WASHINGTON, D.C. — After the farm bill, tax reform may be the biggest national issue facing farmers. An overhaul of tax policies is underway for the first time since the 1970s. The U.S. House Agriculture Committee met with experts last week to learn how the current tax program impacts farmers, ranchers and the agriculture industry and what changes could be made to assist rural America. Rep. Kristi Noem (R-S.D.) was moved from the Agriculture Committee to the Ways and Means Committee in charge of examining the tax code. She said she uses her experience as a farmer and a former member of the ag committee to try to view potential changes.

 

A change she has proposed would remove the estate tax, commonly referred to as the “death tax.” Her family was impacted by this when her father died in an accident. A few months later, the IRS sent a letter that the family owed taxes on the equipment, the land and the livestock. “We didn’t have money in the bank. I took out a massive loan … We couldn’t invest in our operation because we needed to repay that loan,” Noam said. It took the family 10 years to repay it. She said she knows some farmers take out a loan at the beginning of the season to buy seed and hope the harvest is good enough to repay the loan when the season ends. “Just as the farm bill touches everyone’s life because we all eat, tax reform touches everyone’s life because we pay taxes.”

 

The conversation was continued in other committee hearings. Tim White, a cattle producer from Kentucky, testified at the House Small Business Committee’s Subcommittee on Agriculture, Energy and Trade. He asked Congress to repeal the federal estate tax, which he said which is a leading cause of the breakup of multigenerational family farms.

 

“U.S. livestock producers understand and appreciate the role that taxes play in maintaining and improving our nation in many ways; however, they also believe that the most effective tax code is a fair one,” explained White. “For this reason, a full, immediate repeal of the estate tax must be a top priority as Congress considers comprehensive tax reform legislation.”

 

He said the current economy has left many producers confused if they will be able plan for estate tax liabilities. Agriculture Committee Chair Michael Conaway (R-Texas) is also a CPA. He said he knows all small businesses struggle with complex taxes, but farmers and ranchers are subject to more unknowns like weather, pests, changing consumer preferences and trade practices. “Agriculture is an industry of high fixed costs, lead times that last an entire growing season or longer and highly variable returns, combined with historically very tight margins. As a result, managing tax liability is of paramount importance,” he said. 

 

Congress has tried to soften the negative impacts of tax rules on agriculture, to help producers manage their tax burden and ensure they have the means to continue to farm and ranch, Conaway said. The details still need work. “What we do know, though, is that tax reform is coming and it holds the promise of dramatically increasing economic growth for all Americans in every walk of life.”

 

Committee Ranking Member Collin Peterson (D-Minn.), also a CPA, said in the 1970s he had farmers approach him for help with taxes – how much they would owe and how much equipment they would need to buy to not owe anything. He said his former colleagues are facing the same questions from farmers again, but with the economy the way it is, buying equipment they don’t need and paying back loans for years may impact farm income. 

 

He said some changes have been proposed to the tax system, from a border adjustment tax to getting rid of interest deductions, but he’s concerned about long-term problems for producers.

 

“We need to lower the rates. We need to address the situation,” Peterson said. Conaway said tax reform hasn’t been overhauled since the 1970s because it is a complicated issue, but it needs to be done. “Providing for a simpler, fairer tax code means that many parts of the tax code may have to change, but these individual proposals cannot be evaluated in a vacuum,” he said. “I urge all of my colleagues to reserve judgment until they’ve had an opportunity to evaluate a complete package.”

 

A webcast of the meeting is available on the House Agriculture Committee YouTube channel at www.youtube.com/watch?v=IudRaK2zuDw