Letters Convey Tax Code Needs

The NCC joined other agricultural organizations on four letters to House Ways and Means Committee Chairman Brady (R-TX) and Ranking Member Neal (D-MA) that conveyed support for specific provisions of the tax code as Congress begins to consider comprehensive tax reform. The May 31 letters each focused on a specific portion of the tax code: 1) the use of cash accounting; 2) Sec. 199 expensing; 3) capital gains and 4) the interest deduction provision.

Published: June 2, 2017
Updated: June 2, 2017

May 31, 2017

The Honorable Kevin Brady, Chairman
House Committee on Ways & Means
1102 Longworth House Office Building
Washington, DC 20515

The Honorable Richard Neal, Ranking Member
House Committee on Ways & Means
1139E Longworth House Office Building
Washington, DC 20515

Dear Chairman Brady and Ranking Member Neal:

America’s farmers and ranchers rely on various tax code provisions to survive the constant financial and economic ups and downs that come with farming and ranching.  The undersigned agricultural groups ask for your robust support of these critical provisions that ensure their long-term financial well-being.

Cash accounting allows farmers and ranchers to improve cash flow by recognizing income when it is received and recording expenses when they are paid. This provides the flexibility needed to plan for future business investments and in many cases provides guaranteed availability of agricultural inputs. Loss of cash accounting would create a situation where a farmer or rancher would have to pay taxes on income before receiving payment for sold commodities.

Like-kind exchanges help farmers and ranchers operate more efficient businesses by allowing them to defer taxes when they sell land, buildings, equipment, and livestock or purchase replacement property. Without like-kind exchanges some farmers and ranchers would need to incur debt in order to continue their farm or ranch businesses or, worse yet, delay mandatory improvements to maintain the financial viability of their farm or ranch business.

Farm and ranch businesses operate in a constant world of uncertainty with ongoing expenses and a fluctuating income. Income averaging, which permits revenue to be averaged over three years, allows farmers and ranchers to level out their tax liability and produces a more dependable and consistent revenue stream that aids financial management.

As Congress moves forward with its tax reform proposals and debate, we urge your support for these important tax provisions. Thank you for your continued efforts to support our nation’s farmers and ranchers whose work allows us to enjoy the safest, most abundant and affordable food supply in the world. We look forward to working with you on these important issues.

Sincerely,
 

Agricultural Retailers Association
American Mushroom Institute
American Sheep Industry Association
American Soybean Association
American Sugarbeet Growers Association
Cobank
National Barley Growers Association
National Cattlemen’s Beef Association
National Corn Growers Association
National Cotton Council
National Council of Farmer Cooperatives
National Peach Council
National Pork Producers Council
National Potato Council
National Renderers Association
National Sorghum Producers
Panhandle Peanut Growers Association
Southwest Council of Agribusiness
United Egg Producers
U.S. Apple Association
U.S. Canola Association
U.S. Rice Producers Association
U.S. Sweet Potato Council
USA Rice Federation
Western Growers Association
Western Peanut Growers Association

 

May 31, 2017

The Honorable Kevin Brady, Chairman
House Committee on Ways & Means
1102 Longworth House Office Building
Washington, DC 20515

The Honorable Richard Neal, Ranking Member
House Committee on Ways & Means
1139E Longworth House Office Building
Washington, DC 20515

Dear Chairman Brady and Ranking Member Neal:

On behalf of our nation’s family farmers and ranchers, the undersigned agricultural producer groups urge your support for maintaining the Section 199 deduction for domestic production activities income as part of any tax reform plan.

The Section 199 deduction was enacted as part of the American Jobs Creation Act of 2004 as a domestic production and jobs creation measure.  The deduction applies to proceeds from agricultural or horticultural products that are manufactured, produced, grown, or extracted in the United States, including dairy, grains, fruits, nuts, soybeans, sugar beets, oil and gas refining, and livestock.  Farmer-owned cooperatives are able to apply their wages to the calculation of the deduction, and then choose to pass it through to their farmer members or keep it at the cooperative level, making it extremely beneficial to both.

