The other day I decided to treat myself to a large bowl of ice cream. I was feeling like it needed a little extra something, so I decided to add some chocolate syrup and whipped cream. When I looked at the can of whipped cream, I had somewhat of an epiphany when I saw a bold label that said, “No Artificial Growth Hormones.” I stared at the label as an agriculturalist and an advocate for the industry and began to understand why there is such a distrust between consumers and producers.
“The Big Mac and the Dollar” may read a bit like the title of a children’s fairy tale (i.e. Jack and the Beanstalk), but it isn’t. Instead, it’s an agricultural economist’s not-so-clever way of introducing a discussion on the value of the dollar. Nebraska agriculture relies on exports, and the value of the dollar is a key determinant in determining the competitiveness of Nebraska agricultural products in international markets.
Nebraska crop producers received $646 million in Price Loss Coverage (PLC) and Agriculture Risk Coverage—County (ARC-CO) payments last fall for the 2016 crop year. In total, the USDA distributed $6.9 billion in payments to participating producers under these two programs.
The USDA expects prices for corn, cattle, and soybeans to be off a bit in 2018. Prices for wheat and hogs are expected to be higher. Given the large production levels of all these commodities in recent years, prices, while soft, have been stable due to relatively strong demand, boosted in part by robust export markets. The strong demand needs to continue, and, thus far, signs point to demand remaining strong. For example, Jim Robb, director of the Livestock Market Information Center, recently said the average American is expected to eat 219 pounds of red meat and poultry this year, the highest level since 2007.
Whether its rain, hail, or heavy winds, fall harvest has been rough in Nebraska. Tough weather can mean yield loss and reasons to look at whether losses are covered by your crop insurance.
Last week the House Ways and Means Committee released its long-awaited federal tax reform proposal. The proposal would change how farmers and ranchers are taxed both as individuals and as businesses. Many farmers and ranchers are wondering if property taxes paid on land, buildings, and equipment could still be expensed as business expense under the proposal. Yes-the ability to deduct property taxes as a business expense by farmers and ranchers on Schedule F would continue.
The Chairman of the House Ways and Means Committee, the tax writing committee of the House of Representatives, announced a draft of the federal tax reform bill will be released November 1. Leaders in both the House and Senate have expressed hope a tax package could be passed by Thanksgiving. One taxing concern on the minds of many farmers and ranchers is the fate of the deduction for state and local taxes (SALT). The concern is especially acute in Nebraska given the large amount of property taxes paid by agriculture, roughly $1.3 billion in 2016.
Under the unified framework for tax reform, the Trump Administration and Republican Congressional leaders said they want to simplify the federal tax code by repealing all itemized deductions, except deductions for home mortgage interest and charitable contributions. Itemized deductions are claimed by individuals on Schedule A filed with Form 1040. Most farmers and ranchers file taxes as individuals-the 2012 USDA Census of Agriculture showed 85 percent of Nebraska farms filed taxes as either an individual or family. Additionally, only 28 percent of farmers and ranchers itemize deductions. It is these operations who itemize deductions the loss of the ability to deduct state and local taxes could affect. The average annual deduction for state and local taxes reported by farm sole proprietors on Schedule A for 2009-2015 (excluding 2013) was $128.4 million. Presumably, the deduction is for state income taxes, property taxes on farm residences, and taxes on personal vehicles. For these operations, the loss of the deduction could increase federal income taxes an estimated $18 million per year if not offset by other changes.
Farmers and ranchers also deduct state and local taxes paid as a business expense for their operations, be it as sole proprietors, partnerships, or corporations. It is here where most of the property taxes paid by agriculture on land and machinery are likely reported and losing the ability to expense state and local taxes would result in a significant increase in federal taxes. Fortunately, according to the lobbyist for American Farm Bureau, the ability to expense state and local taxes as a business expense will continue. Congressional leaders have indicated the repeal of the state and local taxes deduction would only apply on individual returns, and not affect the expensing of taxes by businesses. But stay tuned, the reform discussions are now beginning in earnest, and no one can predict what might happen.
Jay Rempe is the senior economist for Nebraska Farm Bureau. Rempe’s background in agricultural economics, years of experience in advocating at the state capitol, and firm grasp of issues allow him to quantify the fiscal impact of a regulatory proposal, and provide in-depth examination of key issues affecting Nebraska’s farmers and ranchers.