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Tax Reform and United States Farm Income

Paper Session

Friday, Jan. 5, 2018 12:30 PM - 2:15 PM

Loews Philadelphia, PSFS
Hosted By: Agricultural and Applied Economics Association
  • Chair: Jeffrey Hopkins, USDA Economic Research Service

Tax Reform and Farm Households

James Williamson
,
USDA Economic Research Service
Siraj Bawa
,
USDA Economic Research Service

Abstract

The authors develop a tax model to simulate the change to farm businesses and households of major tax provisions targeted by the TCJA using farm-level data from the USDA’s Agricultural Resource Management. The TCJA reduces aggregate tax liabilities of farm households by at least $65 billion (in 2016 real dollars) over a ten-year period; however, there is significant heterogeneity in the allocation of the tax saving across different groups. The TCJA decreases the average effective tax rate for farm households by an average of 3 percent over the study period, period; farms households with income between the 20th to 80th percentiles see a modest reduction in their effective income tax rates, while wealthier households, the top 10 percent, see the biggest decreases in their rates. The farm households in the lowest quintile would see an increase in their total tax liability (net of credits and deductions).

Assessing the Returns to Farming for United States Farm Households

Dan Prager
,
USDA Economic Research Service
Sarah Tulman
,
USDA Economic Research Service
Ron Durst
,
USDA Economic Research Service

Abstract

Existing tax provisions favoring the agricultural sector send signals to current farm households and new entrants about the nature of returns from farming. While the median income of farm household has increased considerably over the past two decades, more than half of farm households lose money on their farming operation in any given year. Although the desire for a rural lifestyle may help to explain why some farm households continue to operate these money-losing enterprises and accept negative or low rates of return on their labor and management hours, one must consider other returns. When total returns farming are considered, a farmer may experience a farm loss and have a negative return to farm labor and management in most years, but continue farming and still be economically rational. This paper uses ERS’ household income model to look at often unaccounted-for returns to farming, including the accelerated recovery of capital expenses, the value of farm tax losses and unrealized gains in assets, especially farm real estate. Accounting for the total returns of farming significantly changes the estimated benefits for households operating farms or ranches. For those households managing residence farms—smaller operations where the primary occupation of the operator is not farming—median income from the farm business has been negative. Factoring in the additional annualized income from tax loss, deductions, and asset growth accounts totals 80% of farm receipts for those residence farms. Larger farms experience even greater absolute benefits, although as a share of farm receipts they account for just 20% of farm receipts on average.

Production and Trade Impacts of Tax Reform

Jayson Beckman
,
USDA Economic Research Service
Marinos Tsigas
,
U.S. International Trade Commission
Munisamy Gopinath
,
USDA Economic Research Service

Abstract

The majority of U.S. farm businesses pay taxes at the individual level, but tax rates vary across agricultural sectors. For example, the tax rate of fruit and vegetable farms is higher than that for cattle and calves operations, due in part to the corporate structure of a large number of fruit and vegetable farms. Thus, U.S. tax reform can have impacts that vary across commodities. Furthermore, agricultural processors also tend to have corporate ownership; current tax reform proposals are likely to impact these processors given the high corporate tax rates. This study uses a global, computable general equilibrium (CGE) model to examine the implications of tax reform for U.S. agriculture, using information on tax rates for each agricultural commodity and processors in the model. We examine the impact on major agricultural commodities, and also focus on how changes to agricultural processors’ tax rates impact primary production. U.S. agriculture is a net exporter but subject to intense global competition and so, changes in tax reform that impacts U.S. production will likely affect the global economy.
Discussant(s)
Daniel Sumner
,
University of California-Davis
JEL Classifications
  • G0 - General