I hope everyone had a very merry Christmas and shared a good time with your family and friends—those are the important things in life. They 2017 turned out to be a pretty good one for the cattle business in terms of prices. We certainly did have our share of natural disasters from wildfires to hurricanes and floods to huge prairie wildfires, which are very unusual. But we are a resilient bunch and have a unique ability to endure and recover with good neighbors and an industry that does take care of its own. We have a lot to be thankful for.
This next year will be interesting now that the government has passed what I will call a tax relief bill. Tax reform may be a bit of a stretch because a lot of the tax measures are temporary. They are temporary because it’s a partisan bill and Republicans couldn’t pass a permanent tax bill with just the reconciliation process they were forced to use. No Democrats signed onto the legislation—not because they didn’t want tax reform, but most pundits say that they still want retribution against the Trump administration. Polarization appears to be the standard of the day in Congress and that is truly a shame.
It looks as if we’re going to have to live with it for a while so it’s probably best to not think about it and move on to other items we can manage around. The new tax law is a reality and it’s a winner for some and a disappointment for others. If you were looking for the elimination of the death tax, you’re bummed out. The best they could come up with was doubling the exemption and indexing it for inflation, but it goes away in 2026. The thought is that it will get taken up again and hopefully eliminated and made permanent.
Taxes on passthrough business entities such as partnerships, limited liability corporations and sub S corporations, where owners pay income tax based on their personal tax rates, receives a break. A portion of your earnings will be taxed at 20 percent, which is based on either your employees’ earnings or your depreciable assets. The feds don’t want folks readjusting revenue from personal income to corporate income and gaming the system. However, this little tax feature goes away sometime in 2026 with most other tax provisions.
Business interest was retained so if you’re a highly leveraged cattle feeder or stocker operator or any other big borrower you can write off your interest expense, but there are conditions. The reduction in taxes for corporations to 21 percent is the only thing I see in the bill that is permanent. I don’t have a problem with it. It is kind of ironic that many foreign corporations have been starting to howl about the reduced corporate tax rate, saying that it is protectionist and violates some World Trade Organization tax treaties. From what I can see they are bent out of shape because the USA lowered our corporate tax rate to compete with the multinational business climate.
Is this tax bill good for business? Without a doubt, before the president has signed it into law several large well-known corporations that you and I do business with everyday announced employee bonuses and huge capital investments as large as $50 billion. And we don’t need to say much about the stock markets. Who would have thought that the Dow Jones Industrial Average would be closing in on 25,000. Consumer confidence is at an all-time high, as is business confidence. People and business have been spending money ever since the new administration took over and started reducing regulations and bringing government back to a more sensible level. Or at least what most of us connected to agriculture think is acceptable.
The long-term winner in the tax bill is that corporate taxes are reduced to 21 percent. All other taxes will expire after 10 years, the reason being that it was the only way Republicans could pass tax legislation without Democrats’ help, which they clearly weren’t going to get. The sun-setting of individual tax cuts were included in the bill, so it complies with Senate rules. The legislation can be passed with a simple majority only if it doesn’t drive up the deficit 10 years after passage.
The long game for Republicans is that when these taxes start coming around again they will be made permanent. Apparently, 82 percent of George W. Bush’s 2001 tax cuts later became permanent, so they are hoping that history repeats itself. — PETE CROW
