The U.S. House of Representatives and the U.S. Senate reached a consensus last week and voted to pass H.R. 1, the Tax Cuts and Jobs Act. On Tuesday, Dec. 19, the House gave its approval by a 227-203 vote; the Senate followed with a 1 a.m. vote on Dec. 20 to pass the bill 51-49. At press time the bill was still waiting on President Donald Trump’s signature which is expected in the coming days.
As with most Washington legislation, not everyone was entirely happy with the outcome. But in general the law is viewed as largely good for cattle producers, according to Danielle Beck, director of government affairs for the National Cattlemen’s Beef Association (NCBA).
Beck commented, “Cash accounting and expensing provisions like bonus depreciation and Section 179—those are all being expanded which is great for business owners, but it is particularly great for agricultural business owners.” In NCBA’s year in policy review on Dec. 18, Beck discussed the then-pending tax provisions, saying it is a “sort of mixed bag for agriculture. It is the product of trying to shove $2 trillion worth of tax cuts into a $1.5 trillion bill.” Putting a grade on the bill, Beck gave it a “B.”
NCBA was closely watching legislation pertaining to the estate tax provision, often referred to as the “death tax,” which received, at least a temporary change. Beck explained, “Unfortunately we weren’t able to get to full permanent repeal, but they do double the death tax exemption rates, so upon enactment those rates go from $5 million for an individual to $10 million for an individual, indexed for inflation, so this year it will be about $11 million. Then for couples, it will go from $10 million to $20 million, also indexed for inflation.” She added, “Unfortunately that provision was not made permanent, but that’s what happens when you get a process that is relying on reconciliation instead of regular order. So, that will be around for eight years, then starting in 2026 will revert back to the current exemption levels.”
Other provisions NCBA and others in agriculture were watching include:
• Section 179 deductions. These will increase to $1 million for taxable years beginning in 2018, indexed for inflation. The current limit is $500,000. The current law has a $2 million “dollar-for-dollar” phase-out threshold, which will increase to $2.5 million.
Section 179 of the IRS Tax Code allows a business to deduct, for the current tax year, the full purchase price of financed or leased equipment that qualifies for the deduction. The equipment purchased, financed or leased must be within the specified dollar limits of Section 179, and the equipment must be placed into service in the same tax year that the deduction is being taken.
• Cash accounting. Beck explained that the current eligibility threshold of $5 million will increase to $25 million. This, she said will apply to corporations, farm partnerships with a corporate partner and family farm corporations.
• 1031 Exchanges. The new law will restrict like-kind exchanges to real property only. Exchanges will no longer be allowed for equipment and livestock.
NCBA President Craig Uden also commented, “The Tax Cuts and Jobs Act makes a number of changes to the current tax code that will benefit family ranchers and farmers, including the expansion of key provisions livestock producers rely on like cash accounting, bonus depreciation and Section 179. While it is disappointing that Congress ultimately passed up this once-in-a-generation chance to fully and permanently repeal the unfair and onerous death tax, the final bill does take a sizeable bite out of the death tax by doubling the exemption rates, and we are grateful for the lawmakers who fought so tirelessly on agriculture’s behalf.”
USDA Secretary Sonny Perdue issued a statement thanking Trump for his leadership and commending Congress on passing the bill. “This is a once-in-a-generation reform of the federal tax code and it comes just in time to be an eagerly-awaited Christmas present for taxpayers. Having traveled through our nation’s heartland for most of this year, I know that the hard-working, tax-paying people of American agriculture need relief. Most family farms are run as small businesses, and they should be able to keep more of what they earn to reinvest in their operations and take care of their families. Simplifying the tax code and easing the burden on citizens will free them up to make choices for themselves, create jobs, and boost the overall American economy.”
For all Americans, the legislation repeals a provision in the 2010 health care law requiring all Americans to have health insurance or face a penalty. As for tax brackets, the law will keep seven brackets but adjusts tax rates and income within each level.
American Farm Bureau Federation President Zippy Duvall noted that the new tax law will lower taxes for the majority of farmers and ranchers as the result of lower individual tax rates, pointing out 94 percent of farmers and ranchers pay taxes as individuals. “The bill also maintains all of the important deductions and credits that farmers rely on. So, thanks to a lot of hard work by Congress and the administration, farmers will have both lower rates and all the tools they’ve always had to manage their businesses, Duvall said.
But not all ag groups were smiling. National Farmers Union (NFU) opposed the act, citing a regressive taxation structure and what it called devastating implications to health care affordability and the nation’s financial standing. NFU President Roger Johnson’s statement after the vote read, “Farmers Union is deeply disappointed in Congress’ decision to approve the Tax Cuts and Jobs Act, not only because it is flawed fiscal policy, but also because we must now fight to protect every penny that is spent securing our nation’s food supply and natural resources, supporting our rural communities, and feeding our hungry.
“This tax bill leaves a $1.5 trillion hole in the budget—a hole that some members of Congress will want to fill with farm program and entitlement spending cuts. At a time when rural America is experiencing the most severe economic downturn in a couple generations, we cannot afford to take away their safety net. Moving forward, we urge Congress to avoid any funding cuts to programs that support our nation’s family farmers and ranchers.”
Duval took note of the time limits on some of the measures, saying, “Most of the provisions in this tax bill are temporary, lasting for only seven years, so Farm Bureau will now focus our work on making those important tax deductions, lower rates and the estate tax exemption permanent.” — Rae Price, WLJ editor
