WASHINGTON, Sept. 27, 2017 - Congressional Republicans joined President Trump in rolling out a broad plan to lower taxes on corporations and small businesses, but its real impact on agriculture won’t be clear until lawmakers fill in key details.
The plan, released in outline form on Wednesday, would also eliminate the estate tax, a point that the White House highlighted by inviting Indiana farm leader Kip Tom to attend President Trump’s announcement of the tax plan Wednesday afternoon in Indianapolis.
The plan calls for capping the tax rate for small businesses, including partnerships, sole proprietorships and S corporations, at 25 percent. Such pass-through entities are currently taxed at individual rates, which range from 10 percent to 39.6 percent. Most farms are organized as partnerships and sole proprietorships.
Trump said that lowering that top marginal tax rate would make a "big difference" for farmers and small businesses and would be the lowest it has been in more than 80 years.
As for the estate tax, Trump said, "We are finally ending the crushing, the horrible, the unfair, estate tax, or as it is often referred to, the death tax." He stopped briefly to point out Tom in the audience and asked him how long it had been in his family. The answer: 187 years. "Wow, that’s a long time. That great heritage could come to an end because of the death tax. ... We're not going to allow the death tax to steal away the American dream," Trump said.
Back in Washington, Senate Democratic Leader Charles Schumer, D-N.Y., singled out several key aspects of the plan, including the lower tax rate for pass-throughs and the elimination of the estate tax, as a "massive windfall for the wealthiest Americans."
The framework says Congress will include provisions to prevent wealthy individuals from reporting personal income as business income in order to take advantage of the top rate for pass-throughs.
The plan also would allow businesses to immediately write off capital purchases, but farmers already can fully write off capital purchases up to $500,000, thanks to the small-business Section 179 allowance, made permanent in 2015. Under the GOP framework, the immediate-expensing provision would last for only five years.
Still to be determined is whether farms could continue writing off interest expenses. The framework would limit the deduction for corporations but leaves it to Congress how to treat small businesses. “The committees will consider the appropriate treatment of interest paid by non-corporate taxpayers,” the framework says. Key lawmakers have said that would seek to ensure that farmers would be allowed to continue writing off interest.
“The committees will have to do the detailed work and fill in the blanks, but there is a strong commitment that farmers and ranchers who are very debt intensive in their operations don’t get penalized by this,” Sen. John Thune, a South Dakota Republican on the Senate Finance Committee, told Agri-Pulse Wednesday.
The framework is silent on the issue of cash accounting, which is considered critical to farming operations since it allows them to report income, such as on commodity sales, only when it is actually received. Advocates for farmers have feared that lawmakers would target cash accounting as a way to raise revenue to offset the cost of the tax package. The framework also is silent on the stepped-up basis provision for capital gains on inherited property.
Zippy Duvall, president of the American Farm Bureau Federation, called the GOP plan an "important step forward to a fair and equitable tax system.
“Farm Bureau is encouraged to see that this framework includes important principles such as lower tax rates for individuals who own businesses, elimination of the death tax and some business interest deductibility. Farm Bureau looks forward to working with tax writers to refine the proposal to ensure that tax reform lowers effective tax rates for farm and ranch businesses," Duvall said.
“Farmers and ranchers need permanent tax provisions like the continuation of cash accounting and like-kind exchanges, unlimited stepped-up basis and lower capital gains taxes. Agriculture is a high-risk, high-input, capital-intensive business and these provisions are essential to success
A specialist in agriculture with the Minneapolis accounting firm CliftonLarsonAllen, Chris Hesse, said that so many details are being left up to lawmakers to fill in that it’s difficult to assess the potential impact of the GOP plan on farmers.
“Far too many provisions are left up to Ways and Means and Senate Finance,” he said, referring to the House and Senate committees that will write the legislation.
But Senate Agriculture Chairman Pat Roberts, R-Kan., told Agri-Pulse that he thinks the final tax package will wind up lowering the effective tax rate paid by producers. "Generally i think it is a pretty good package for agriculture but there are some things I don’t know yet," he said. Roberts also is a member of Senate Finance.
Agriculture Secretary Sonny Perdue said that an overhaul of the tax code was long overdue.
"Most family farms operate as small businesses, with the line between success and failure frequently being razor thin. Add to that the complexity and costs of merely complying with the tax code, and their budgets are stretched even tighter," Perdue said. "On top of it all, the unfair ‘Death Tax’ can cause too many family farms to be broken up and sold off to pay the tax bill, undoing lifetimes of toil and preventing further generations from carrying on."
AFBF and other farm groups have long advocated for eliminating the estate tax, which despite current exemptions can sometimes hit operations in areas with high land values. The current exemption for a couple is $11 million.
USDA’s Economic Research Service estimated that 663 farm estates, representing 1.7 percent of total estates, would have been required to file an estate-tax return in 2016. Of those, 161 farm estates would likely have owed taxes.
The framework calls for lowering the maximum tax rate on corporations to 20 percent and for shrinking the individual tax rates to three: 12 percent, 25 percent and 35 percent, with the possibility of a fourth rate for top earners. The income ranges for the three tax rates are left up to the congressional committees to decide.
The plan would increase the standard deductions to $24,000 for married taxpayers filing jointly, and $12,000 for single filers and expand the child tax credit while preserving deductions for charitable contributions and mortgage interest.
“Today, we move one step closer to fixing our broken tax code so that it puts Americans first," said House Speaker Paul Ryan, R-Wis. "This is our best opportunity in a generation to deliver real middle-class tax relief, create jobs here at home, and fuel unprecedented economic growth."
(Updated at 4 p.m. with Trump remarks.)
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