Individual tax code reform is essential for farmers and ranchers, the American Farm Bureau Federation said today in a statement submitted to the House Small Business Committee. According to AFBF, tax reform must be simple, transparent and revenue-neutral.
"Any tax reform proposal considered by Congress must be comprehensive and include individual tax reform," AFBF said. "More than 96% of farms and 75% of farm sales are taxed under IRS provisions for individual taxpayers."
Although broadening the tax base and lowering the rate are important parts of tax reform, the Farm Bureau said lawmakers should note that lowering rates will impact farms and ranches differently than other businesses because farmers' and ranchers' income can swing wildly as a result of unpredictable weather and uncontrollable markets.
Farm and ranch income varies greatly from year to year with loss years often outnumbering those that are profitable.
Farm Bureau also supports the continuation of unrestricted cash accounting for farmers and ranchers who pay taxes as individuals and cautioned against reducing the number of farms classified as corporate that are eligible to use cash accounting.
"Capital gains taxes continue to be a problem for farmers and ranchers," the AFBF statement said. "In addition to capital gains taxes imposed when land and buildings are sold, proceeds from the sale of cattle used for breeding, dairy, draft and some other livestock are treated as capital gains income."
AFBF has previously noted that capital gains taxes have the potential to hurt agriculture in the long term as well. The taxes encourage farmers to hold on to land rather than sell it, increasing the likelihood that when it is sold, farm and ranch land will fall into the hands of real estate investors who are able or willing to pay more.
Estate taxes still a priority
Like capital gains taxes, estate taxes continue to be a policy priority for AFBF. About 85% of farm and ranch assets are tied up in land, buildings or breeding animals, leaving farmers with few options for generating cash to pay the estate tax.
With agriculture cropland values increasing on average 15% from 2011 to 2012, more farms are in danger of topping the current $5 million exemption, and estate tax planning continues to be complex and expensive for those close to or over the threshold.
AFBF supports permanent repeal of the estate tax, an issue they have long fought for. The group says estate taxes serve as a barrier for younger farmers looking to take over the family business or enter into farming.