Taxlink

A few articles ago, I wrote about President Joe Biden's Greenbook. President Biden has since dropped out of the running for the 2024 Democratic presidential nomination, but I'm assuming his Greenbook still reflects the Democratic party's tax wish list and will be adopted by the presidential nominee. As the election draws near, let's switch sides and look at Republican presidential nominee former President Donald Trump's tax plan. Although at this point nothing has been officially posted, based off his speeches, we have an idea of his tax plan.

Former President Trump has outlined a few tax items he wants to see if reelected. These include:

-- lowering the corporate tax rate from 21 to 20% (but he likes 15%)

-- making permanent the Tax Cuts and Jobs Act (TCJA) that was passed in 2017, which is set to expire at the end of 2025

-- 10% higher universal tariff on all imports (60% tariff on China)

-- exempt tips from income taxes.

Even if the TCJA is extended, there are a few provisions that have been made permanent that still need to be addressed. These include excess business loss limit, 80% net operating loss, capitalize research and development (R&D) and Section 174 expense, business interest limitation and bonus depreciation. At this point, there seems to be strong support to bring back 100% bonus depreciation and allow R&D and 174 to be expensed. However, the one that should be addressed is the business interest limitation. With high interest rates, this continues to be an issue for farm cooperatives, larger farm operations and farms that are rapidly growing.

Why is extending the TCJA important? If the TCJA is allowed to lapse, USDA has projected the impact on the farming community to be rather substantial: an additional $4.5 billion in taxes collected from the income tax rates, $2.3 billion in taxes collected from the repeal of the qualified business income deduction, $600 million in taxes collected from estate exemption and $600 million in taxes collected from alternative minimum tax exposure.

Additionally, midsized farms ($350,000 to $1 million gross farm income) would pay about $5,000 more a year in taxes, large farms ($1 million to $5 million gross farm income) would pay about $10,000 more in taxes per year and very large farms ($5 million or more gross farm income) would pay about $28,000 more in taxes per year.

Although extending the TCJA would be beneficial to the farming community, former President Trump's proposed tariffs, although they sound good, might have a detrimental impact. If the tariffs spark a trade war, commodities will surely feel the impact. Most countries want food security and would impose retaliatory tariffs on U.S. agriculture (the average agricultural tariff is 10%, China being 25%).

This is how I look at the Democratic Party's versus former President Trump's tax proposals: Both want to continue the current rate of government spending. To pay for it, Democrats want to directly tax you -- through higher tax rates (individual and corporate), removal of tax benefits, surtaxes and wealth taxes. Former President Trump would indirectly tax you through higher prices if a trade war erupts due to increased tariffs. Remember, tariffs are ultimately paid by the consumer in the form of higher prices.

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-- DTN Tax Columnist Rod Mauszycki, J.D., MBT, is a tax principal with CLA (CliftonLarsonAllen) in Minneapolis, Minnesota.

-- Read Rod's "Ask the Taxman" column at https://www.dtnpf.com/…

-- You may email Rod at taxman@dtn.com

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