The Section 199 deduction is limited to the lesser of 9 percent of adjusted gross income or domestic production activities income or 50 percent of wages paid to produce such income. Reducing or eliminating the domestic activities deduction would result in a significant increase in taxable income for all farms that currently employ non-family labor. On the other hand, the benefit of the deduction would increase if agricultural producers were able to count non-cash wages paid, such as crop share payments of commodities.

The Section 199 deduction serves as both a domestic production and jobs creation incentive and has provided needed relief for producers in times when prices are depressed.  Section 199 benefits are returned to the economy through job creation, increased spending on agricultural production, and increased spending in rural communities.

Thank you for your continued efforts in support of our nation’s agricultural producers. We look forward to working with you on this important issue.

Respectfully,

Agricultural Retailers Association
American Mushroom Institute
American Sheep Industry Association
American Soybean Association
American Sugarbeet Growers Association
Cobank
National Barley Growers Association
National Cattlemen’s Beef Association
National Corn Growers Association
National Cotton Council
National Council of Farmer Cooperatives
National Peach Council
National Pork Producers Council
National Potato Council
National Renderers Association
National Sorghum Producers
Panhandle Peanut Growers Association
Southwest Council of Agribusiness
United Egg Producers
U.S. Apple Association
U.S. Canola Association
U.S. Rice Producers Association
U.S. Sweet Potato Council
USA Rice Federation
Western Growers Association
Western Peanut Growers Association

 

May 31, 2017

The Honorable Kevin Brady, Chairman
House Committee on Ways & Means
1102 Longworth House Office Building
Washington, DC 20515

The Honorable Richard Neal, Ranking Member
House Committee on Ways & Means
1139E Longworth House Office Building
Washington, DC 20515

Dear Chairman Brady and Ranking Member Neal:

On behalf of the nation’s farmers and ranchers, the organizations listed below are writing today regarding one of our priorities for federal tax reform: a reduction in capital gains taxes.

Capital gains taxes have a significant impact on production agriculture and producers’ long-term investments in land, breeding livestock and buildings. We believe a reduction of the tax rate on capital gains and assets indexed for inflation would enable producers to better respond to new market opportunities and facilitate the transfer of land to young and beginning farmers.

Taxation for capital gains upon the sale of farm assets creates a number of problems, particularly when an asset sale causes a sharp transitory spike in income that pushes farmers and ranchers into a higher than usual tax bracket. USDA has found that 40 percent of family farms have reported some capital gains or losses, compared to 13.6 percent for an average individual taxpayer.

Another problem is the “lock-in” effect where the higher the capital gains tax rate, the greater disincentive to sell property or alternatively to raise the asking price. In today’s agriculture economy, starting a farm or ranch requires a large investment due to the capital-intensive nature of agri-business, with land and buildings typically accounting for 79 percent of farm and ranch assets. Given the barrier created by the capital gains tax, landowners are discouraged to sell, making it even more difficult for new farmers to acquire land and agriculture producers who want to purchase land to expand their business to include a son or daughter. This lose-lose scenario also interferes with capital that would otherwise spur new and more profitable investments.

At a time of heightened financial stress in our agriculture economy, it is more critical now for farmers and ranchers to have the flexibility to change their operations to respond to consumer demand in an increasingly dynamic market. Because of the capital gains taxes imposed when buildings, breeding livestock, farmland and agricultural conservation easements are sold, the higher the tax rate the more difficult it is for producers to cast off unneeded assets to generate revenue, upgrade their operations and adapt to changing markets.

 As you continue your work on legislation to reform the tax code, we urge you to carefully consider our recommendations to address these concerns regarding the inadequacies and inefficiencies of current capital gains tax provisions. We acknowledge the extremely complex task of crafting legislation to adopt comprehensive tax reform and appreciate your support of America’s farmers and ranchers.

