is president or who controls Congress,” Thune said. “A simple, more streamlined, more clear tax code would be great for this economy.”
House Financial Services Committee staff said House Speaker John Boehner, R-Ohio, indicated he'd like to vote on extending the 2001-2003 tax provisions, known as the Bush tax cuts, before the end of the year, while also laying a foundation for tax reform through 2013.
Other provisions, like biodiesel tax credits, renewable energy production tax credits, small business provisions, bonus depreciation rates, and the deduction that self-employed persons can take against health insurance premiums, are known as “extenders” and are being treated separately from the 2001-2003 policies, House staff said.
Agriculture Secretary Tom Vilsack noted that short-term extensions of tax provisions that businesses rely on to invest millions of dollars creates major uncertainty, including the cellulosic ethanol tax credit that allows them to “invest in the bio-based economy.”
“The President has instructed me to increase federal purchasing of bio-based products,” Vilsack said in an interview with Agri-Pulse. “But we've got to have the businesses to be able to do that.”
House committees started reviewing the extenders set to expire in 2012 and requested the Government Accountability Office (GAO) and think tanks to suggest the design criteria used to review these provisions. Staff said that the process is ongoing and final criteria are not yet confirmed.
In the Senate, Finance Committee Chairman Max Baucus (D-Mont.) is hoping to advance a tax package covering the “extenders” before the November elections.
Although reports cite congressional leaders developing ways to develop overall tax reform before the November presidential election, Roger McEowen, an agricultural law professor at Iowa State, said major reform is unlikely to occur prior to the election nor in any lame duck session after the elections. More likely, he said, is that Congress will move two-year extensions.
McEowen outlined several tax provisions impacting agriculture and the result if Congress does nothing, including an increase in the top marginal tax bracket from 35.6% to 39.6%. He also said the estate tax would jump from 35% to 55% and the exemption goes down 80%, from $5.12 million to $1 million. The capital gains tax rate would go to 23.8%, a 63% increase from 15%. Passive income tax rates such as rents, interest and royalties would jump from 35% to 43.4%.
“What concerns us is the added uncertainty it brings to our marketplace; it's tough enough doing business,” said Nick Yaklich, vice president of government affairs for the Association of Equipment Manufacturers. “The mother of all tax bills and some creative scheme is what we need.”
The biggest extender sought by AEM deals with bonus depreciation, which was first enacted in 2008 and then extended for two years, as a first-year 50% bonus deduction. Under the tax laws passed in December 2010, bonus depreciation was extended and increased to 100% through the end of 2011.
The bonus depreciation rate returned to 50% this year, but the AEM wants it fully restored, citing pending legislation, H.R. 4196 and S. 2240. “As our economy continues to struggle, this much-needed legislation restores the 100-percent-bonus depreciation through 2012.”
American Farm Bureau Federation Pat Wolff said the capital gains and estate tax are the organization's two top priorities this year, followed closely by the individual tax rate.
“Our number one priority is extending the current estate tax exemption and rate,” she said.
While she did not detail her group's position on overall tax reform, she said, “There's been talk on the House side of just doing tax reform for corporations.” It's an approach that Wolff said could disadvantage non-incorporated farmers and small businesses. “We need to make sure that when they do get around to doing fundamental reform, that it's for everything.”
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