Editor's note: The following commentary was written by Josh Rolph, director of international trade, farm policy, taxation and plant health for the California Farm Bureau Federation, and featured in the Ag Alert newspaper.
Farm Bureau's message to elected officials in Washington, D.C., during the last several years on tax issues has been to extend and make permanent the Bush tax cuts of 2001 and 2003, which included a phase-out of the estate tax. Although the estate tax still exists, we believe we achieved significant improvement, considering the circumstances. While we continue to press for elimination of the estate tax, our advocacy today has turned to a far broader topic: sweeping reform of the U.S. tax code.
Our member-adopted policy states that Farm Bureau supports replacing the current federal income tax with a fair and equitable tax system that encourages success, savings, investment and entrepreneurship. The new code should be simple, transparent, revenue-neutral and fair to farmers and ranchers. More than 96 percent of farms and 75 percent of farm sales are taxed under IRS provisions affecting individual taxpayers.Thus, any reform package should be comprehensive in addressing both corporate and individual taxes.
The challenge we have is educating members of Congress that farm businesses are unique. In our line of work, we experience big swings of income and when purchases are made, they are made in clumps. We emphasize that farming is cyclical and that certain tax deductions and credits can minimize farmers' liability, to help representatives better understand our business.
As part of a Farm Bureau delegation to Washington last month, I went with CFBF First Vice President Kenny Watkins and three other farmers to a meeting with a senior staffer on the House Ways and Means Committee. As we discussed our concerns about some of the committee's proposals, which I'll explain in more detail below, simply sharing personal experiences helped the staffer to understand the real-world implications the proposals would have for farmers and ranchers. We still have work ahead of us, but the meeting emphasized that your personal stories can be very effective in bringing about change in Washington.
The last major change to the tax code occurred nearly three decades ago. Back then, the objective of the Reagan administration was to greatly simplify the code, remove many deductions and reduce the number of tax brackets. Enacted in 1986, the new code managed to do all of those things—except no mechanism was created to ensure that the code would be simple. It now takes close to 74,000 pages to explain the U.S. tax code, a number that has grown from 40,000 pages as recently as 1995.
When President George W. Bush entered his second term in 2005, he famously said he had earned political capital that he intended to spend. He launched his term with tax reform high on his agenda, but as his approval ratings sank, so did his chances of enacting broad tax reform. Eight years later, the U.S. Congress is positioning itself to achieve broad tax reform.
Last month, the House and Senate fiscal committees, each led by a different political party, launched www.taxreform.gov, marking an atypical yet welcome bipartisan move. This is a refreshing step toward addressing a controversial topic.
When they launched taxreform.gov, House Ways and Means Committee Chairman Dave Camp, R-Mich., and Senate Finance Committee Chairman Max Baucus, D-Mont., announced their intentions of coming up with broad tax reform together. Since then, they have stated that they hope to complete bills in either chamber by the end of the year, which, in Washington-speak, could mean as early as this summer.
After numerous listening sessions and hearings, Ways and Means Chairman Camp released a discussion draft of proposals to change the way small businesses are taxed. Included in the discussion draft were provisions to reduce the size of incorporated farms and small businesses eligible to use cash accounting—from $25 million of gross receipts to $10 million of gross receipts—and to lock in lower Section 179 small business expensing amounts, reduced from $500,000 to $250,000.These are major items of concern.
Farm Bureau supports the continuation of unrestricted cash accounting for farmers and ranchers who pay taxes as individuals. We caution against reducing the number of incorporated farms eligible to use it. Additionally, we support maintaining the $500,000 small business expensing limitation and not reducing the $2 million acquisition limit.
Another message we continue to share is that Farm Bureau opposes the estate tax. More and more farms are in danger of topping the exemption in current law, and estate tax planning remains complex and expensive for those close to or over the threshold. Until permanent repeal is achieved, the exemption and gift tax exemption should be increased and the Special Use Valuation, which provides a valuable estate tax planning tool for farmers and ranchers who live in high land value areas, should be expanded.
We anticipate more tax reform ideas will be released in the coming weeks and months. We will continue to monitor new developments in Washington, and ask you to contribute your ideas directly to taxreform.gov. Our advocacy at Farm Bureau can improve when we hear your ideas as well. Feel free to contact me any time to share your thoughts on reform to the U.S. tax code.