Respectfully,

Agricultural Retailers Association
American Mushroom Institute
American Sheep Industry Association
American Soybean Association
American Sugarbeet Growers Association
Cobank
National Barley Growers Association
National Cattlemen’s Beef Association
National Corn Growers Association
National Cotton Council
National Council of Farmer Cooperatives
National Peach Council
National Pork Producers Council
National Potato Council
National Renderers Association
National Sorghum Producers
Panhandle Peanut Growers Association
Southwest Council of Agribusiness
United Egg Producers
U.S. Apple Association
U.S. Canola Association
U.S. Rice Producers Association
U.S. Sweet Potato Council
USA Rice Federation
Western Growers Association
Western Peanut Growers Association

 

May 31, 2017

The Honorable Kevin Brady, Chairman
House Committee on Ways & Means
1102 Longworth House Office Building
Washington, DC 20515

The Honorable Richard Neal, Ranking Member
House Committee on Ways & Means
1139E Longworth House Office Building
Washington, DC 20515

Dear Chairman Brady and Ranking Member Neal:

On behalf of our nation’s family farmers and ranchers, the undersigned groups would like to thank you for your efforts to reform the U.S. tax code in a meaningful way for individuals, corporations, and small businesses alike, including the 3.2 million farmers who generate food, fuel, and fiber for Americans and people around the world. With that in mind, we write today to express our concerns regarding the House Committee on Ways and Means blueprint proposal to eliminate the deduction for interest payments as a business expense.

Agricultural production is capital intensive. While financing requirements will vary among the different commodities, the majority of family-owned farming operations are heavily reliant on credit. Even for everyday business, agricultural producers utilize credit in the form of operating and inventory loans. According to the United States Department of Agriculture (USDA), net farm income in 2017 is forecast to decline for the fourth consecutive year by 8.7 percent to $62.3 billion. In a weak farm economy, income is restricted to cover family farmers’ living expenses and the repayment of debt. During tough times, producers are often forced to take on substantial annual interest expense. Interest paid on these loans should be deductible because interest is, and has historically been, considered a legitimate business expense.

In addition, family farmers continue to grow their operations in order to remain profitable. Equipment and land acquisition necessary for long-term expansion is only possible through financing. USDA predicts that in 2017, farm real estate debt will reach a historic high of $240.7 billion, a 5.2 percent increase from 2016. Eliminating the interest deduction will place further financial stress on an already debt-burdened industry, and prevent producers from staying profitable in challenging economic times.

Finally, the need for debt financing is particularly important for the next generation of agricultural producers. Less than 2 percent of the U.S. population is directly employed in agriculture. Consistent with a 30-year trend, the average age of principal farm operators is 58, making farmers and ranchers among the oldest workers in the nation. As older producers exit the workforce, financing will be critically important for new and beginning farmers and ranchers looking to establish businesses. Eliminating interest deductions creates a significant barrier for the next generation.

As Congress works to enact comprehensive tax legislation, the positive reforms made should not be undermined by negative, unintended consequences as a result of eliminating the business interest deduction for agricultural entities. It is our hope that future legislative proposals do not ignore this important sector of the nation’s economy, and that they will consider the unique utilization and importance of credit management across the entire agriculture sector.

Thank you for your continued efforts in support of our nation’s agricultural producers. We look forward to working with you on this important issue.

Respectfully,

Agricultural Retailers Association
American Mushroom Institute
American Sheep Industry Association
American Soybean Association
American Sugarbeet Growers Association
Cobank
National Barley Growers Association
National Cattlemen’s Beef Association
National Corn Growers Association
National Cotton Council
National Council of Farmer Cooperatives
National Peach Council
National Pork Producers Council
National Potato Council
National Renderers Association
National Sorghum Producers
Panhandle Peanut Growers Association
Southwest Council of Agribusiness
United Egg Producers
U.S. Apple Association
U.S. Canola Association
U.S. Rice Producers Association
U.S. Sweet Potato Council
USA Rice Federation
Western Growers Association
Western Peanut Growers Association