WASHINGTON, D.C. — United States taxpayers could see sweeping reform of the nation’s tax policy if President Donald Trump and Congress can come together on a plan.
The Trump administration recently released initial details of what they describe as one of the largest tax plan overhauls in history. However, the House Ways and Means Committee and the Senate are also working on legislation of their own.
So far, the proposed plans all simplify the tax code and lower income tax rates for individuals and corporations. In fact, the president’s plan would have three tax brackets and lower the corporate tax from 35 percent to 15 percent.
Rep. Kristi Noem, R-S.D., ,serves on the tax writing House Ways and Means Committee. She says their plan, while not as aggressive as the president’s, would also benefit farmers and ranchers by easing their tax burden.
“Mainly, by lowering rates, that’s more money in their pockets that they can reinvest into their operation,” she says.
Sen. John Thune, R-S.D., says he wants to make sure the lower corporate tax rates apply to farming operations.
“A lot of times the discussion centers around what are we going to do for publicly held C-corps and how are we going to get rates down for them and that’s all fine and good, but we need to make sure that in this conversation, that pass throughs don’t get overlooked,” says Thune. “Most of our businesses in South Dakota, farmers, ranchers, small businesses are organized as pass throughs.”
Thune is introducing a bill as part of the Senate tax plan that would specifically address this issue.
Steve Censky, CEO of the American Soybean Association, says the devil will be in the details because farmers rely heavily on certain tax provisions to help them with expensing and income averaging.
“Preserving the ability of farmers to use cash accounting, rather than accrual is important to farmers,” he says.
American Soybean Association Chair Richard Wilkins, who is also a soybean farmer in Delaware, explains why this is important to him.
“The ability to use our cash accounting system to either postpone the recognition of a sale or to prepay the purchase of an input from one year to the next — that’s very crucial and important to our industry,” he says.
Lawmakers and the administration are also looking at lowering the capital gains tax rate and allowing depreciation of capital purchases.
“The cost recovery — you know, expensing immediately of investments and equipment and those sorts of things — is also a big positive for agriculture,” says Thune.
Censky agrees. “The ability for farmers to use 1031 exchanges and to fully depreciate capital investments is also important for farmers,” he says.
A “1031 exchange” refers to situations in which property is exchanged for similar property. In such situations, Internal Revenue Service rules allow for no gain or loss to be recognized on the property.
Tax reform also would eliminate the estate tax, which helps farmers pass the farm to the next generation. Currently, the tax code includes a $5.5 million per person exemption, but that may not be enough with the size of many of today’s farming operations.
“So many families and family farms I’ve seen break up because of having to sell hard assets in order to pay federal estate tax,” says Wilkins.
“The death tax is huge for passing it on to future generations, and we see in agriculture that we have to have a solution there, as farmers are getting older,” Noem says.
ASA and many other farm groups like Farm Bureau have long been supportive of elimination of the estate tax. Mary Kay Thatcher, American Farm Bureau senior director of Congressional Relations, says eliminating the death or estate tax would be a huge victory for her group. “Certainly we’ll be watching very closely on a stepped up basis and what kind of deductions they’re doing away with,” she says.
However, there are some details of the tax packages that remain sketchy, such as the discussion about a border adjustment tax in the House plan.
“An adjustment at the border gives us the opportunity to not put such a burden on things that we grow or export out of the United States,” says Noem.
However, some farm groups are questioning this approach.
“Taxing our imports could be problematic for us. We import fertilizer and other kinds of inputs, so a lot of analysis needs to be done,” says Thatcher.
The even bigger question is how will Congress’s plan come together with the president’s?
As far as the House plan, “You know they’re not that far apart,” says Noem. “The president has the same principles and ideas in his tax reform. He just goes about it just a step further, goes to much lower rates.”
Noem says the other problem with the president’s plan is it doesn’t become revenue neutral within the 10 years required by Senate budget reconciliation. That means they would not be able to get the 51 votes needed in the Senate for passage.
However, Washington insiders like Thatcher say a tax overhaul bill may not get done this year. “I don’t think tax reform is likely to happen anytime very quickly,” she says. “I think they’re still thinking at least they’ll try to go back and try to redo health care and that will take a while.”