Tax Cuts May Come Back to Bite Farm Subsidies, Says NFU
The second-largest U.S. farm group says the mammoth tax cut now pending in Congress could force cuts in farm subsidies, or possibly wipe them out altogether, because of the pay-as-you-go law. “That would be a disastrous trade,” said President Roger Johnson of the National Farmers Union, taking a more skeptical view than many farm leaders of the impact of the proposed $1.5 trillion in cuts and associated changes to tax brackets and deductions.
Farm groups generally hailed the prospect of lower tax rates; elimination of the estate tax or a great reduction in its bite; larger and more immediate deductions for purchases and business expenses; and continued use of cash accounting, a simple approach for recording income and expenses that also allows taxpayers to manage their cash flow and limit tax liability. There have been few agricultural complaints about proposals to limit the deductibility of state and local taxes when calculating federal income tax.
Maryland Representative Steny Hoyer, the second-ranking House Democrat, said a CBO analysis showed the tax cuts would trigger automatic cuts in federal spending to prevent runaway deficits. Those cuts “will result in elimination of funding to dozens of mandatory programs next year, from assistance to farmers to border enforcement to student loans as well as a roughly $25 billion cut in Medicare,” said Hoyer.
“This proposal asks farmers and ranchers to trade any possible tax benefits for the elimination of farm safety net payments, like ARC and PLC,” said Johnson, referring to the two major crop subsidy programs, Agriculture Risk Coverage and Price Loss Coverage. “In the case of the tax bill, current law could require 100% sequestration of all commodity program payments and other farm bill programs.”
The CBO says the increase in the federal deficit of $150 billion a year would be larger than the amount that is spent under the programs targeted by the 2010 PAYGO law. “All impacted mandatory spending programs other than Medicare, including the Commodit Credit Corporation (CCC), would be entirely stripped of funding,” the NFU says. The CCC, known informally as USDA’s bank, is the source of many USDA payments, including farm subsidies.
Food stamps, federal crop insurance, and the Conservation Reserve are exempt from PAYGO cuts.
The National Council of Farmer Cooperatives is leading a drive to preserve the so-called Section 199 deduction. The provision covers proceeds from sale of goods produced or marketed by farmer cooperatives. The deduction commonly is passed down by the cooperatives to the individual farmers who are its members, who can use the deduction on their taxes. The NCFC says the deduction is worth $2 bilion a year.
Maine Representative Chellie Pingree, a Democrat, cited elimination of Section 199 as a reason the tax bill could hurt farmers, said WGME-TV in Portland, Maine.
To read the CBO analysis, click here.
For the list of programs covered by the pay-as-you-go law, click here.