Agriculture accountant asks for more in tax reform amidst mixed reaction
November 3, 2017
K·Coe Isom, an agricultural accounting and consulting firm, applauded aspects of the Republicans' proposed tax overhaul bill Thursday while calling for changes because the bill as written could raise effective tax rates on many farmers and ranchers.
Jeff Wald, CEO of K·Coe Isom said, "The eventual phase-out of the estate tax will be welcome news for farms and ranches that would otherwise be subject to this tax. We also applaud the bill for not limiting farmers' ability to use the cash method of accounting."
Wald continued, "We are worried, however that provisions in the House tax bill could hamper growth for many farms and ranches and could actually increase the amount of taxes these operations pay. These provisions include the restrictions on interest expense deductions, the curtailment on carry-backs of losses, the elimination of the Domestic Production Activities Deduction (DPAD), and limitations on like-kind exchanges."
Wald noted that the "Tax Cuts and Jobs Act," H.R. 1, would reduce the top corporate rate to 20 percent, reduce individual rates into four brackets, create a new 25 percent tax rate for pass-through entities, double the standard deduction, provide for increased expensing of capital assets, and phase out the estate tax.
At the same time, the bill would remove many deductions used by farmers and ranchers today, he said.
Wald called on Congress to consider four changes to the bill:
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"Exempt farm businesses from limits on interest deductions. Farms and ranches often finance equipment, land and input costs with debt financing.
Unlike other sectors of the economy, agriculture rarely turns to equity financing, relying much more heavily on debt financing to operate. While it is good that small businesses are exempt from interest expense limitations in this bill, it would be better if all farm businesses were exempt from this limitation.
"Allow farmers and ranchers to use like-kind exchanges for farm equipment. The current tax code allows farmers to avoid paying taxes on the trades of equipment provided that the farmer acquires similar equipment.
Congress should preserve the ability of farmers to use such like-kind exchanges. This creates an incentive to replace aging farm equipment with new purchases which is good for agricultural competitiveness and good for ag manufacturers and equipment dealers.
"Exempt agriculture from the elimination of the Domestic Production Activities Deduction (Sec. 199). The Domestic Production Activities Deduction (DPAD) is a deduction that applies to proceeds from agricultural products that are manufactured, produced or grown by farmers.
There are special provisions that allow cooperatives to pass the benefit of the deduction directly through to their farmer members. It is estimated by the National Council of Farmer Cooperatives that the deduction returns nearly $2 billion annually to rural areas in all 50 states.
"Allow agriculture to carry-back losses to offset taxes paid in previous good years. Agriculture is a highly volatile industry with significant swings in commodity prices and input costs.
When a farmer experiences a loss during a bad year, they should be able to continue to apply that loss to offset taxes paid in previous good years."
Meanwhile, the Republican-leading American Farm Bureau Federation praised the bill, while the Democratic-leaning National Farmers Union expressed skepticism.
"Farm Bureau applauds Congress for its progress in reforming the tax code," said American Farm Bureau Federation President Zippy Duvall. "This new tax plan moves us closer to a tax system that rewards the hard work and entrepreneurship of America's farm and ranch families."
"Today's proposal includes expanded, immediate expensing while continuing the business interest deduction important to so many farmers and ranchers. It also provides immediate relief from the estate tax with a repeal to follow in subsequent years. We will be studying the plan to ensure the new rate structure reduces the tax burden of our nation's farmers and ranchers and gives them the flexibility they need to reinvest in their businesses.
"We are long overdue for a permanent tax code that recognizes the unique financial challenges farmers and ranchers face in managing their businesses and keeping their farms running from one generation to the next."
National Farmers Union President Roger Johnson said, "While NFU supports efforts to simplify the tax code, we adamantly oppose the overarching elements of this plan because they shift the nation's tax burden from the top earners in our country to the backs of American family farmers, ranchers and the middle class."
"This plan offers significant tax cuts for corporations and the wealthy. It repeals the estate tax, a significant revenue generator that affects only the wealthiest in our nation. And it does not provide adequate offsets for these cuts, translating to a $1.51 trillion increase to our federal deficit.
"While we await details on specific provisions for farming operations, NFU urges a shift towards simplified, progressive tax policy that recognizes the unique needs of family farming and ranching operations," Johnson said.
"This includes maintaining the estate tax and provisions like cash accounting, stepped-up basis, interest expensing and others that are important to sustaining a family farm in the 21st century."