Ag Policy Blog

Possible Tax Reform Forces Tax Credits to Sunset

Chris Clayton
By  Chris Clayton , DTN Ag Policy Editor
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Roughly 50 tax credits and business deductions expire at the end of the year, leading to more groups suddenly becoming vocal about "tax extenders" legislation.

Sen. Charles Grassley, R-Iowa, said the tax credits for a broad array of businesses did not get a vote this year because key lawmakers on the House Ways & Means and Senate Finance committees all believe a major tax-reform bill is still possible.

The sunsetting tax credits amount to roughly $54 billion in potentially lost tax breaks for 2014. The big ones are a couple that most farmers use to offset income -- bonus depreciation and Section 179 deductions. Those incentives amount to nearly $41 billion of potential tax savings for 2014.

Effectively, 50% bonus depreciation comes to an end on Jan. 1. Section 179 deductions don't end, but the deduction falls from the current $500,000 to $25,000. Section 179 is one of the largest tax breaks for farmers, mainly because it is limited to businesses that spend less than $2 million on equipment in a given year.

Wind-energy companies are once again raising the specter of what will happen to the Production Tax Credit, a credit first enacted in 1992. Biofuel Businesses are concerned about the Biofuel Producer Tax Credit, a special biofuel plant depreciation allowance, and the Alternative Fuel Vehicle Refueling Property Credit.

Congress has a tendency to extend these tax credits on one-to two-year intervals, mainly because the costs and budget scores mount if each of the credits were simply allowed to carry forward.

"There are about 50 extenders of which wind energy is one of them," Grassley explained to reporters on a call Tuesday. "They tend to go as a package. It hasn't been discussed up until now because when you start talking about extenders, whether it is wind, or the R&D tax credits or the other 48, people think when you start talking about extenders that you aren't very serious about tax reform."

Grassley said Senate Finance Chairman Max Baucus, D-Mont., announced during an informal committee session last week that he would take up a tax-extension bill early in 2014. "He wasn't specific on when it would happen, but he said we are going to have to do extenders next year."

A major tax-reform bill could still happen. Grassley said he "didn’t want to throw cold water" on the idea, but he acknowledged the possibility of a tax overhaul is slim. Still, he noted the last huge tax reform package was in late 1986, just before an election. "That's going to be a massive load, where a tax extenders is pretty simple compared to that."

On overall tax reform, the Tax Reform Act of 1986 was signed into law in late October that year. Conference negotiations began that summer, after the Senate finally adopted its own tax package. But the House actually had passed its own version of the legislation in December 1985, clearing a path for the Senate to debate its bill.

As of now, neither chamber has passed a measure. The House Ways & Means Committee and Senate Finance Committee have rolled out proposals, but neither committee has actually advanced a bill.

Looking for some history of the 1986 act, I found this backgrounder on the legislation that offered some analysis of the challenges back then. I don't know if history repeats itself, but it rhymes.

"It was so difficult for tax reform to gain traction because it was not even considered the most important item on the agenda by most Americans. It was frustratingly difficult for those who were dedicated to getting reform passed because although members of Congress would be punished if they were seen as obstructing reform, there was very little incentive for them to make a gamble politically by wholeheartedly supporting it. What ended up happening was a large amount of hedging throughout the process of tax reform, of cautious support but with low overall expectations by both the American public and members of Congress." -- Michael R. DeLong, Lt. Gen., USMC (retired)…

Eliminate tighter payment caps? Surely you jest!

On the farm bill, Grassley said he was "perplexed" that some members of the conference committee want to unbundle the tighter payment caps and rules for being actively engaged that Grassley and others not only championed, but got approved in both chambers of Congress.

Grassley said he thinks opponents are looking for ways to craft new loopholes that would allow people to be considered actively engaged in farming, or avoid the payment caps. Some lawmakers wanted

"That's how vigorous these people are from southern agriculture in opposing my amendment," he said.

Senate Agriculture Committee Chairwoman Debbie Stabenow, D-Mich., "stood her ground" and continues to advocate for Grassley's reforms, he said. He added that people pushing to allow non-farmers to keep collecting payments aren't standing on morale ground and would never win a public debate on the matter. He said non-farmers now collect $172 million annually "through a loophole," including $52 million in Mississippi alone.

"There is no way they are going to be able to stand up on the floor of the House or the Senate and say my amendment should be taken out."

Grassley later indicated that taking out the payment-cap provisions would whittle away some support for the farm bill in the House among conservatives who want to reduce government programs.

The Senate probably doesn’t need an extension if Congress passes legislation sometime in the first few weeks of January. If it goes beyond that, Grassley said there would be problems for dairy and the permanent law. (See my view on that from Monday.)

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Raymond Simpkins
12/24/2013 | 12:56 PM CST
a farmer is a farmer when 100% of said income is from ag.
Bonnie Dukowitz
12/18/2013 | 5:18 AM CST
The problem is not taxes or tax breaks. The problem is government spending. The government taxes and spends, then gives tax breaks to pacify whomever, creating a deficit which causes more spending. ie; loan repayments with interest and a negative balance sheet.