Tax Reform Finalized

President Trump Says Christmas Present is Delivered and Tax Cuts Will Fuel US Economy

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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Congress finalized a sweeping $1.5 trillion tax-reform bill on Wednesday. (DTN photo illustration by Nick Scalise)

OMAHA (DTN) -- President Donald Trump and Republican members of Congress got to take credit Wednesday for a historic legislative victory in a sweeping $1.5 trillion tax-reform bill finalized through votes in the House and Senate.

Republicans celebrated the victory at the White House in a mid-afternoon event in the Rose Garden. The president noted he had achieved one of his major campaign promises with the tax legislation.

"It's the largest tax cut in the history of our country, and reform, but a tax cut," Trump said.

The president and other Republican leaders also emphasized that the tax bill will help average Americans by adding fuel to the U.S. economy. Trump pointed to a statement by AT&T that the company would give $1,000 bonuses to more than 200,000 employees and invest $1 billion more in the U.S. this year because of the tax cuts.

House speaker Paul Ryan, R-Wis., credited Trump for "exquisite presidential leadership" in getting the first major tax reform bill passed since 1986.

"This gets the American economy competitive in the global economy," Ryan said.

The bill lowers the corporate tax rate from 35% to 21% and includes several provisions such as immediate business expensing and expanded Section 179 deductions -- all meant to stimulate business growth and higher incomes.

Farmers who receive income from pass-through entities will see a 20% deduction. The effective impact of a 37% tax rate and a 20% deduction for pass-through income would set a top tax rate on business income at 29.6%.

The bill also ends the health-insurance mandate under the Affordable Care Act. To that, President Trump said briefly at a cabinet meeting on Wednesday, "Obamacare has been repealed."

One of the president's first comments in the Rose Garden event was on the estate tax, which will bump up the asset exemption to $11.2 million per person or $22.4 million for a married couple.

"One thing very important for the farmers, the great farmers and the great small-business owners that were forced to sell their businesses at bargain-basement numbers," Trump said, "for the most part, estate tax is wiped out so they can keep their farms in the family, and for me that is a very big factor -- very big."

The tax bill also includes 100% bonus depreciation, which actually goes for business equipment placed in service as far back as Sept. 28. So any farmer or business that bought machinery after that date will be able to write off the full price on their taxes.

The tax accounting firm K-Coe Isom suggested some business considerations for farmers as year-end tax strategies for the bill. One would be to defer income to next year and pay deductible expenses now, because depending on circumstances, farmers could have a lower tax rate for 2018.

Also, the firm recommended farmers pay assessed 2017 property taxes before the year of the year and any likely personal state income taxes. (Clarification: The recommendation on property taxes pertains to personal residences or personal property. Real estate taxes for farmland used in farm operation will continue to remain fully tax deductible.) Keep in mind, depending on income, that those payments could be subject to limits under the Alternative Minimum Tax, K-Coe Isom said.

After 2017, carryback of net operating losses will be limited to just two years instead of five years. So this may be the last chance to recoup income taxes from 2012-2015, K-Coe Isom said.

Farmers may need to restructure their operations in order to get maximum benefit from the new law, but K-Coe Isom noted that "rate reductions and estate tax changes beneficial to ag are temporary."

"The core of this bill is a 21% flat rate for C corporations," said Doug Claussen, a principal and a certified public accountant with K-Coe Isom. "Most farm businesses are not structured as C corps and won't benefit from this rate unless they restructure. For farms that are structured as C corps, those in the 15% tax bracket would actually see a tax increase from this flat rate. The majority of farmers, however, are sole proprietors or structured as pass-through entities. These farmers should see some benefits from the deduction for business and pass-through income, immediate expensing of capital purchases, and to some degree from reductions in individual rates."

Farm groups came down somewhat on different sides, depending on whether they see tax relief as more important than potential federal spending cuts next year to offset the tax breaks.

The American Farm Bureau Federation -- which announced earlier this week it would host President Donald Trump at its annual meeting next month -- stated the tax-reform package would result in lower taxes for the vast majority of farmers and ranchers.

"This tax overhaul includes many changes to the tax code, most notably lower individual tax rates, that will benefit farmers and ranchers," said Zippy Duvall, AFBF president. "Ninety-four percent of farmers and ranchers pay taxes as individuals, and those rates are coming down. The bill also maintains all of the important deductions and credits that farmers rely on. So, thanks to a lot of hard work by Congress and the administration, farmers will have both lower rates and all the tools they've always had to manage their businesses."

Duvall noted that farmers and ranchers will also be able to take a 20% deduction off their business income in 2018. "We look forward to President Trump signing this bill. Most of the provisions in this tax bill are temporary, lasting for only seven years, so Farm Bureau will now focus our work on making those important tax deductions, lower rates and the estate tax exemption permanent."

National Farmers Union "staunchly opposed" the tax bill because of its structure and impact on the health-care law. NFU President Roger Johnson warned Wednesday that the $1.5 trillion cost should not end up jeopardizing farm programs in 2018.

"Farmers Union is deeply disappointed in Congress' decision to approve the Tax Cuts and Jobs Act, not only because it is flawed fiscal policy, but also because we must now fight to protect every penny that is spent securing our nation's food supply and natural resources, supporting our rural communities, and feeding our hungry," Johnson said.

He added, "This tax bill leaves a $1.5 trillion hole in the budget -- a hole that some members of Congress will want to fill with farm program and entitlement spending cuts. At a time when rural America is experiencing the most severe economic downturn in a couple generations, we cannot afford to take away their safety net. Moving forward, we urge Congress to avoid any funding cuts to programs that support our nation's family farmers and ranchers."

The National Council of Farmer Cooperatives and the National Cotton Council both cited pass-through income provisions in the bill that would overcome the loss of a key tax deduction that cooperatives have relied upon for years.

"As you know, many family farms are structured as pass-through entities, and we appreciate the provisions to specifically provide tax relief for these entities as well as a provision for cooperatives and their members given the loss of Section 199," said Gary Adams, president and CEO of the National Cotton Council, in a letter to congressional leaders. "The lowering of individual tax rates will further help alleviate the tax burden on farm families."

Chris Clayton can be reached at Chris.Clayton@dtn.com

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(AG)

Chris Clayton