One of the key provisions in the proposal is that the current multiple tax rates will be collapsed into two rates. The new 10 percent bracket would replace the current 10 and 15 percent brackets, and the remaining will be combined under a new top tax rate of 25 percent. There is a surtax on high income earners of 10 percent, but farm income won’t be subject to that extra 10 percent surtax.
Farmers will lose some deductions under the proposal. For example, deductions for state and local taxes, self employed health deduction, and deductions for employer contributions to health plans would not be allowed. In addition, immediate deductions for expenditures for fertilizer, lime and other materials used to condition soil would instead have to be deducted over time.
The proposal doesn’t change cash accounting rules for farmers, which American Farm Bureau Tax Specialist Pat Wolff says allows them to control their cash flow and reduce their income for tax purposes. At the end of the day, Wolff says the question is if farmers and ranchers will pay less taxes when the rates go down and they lose their deductions, including small business expensing.
“The Camp proposal says $250,000 of small business expenses (commonly referred to as section 179) are allowed. That’s good, but we’d rather see it back where it was a few years ago at the $500,000 level,” she said.
Based on the extensive deliberation that is expected it is unlikely that tax reform will be passed into law this year, but the proposal is a first step toward comprehensive tax reform.
American Farm Bureau Federation President Bob Stallman commended Camp for developing the comprehensive rewrite of the nation’s cumbersome, convoluted and complex tax code.
“We appreciate the chairman’s focus on simplifying and streamlining the tax code. Still, his proposal runs deep and wide and at a level of detail that will require careful analysis,” Stallman said.
Ohio has two congressmen on the Ways and Means Committee: Reps. Pat Tiberi and Jim Renacci. Farm Bureau members are asked to contact these representatives and ask them to contact Camp in support of:
– Moving a comprehensive tax reform package forward;
– Maintaining the current cash accounting rules for farmers and ranchers; and
– Maintaining the $500,000 maximum threshold for Section 179 Small Business Expensing