Michigan farmers watching closely as tax reform continues to evolve.

November 8, 2017

Michigan farmers watching closely as tax reform continues to evolve.


Michigan farmers remain cautiously optimistic with the recent House Ways and Means Committee tax reform package, officially labeled the “The Tax Cuts & Job Act.” Calling it long-overdue, Michigan Farm Bureau (MFB) President Carl Bednarski, a Tuscola County row-crop farmer, says the organization is encouraged that Congress has taken “the first-steps” to tax reform.

“Michigan farmers will continue to work with members of Congress on a solution that provides for long-term certainty for all taxpayers,” Bednarksi said. “We’re glad to see many agricultural priority issues such as Estate Taxes and cash accounting addressed in the proposal. We will continue to evaluate specific tax reform details as it moves through the full House to ensure it doesn’t unfairly burden Michigan farmers.”

The House Ways and Means Committee is expected to continue marking up the tax proposal, section by section, according to MFB National Legislative Counsel and Mason County native John Kran, adding that the full House could see a bill as soon as mid-November.

“This is an opportunity for Committee members to make changes to the bill or debate things they’d like to see updated,” Kran explained “We expect a bill to be released in the Senate in coming days as well. President Trump has publically stated he wants to see a bill through the House by Thanksgiving and to his desk by Christmas.”

According to Bednarksi, MFB members have approved tax reform policy that embraces a number of key principles:

  • Effective tax rates – Farm Bureau supports lower tax rates but will measure any tax reform plan by the degree to which it lowers effective tax rates paid by farmers.
  • Continued Deduction for business interest – loss of the interest deduction would harm farmers’ liquidity, make it harder for them to purchase land and production inputs and could lead to stagnation in the agriculture sector. The bill would limit deductions to businesses with gross receipts under $25 million.
  • Estate tax repeal – Farm Bureau believes that tax laws must protect, not harm the family farms that grow America’s food and fiber. Our nation’s estate tax policy can be in direct conflict with the desire to preserve and protect our nation’s family-owned farms and ranches. The bill doubles the estate tax exemption starting in 2018 and permanently repeals estate taxes after six years. Stepped-up basis is continued. The current estate tax exemption is $5.49 million per person.
  • Capital gains tax – Long-term capital gains are taxed a lower rate to encourage investment in farms and businesses that grow our economy, create jobs and in recognition that these investments involve risk. The bill is silent on capital gains tax rates. Under current law, taxpayers in the 10 and 15 income tax brackets pay no capital gains taxes. Those in the 25, 28, 33 and 35 percent brackets pay a 15% rate on their capital gains; and those in the top 39.6% bracket pay 20%.
  • Cash accounting – Cash accounting allows farmers to improve cash flow by recognizing income when it is received and recording expenses when they are paid. The bill does not change the use of cash accounting for farm businesses except that it raises the accrual threshold for farm corporations and farm partnerships with a corporate partner.

“Fruit farming takes place generally on very expensive real estate and I used debt-financing to buy a large percentage of my farm,” said Isiah Wunsch, a sixth-generation fruit grower on Old Mission peninsula in Grand Traverse County.  “Maintaining the interest deduction for businesses is essential, I think, for young farmers in my position as well as for farmers trying to grow their businesses.  We’re in a capital-intensive business and it’s essential we’re able to borrow and not be faced with significant taxes on the cost of borrowing.”

“On our farm we deal with cash accounting,” said Heatherlyn Johnson Reamer, a multi-generational farmer, growing cherries, apples and wine grapes on Old Mission peninsula in Grand Traverse County.  “As money comes in from commodities sold, we’re able to pay our bills and proceed.  We want to make sure cash accounting is in the GOP blueprint.”

“Farmers have been greatly concerned about the estate tax,” said attorney Trent Hilding, of Vestaburg, provider of agricultural law services for farmers and agribusinesses.  “Although the numbers you see are two percent of the people fall under those exemptions, I will tell you a majority of those, without some detailed planning, are going to have a taxable estate. It’s just the nature of the beast, with the number of assets they have, and the values of the land where they’re at.

“The proposal looks like they (Congress) eventually want to eliminate the estate tax, which I think is something we’d all support, I do think the exemptions need to be increased, and it looks like Congress is taking note of that, and has proposed to possibly double exemptions,” said Hilding.

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