By Kalena Bruce
Rural America has quietly become the new inner city. Rural areas now rank worst for socioeconomic markers such as divorce, poverty, and reliance on federal disability insurance. America the Beautiful is looking like fields of depression.
Revitalizing rural America should be a cornerstone of Congress’ focus, and agriculture is the backbone of many rural areas. Invigorating farming and ranching communities requires reforms to health care inequality, a rebuilding of infrastructure, and renegotiation of trade deals. But the most important place to start is tax reform.
As a fifth-generation rancher, I know that the estate tax, or death tax, is a threat to the future of family farming across the country. Currently, the tax hits estates valued at more than $5.5 million per person, at a rate up to 40 percent.
It might seem that the death tax would mostly hit the heirs of wealthy fortunes. But these folks keep their inheritances shielded in trusts. Instead, the death tax is a grim fate that many farmers and ranchers have to face. The issue is that farmers and ranchers may be land-rich, but cash-poor.
Imagine you inherit $10 million in cash. It’s easy to pay an inheritance tax because what you’ve received is liquid. Imagine instead that you inherit a vast tract of farmland or ranchland worth $10 million. You’ll face a hefty bill from the IRS with no way to pay it—except to sell the land to developers or other deep-pocketed individuals or corporations.
Land values on farms are rising rapidly. According to the USDA, farm real estate values in Missouri went up 8.1 percent per acre between 2014 and 2015. Across the county, they’ve gone up on average 50 percent since 2009.
Without real reform to the death tax, land that may have been in a farm family for generations may be lost.
Congress should also focus on two other tax-reform measures: Maintaining cash accounting and reforming like-kind exchanges.
Like-kind exchanges are a tax deferral that provide flexibility for farms. Imagine you have an old tractor and trade it for a new tractor. Under a like-kind exchange, you don’t have to immediately pay a tax on the gain in value between the old and the new. If you sell the new tractor down the road, you’ll pay a tax on the gain then.
This deferral is important to farms because it allows flexibility. Sometimes it is used to trade in old equipment for newer, more environmentally friendly equipment. Other times it allows for upgrade to better facilities for livestock. The flexibility allows for farms, which operate on thin margins, to plan ahead for the tax hit while improving today.
Lastly, some are trying to force different accounting method on smaller farms and ranches. Most small farms keep track of money like regular Americans—if you get paid for something in 2017, you’ll pay taxes on it in your 2017 taxes. This is called cash accounting.
But some in Congress want to force smaller farms to use accrual accounting, which is essentially a system of deferred income and expenses. Imagine you agree to provide someone corn each month for a year, and he pays you $1,000 up front. Cash accounting would say you record the cash when you receive it—simple. Accrual accounting would say you divide the cash you receive by 12 and make one recording each month for a year—even though you already received all the money up front.
This deferred accounting makes things more complex. Farmers and ranchers are price-takers who find themselves storing grain and holding calves over until the market is stronger. Accrual accounting would mean paying a tax on these stored commodities before they’re even sold, forcing farmers and ranchers to pursue loans just to pay Uncle Sam.
The tax reform plan put forth by President Trump would help farms in these regards. It would also help small businesses across the country by streamlining the tax code and cutting taxes.
Members of Congress are spending most of August at home in their districts, away from the buzz of lobbyists and interest groups. They should take the time to listen to their constituents’ needs. Then they should get back to work and help President Trump help rural America.
Bruce is chairwoman of the American Farm Bureau’s Young Farmers and Ranchers Committee.
