Future efforts to reform tax laws should reflect the unique challenges of the agricultural industry and explore ways to support a vibrant farm sector, U.S. Rep. Mike Conaway (R-TX) said during a hearing on the tax code’s impact on the agriculture sector last week.
Conaway, the chairman of the House Agriculture Committee, heard testimony from a panel of witnesses that included U.S. Reps. Kristi Noem (R-SD) and Lynn Jenkins (R-KS), both members of the House Ways and Means Committee.
“As with tax reform changes from years past, the devil is in the details,” Conaway said in his opening statement. “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.”
The House Ways and Means Committee has embarked on comprehensive tax reform for the first time since 1986, and those efforts stand to help lift economic growth and benefit the agriculture community, lawmakers said.
“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,” Conaway said. “As a result, managing tax liability is of paramount importance.”
Jenkins said that efforts to lower tax rates for individuals, pass through businesses, and corporations, would be of particular interest to the agriculture community.
“We plan to lower tax rates for families and businesses, simplify a complex and burdensome code for filers, and encourage investment. We believe that these principles will unburden American taxpayers and spur economic growth,” Jenkins said.
Under proposed tax reform, for individuals, the current system of seven marginal tax brackets would narrow down to three. For pass-through businesses, the rate would be 25 percent, and corporations would see a 20 percent tax rate. The alternative minimum tax would also be repealed.
“The result here will be a significant rate cut across the board, a lower tax burden for farmers and ranchers, and simplification when filing,” she said.
Tax reform would also allow farmers and ranchers to immediately expense their investments by doing away with complicated depreciation schedules and uncertainty regarding the extension of temporary tax provisions.
Noem, meanwhile, said the tax code “disproportionately and unfairly” impacts the country’s agriculture community. That includes the federal estate tax, or death tax, which is a tax on a deceased individual’s estate that is transferred to their heirs. Noem has sponsored legislation to repeal the death tax.
Noem also noted how highly leveraged the agriculture community is, with many farmers taking out a massive loan each year “only to bury that money in the ground in the form of seed and fertilizer and hope that they’ll come back to something in the fall.”
“Ensuring there are adequate cost-recovery mechanisms in the tax code is essential to attracting and keeping younger producers on the farm,” Noem said. “Some use a combination of interest and expensing for operating notes and equipment purchases. Because land is a principle input for agriculture, ensuring there continues to be a cost-recovery mechanism for land purchases remains a priority.”
Noem concluded that tax reform should be viewed as a comprehensive package that is aimed to increase opportunity and growth for all Americans.