ASI, Agriculture Groups Support Tax Reform
June 2, 2017
This week, the American Sheep Industry Association joined with nearly 30 other agricultural associations to support the passage of certain provisions as part of any tax reform package in Congress. America’s sheep producers rely on a stable tax code that contemplates the cyclical economic realities of agriculture and the challenges that weather presents. Specifically, ASI identified four critical provisions that must be included in any tax reform package.
Income averaging tools such as cash accounting and like-kind exchanges provide producers methods to manage the tax burden in good times and bad. Cash accounting allows farmers and ranchers to improve cash flow by recognizing income when it is received and recording expenses when they are paid. This provides the flexibility needed to plan for future business investments and, in many cases, provides guaranteed availability of agricultural inputs.
Loss of cash accounting would create a situation where a farmer or rancher would have to pay taxes on income before receiving payment for sold commodities. Similarly, like-kind exchanges help farmers and ranchers operate more efficient businesses by allowing them to defer taxes when they sell land, buildings, equipment and livestock or purchase replacement property. Without like-kind exchanges, some farmers and ranchers would need to incur debt in order to continue their businesses or, worse yet, delay mandatory improvements to maintain financial viability.
The favorable treatment of capital gains must also be considered. Capital gains taxes have a significant impact on production agriculture and producers’ long-term investments in land, breeding livestock and buildings. A reduction of the tax rate on capital gains and assets indexed for inflation would enable producers to better respond to new market opportunities and facilitate the transfer of land to young and beginning farmers. USDA has found that 40 percent of family farms have reported some capital gains or losses, compared to 13.6 percent for an average individual taxpayer. At a time of heightened stress for the agricultural economy, it is critical that sheep producers have the flexibility to respond to changing dynamics.
The Section 199 deduction was enacted as part of the American Jobs Creation Act of 2004 as a domestic production and jobs creation measure. The deduction applies to proceeds from agricultural or horticultural products that are manufactured, produced, grown or extracted in the United States. Farmer-owned cooperatives are able to apply their wages to the calculation of the deduction, and then choose to pass it through to their farmer members or keep it at the cooperative level, making it extremely beneficial to both. The Section 199 deduction has provided needed relief for producers in times when prices are depressed.
Finally, the agricultural interest deduction allows producers to deduct interest paid on loans as a legitimate business expense. According to the USDA, net farm income in 2017 is forecast to decline for the fourth consecutive year by 8.7 percent to $62.3 billion. In a weak farm economy, income is restricted to cover family farmers’ living expenses and the repayment of debt. During tough times, producers are often forced to take on substantial annual interest expense. Eliminating the interest deduction will place further financial stress on an already debt-burdened industry.
ASI will continue to work with Congress to ensure any tax reform legislation takes into account the importance of U.S. agriculture and provides America’s sheep producers the resources needed to maintain their family operations.