Farmers and ranchers need a tax code that recognizes the many financial challenges they face, the American Farm Bureau Federation recently told the Senate Finance Committee in a statement submitted for the record.
'Agriculture operates in a world of uncertainty. From unpredictable commodity and product markets to fluctuating input prices, from uncertain weather to insect or disease outbreaks, running a farm or ranch business is challenging under the best of circumstances,' AFBF President Zippy Duvall said in the statement.
Calling for a new tax code that is simple, transparent, revenue-neutral and fair to farmers and ranchers, Duvall laid out some of agriculture's top tax reform priorities, including reduced income tax rates; elimination of estate taxes with a continuation of stepped-up basis; reduced capital gains taxes and no capital gains on transfers at death; the continuation of cash accounting; and allowances for businesses to deduct expenses when incurred.
Any tax reform proposal considered by Congress must be comprehensive and include individual as well as corporate tax reform, according to Farm Bureau.
'More than 96 percent of farms and 75 percent of farm sales are taxed under IRS provisions affecting individual taxpayers. Any tax reform proposal that fails to include the individual tax code will not help, and could even hurt, the bulk of agricultural producers who operate outside the corporate tax code,' Duvall said in the statement.
Congress should also be cognizant of the tight profit margins in farming and ranching, which result in farm and ranch businesses frequently falling into a lower tax bracket. If lawmakers put in place a tax reform plan that lowers rates by expanding the base, they must factor in the impact of lost deductions for all rate brackets. Failure to do so could result in a tax increase for agriculture.
When it comes to providing the flexibility farmers need to optimize cash flow for business success, plan for business purposes and manage taxes, cash accounting is farmers' and ranchers' preferred method of accounting. 'Cash accounting allows farmers and ranchers to improve cash flow by recognizing income when it is received and recording expenses when they are paid,' Duvall explained.
When it comes to equipment purchases and repairs, production supplies and preproduction costs, farmers and ranchers place a high value on being able to immediately expense these steep input costs. Farm Bureau also places a priority on Section 179 small business expensing and supports bonus depreciation, shortened depreciation schedules, and the carry forward and back of unused deductions and credits.
Farm Bureau also called for a continuation of Section 1031 like-kind exchanges, which help farmers and ranchers upgrade and improve their businesses by deferring taxes when they sell business capital and replace it with like-kind assets. 'Without the ability to defer taxes on exchanges, some farmers and ranchers would need to incur debt to continue their farm or ranch businesses or, worse yet, delay mandatory improvements to maintain the financial viability of their farm or ranch,' Duvall said.
Farm Bureau supports eliminating both federal estate taxes and the capital gains tax. However, until permanent estate tax repeal is achieved, farmers and ranchers say the exemption should be increased, and indexed for inflation, and it should continue to provide for portability between spouses. Full unlimited stepped-up basis at death must be included in any reform.
Until capital gains taxes are eliminated, the tax rate should be reduced and assets should be indexed for inflation, according to Farm Bureau. In addition, there should be an exclusion for agricultural land that remains in production, for transfers of farm business assets between family members.