Agricultural Land Taxable Values Down . . .

Economic Tidbits 12.18.17

The taxable value on agricultural land declined 2.77 percent in 2018 according to the Nebraska Department of Revenue.  Taxable value for all real property increased 0.96 percent, with residential and recreational property value growing 3.66 percent, and commercial and industrial property growing 6.94 percent. The decline in agricultural land values marks the second consecutive year taxable values have shrunk.  Prior to last year, the taxable value on agricultural land had not declined since at least 1993, and perhaps as far back as the late 1980s.  It may seem like a distant memory, but just three years ago, the taxable value of agricultural land statewide increased almost 20 percent.  Since then, market values for land have declined between 15-20 percent and these declines are now being reflected in taxable values.  Expect taxable values to continue to decline over the next few years due to the lag effect in how taxable values are set.  Values are set using data on sales prices from the three years prior to the tax year for which the taxable values are being set.

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Spring Had Sprung

garden lanscape toolsEvery year when spring arrives the heart races a bit faster for every gardener and landscaper. The return of spring brings warmer temperatures, longer days, and a time for a fresh start. And, while last year it arrived rather early, this year it seems Mother Nature has decided to sleep in a bit longer.

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Trade Deficits: Good or Bad?

Economic Tidbits 12.18.17

The U.S. trade deficit with the rest of the world has been getting a lot of attention lately.  In January, the deficit was estimated to be $56.6 billion, the highest level in nearly a decade.  President Trump believes the trade deficit is bad and argues the U.S. is losing to other countries with which it trades.  Accordingly, he believes the U.S. must renegotiate trade agreements and enact tariffs on imported goods to rectify the large deficits.  The President’s arguments raise two questions:  Are trade deficits inherently bad? And, is the U.S. losing to the rest of the world by having such large trade deficits?  Continue reading

The Big Mac and the Dollar . . .

Economic Tidbits 12.18.17

“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.

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To Sell, or Not to Sell to Coops, That is the Question

Economic Tidbits 12.18.17

Two tax code changes in the tax package passed last December by Congress are receiving much attention in the countryside.  The first change concerns the tax treatment of producers’ sales to coops.  The second concerns the loss of the Section 1031 exchanges for farm machinery and equipment.  Let’s examine these changes in more detail.

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SALT & Taxes . . .

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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.

 

Captiol at night

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.

Corn harvest in Illinois - SeptemberFarmers 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 RempeJay 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.

Latest Crop Production Estimates . . .

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This year’s Nebraska corn production is forecast to be 1 percent less than last year, and soybean production is forecast to be 1 percent more, according to the latest USDA- NASS estimates released on Thursday.  The latest estimates peg Nebraska corn production at 1.683 billion bushels and soybean production at 316.4 million bushels, a record for the state.  U.S. corn production is forecast at 14.3 billion bushels, down 6 percent from last year, while soybean production is forecast at a record 4.43 billion bushels, up 3 percent from last year.  The percentage changes in production for Nebraska crops are shown in Table 1.
Table 1. Percentage Change in Crop Production, 2016 to 2017

 Corn  -1 %
 Soybeans  +1 %
 Sorghum  – 19 %
 Dry Edible Beans  +49 %
 Sugar beets  +1 %
 Sunflowers  – 4 %
 Alfalfa Hay  + 4 %

Corn and soybeans together typically account for 90 percent of Nebraska’s total crop cash receipts.  As such, changes in revenues for these commodities, along with changes in beef sector revenue, will dictate the overall health of the state’s agricultural economy.  Calculations using the latest USDA production and price estimates suggest cash receipts received by corn and soybean producers could be less for this year’s crop.  Combined receipts for the two crops are estimated to decrease $389 million, or 4.48 percent from last year.  Revenue for the 2017 corn crop is estimated to be $325 million less, or 5.69 percent; revenue for the 2017 soybean crop will be $64 million less, or 2.16 percent less. The reduction in revenue would result in an estimated 0.61 percent reduction in net farm income, or $30.7 million, assuming corn and soybean receipts as a percentage of net farm income is the same as the average from 2008 to 2015.  The decline doesn’t necessarily mean total net farm income for the state will be down, as the beef feedlot sector has enjoyed positive returns for awhile this year.  But any positive returns in the beef industry or other commodity sectors must overcome the declines in corn and soybeans revenues to result in an uptick in income for the state.

 

Jay RempeJay 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.