Farm families are reaping the benefits of the Tax Cuts & Jobs Act (TCJA) signed by President Donald J. Trump in December, according to a U.S. Department of Agriculture (USDA) report.
The Economic Research Service (ERS) studied 2016 Internal Revenue Service and USDA data and released findings last month showing the effective tax rate for farmers is 3 to 6 percent lower under the Republican-passed plan.
Secretary of Agriculture Sonny Perdue hailed the report as proof the TCJA is strengthening agriculture and the rural economy.
“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,” Perdue said. “Simplifying the tax code and easing the burden on farmers will free them up to make choices for themselves, create jobs and boost the overall American economy. This report just shows what we knew all along: the tax cuts and reforms will benefit farmers.”
The report found the most far-reaching provision of the TCJA was a 20 percent tax deduction for small businesses often taxed at individual rates under a “passthrough” provision. In 2016, 98 percent of farms were organized as passthrough entities. ERS found had the TCJA been in effect, family farm households would have faced an average effective tax rate of 13 .9 percent versus 17.2 percent under prior law.
The Alabama Farmers Federation said the report shows cutting taxes and regulations can stimulate rural economies.
“Agriculture is a $70 billion business in Alabama, creating more than 500,000 jobs a year,” said Mitt Walker, the Federation’s National Legislative Programs director. “The Trump administration understands that reducing the burden of taxes and regulation allows farmers to invest more in their communities.”
The TCJA allows farmers to immediately write off the full cost of new equipment. The report estimated three times as many farmers made investments in 2016 that could not be fully deducted in the year of purchase than under the new tax plan. Additionally, the TCJA’s doubling of the estate tax exemption would have applied to 87 percent of farms owing estate taxes in 2016.
While the ERS report focused on farmers, the TCJA also lowered individual income tax rates; almost doubled the standard deduction; expanded the Child Tax Credit; and preserved popular deductions including charitable contributions, mortgage interest and state and local taxes.
by Jeff Helms, Alabama Farmers Federation