Farm advocates assess impact of tax-reform bills

The sweeping overhaul of federal taxes being debated in Congress contains a number of provisions sought by farm groups, but agricultural advocates say other aspects of the bills could prove problematic.

After last week’s passage by the House of Representatives of a broad package of $1.5 trillion in tax cuts and many other changes to tax law for businesses and individuals, attention turned to the U.S. Senate. After working through 355 amendments, members of the Senate Finance Committee voted to advance their version of tax-reform legislation.

“There has been a lot of optimism around the countryside about tax relief,” California Farm Bureau Federation President Paul Wenger said, “but now that more details are emerging, we are growing increasingly concerned with several provisions in the House and Senate bills.”

The House bill — H.R. 1, the “Tax Cuts and Jobs Act” — passed by a vote of 227-205. It would reduce corporate taxes and reduce individual taxes for low- and middle-income earners. It would also make changes that would impact farms.

The bill includes reforms supported by farm groups, including an expanded Section 179 business expensing allowance and a smallbusiness exemption that would allow producers to continue deducting interest on loans.

However, the American Farm Bureau Federation raised concerns about the temporary nature of the House bill’s expansion of the Section 179 expensing allowance, stating that it would create uncertainty, making farm and ranch business management more difficult.

Regarding the estate tax, the House legislation would double the estate tax exemption of $5.49 million per individual to $11 million, indexed for inflation, starting in 2018, and would permanently repeal the tax in 2024.

Another provision of the House bill would eliminate federal deductions for state and local taxes, known as SALT, which would have particular impacts in California.

CFBF Federal Policy Manager Josh Rolph described elimination of the SALT deductions as “a major problem for many agricultural operations structured as pass-through businesses such as partnerships, S corporations and sole proprietorships.”

Neither the House nor the Senate bill adequately addresses the problem, Rolph said, adding that the SALT provisions “would immediately place California at a disadvantage with the rest of the nation.”

A provision in the Senate bill would repeal a provision called ICDISC that has promoted exports.

“We would like to see this restored,” Rolph said.

The House version of the bill did not repeal IC-DISC. If capital gains were eliminated, the IC-DISC should retain the current gains rate, Rolph said.

In the Senate, Rolph said, Republicans have a narrow majority, which means that version of the bill faces several obstacles, such as concerns about the deficit, potential repeal of the federal healthcare mandate and the distribution of tax benefits. Action on the legislation by the full Senate is expected after the Thanksgiving holiday, he said.

If the Senate passes its version of the tax bill, this sets the stage for a conference committee, Rolph added, where members of the House and Senate would work to reconcile their two versions of the bill. That “conferenced” bill would then need to be voted on and approved by both chambers and signed by the president before taking effect.

“We need a tax code that makes sense for rural California,” Wenger said, “and we will continue working with Congress to seek reforms that ease, rather than increase, the tax burden for farmers and ranchers.”