Why is tax reform necessary? Farmers and ranchers need tax reform because agriculture is a risky business. It’s dependent on the weather and high debt service. Passing the farm or ranch on from one generation to the next makes tax reform important. Recently, the American Farm Bureau Federation has submitted testimony to the House Ways and Means Committee regarding the need for tax reform.
“There are several tax reform strategies that can help a farmer or rancher pass on the farm to the next generation, and two of the most important ones are permanent repeal of the death tax and reducing the capital gains tax,” said Montana Farm Bureau National Affairs Director Nicole Rolf. “The estate tax penalizes agricultural land owners who earn much less than if they invested elsewhere. Let’s face it, farms and ranches are very expensive to run and difficult to pass on to children and grandchildren. Our farmers want a simpler more transparent tax code that doesn’t make the challenging task of running a farm or ranch business more difficult than it already is.”
Rolf said Farm Bureau supports the expansion of immediate expensing. “Farmers and ranchers need to be able to match income with expenses in order to manage their businesses through challenging financial times,” she explained. “Expensing allows farm and ranch business to recover the cost of business investments in the year a purchase is made. In addition to Sect. 179 small business expensing, the tax code also provides immediate cost recovery through bonus depreciation and through long-standing provisions that allow for the expensing of soil and water conservation expenditures, expensing of the costs of raising dairy and breeding cattle and for the cost of fertilizer and soil conditioners.”
In addition, strategies like deducting interest and using cash accounting can help farmers and ranchers. Land has always been farmers’ greatest asset, with real estate accounting for 79 percent of total farm assets in 2015.
“Since almost all land purchases require debt financing, the loss of the deduction for mortgage interest would make it more difficult to cash flow loan payments and could even make it impossible for some to secure financing at all,” Rolf said. The need for debt financing is especially critical for new and beginning farmers who need to borrow funds to start their businesses.
It’s hoped that Congress will continue to consider tax reforms to help farmers and rancher stay economically viable and able to continue growing food and fiber in America.