The Capital Press published an editorial this week endorsing the new federal tax bill. I agree with the editorial board that some items in the tax bill do seem to help lower taxes on certain farm businesses.
However, the editorial board has a perspective that includes promoting the largest, most debt-burdened, most soil-intensive agricultural enterprises at the expense of smaller farms, rural communities and taxpayers in general.
Take the section 179 depreciation/expensing change. Most farms use lines of credit or dealership-based loans to “purchase” new pieces of equipment, so they will not be using the depreciation schedule anyway; they would be using the interest on debt deduction on the schedule F. Those that can afford to drop $1 million on a new tractor with cash are very large enterprises that really stretch the everyday definition of farms. For a smaller farm, the depreciation/expensing schedule acts as a tax “bank account,” since we get to take a percentage of the deduction every year for ten or more years. The tax laws seem to promote the carrying of large, never-paid-off debt, which I would argue is unhealthy for farm businesses and rural communities.
The estate tax point the board makes is based on the idea that these very large farms (I can think of a handful in Yamhill County who would meet this criteria) are already taxed on all these assets that they have accumulated through hard work. This misses the point that most farm businesses in Oregon primarily carry land as their largest asset; as you know, land increases in value over time, but if it is not sold, the value simply accrues without any capital gains or income tax applied to it. If 1000 acres are purchased in 1950 at $100/acre (a pretty standard number then), as the land value increases, very little is paid in property taxes (and until now, that was deductible on federal returns) due to our land use laws. But, essentially, upon death of the owner (but most big farms are not sole proprietors, but rather family trusts or privately held corporations), the land is transferred to a new generation or sold (most farmers are shrewd and know that giving heirs land is not a helpful thing). The land is then shown at its true market value of $2500/acre, for a gain of $2400/acre or a total taxable increase of $2.4 million. This is income that I believe our county taxpayers should be receiving, but is now saved by the small number of large landowners. Image how much more a retired school teacher or mechanic has to pay, to cover the farm family’s savings.
The editorial board does not mention a big tax hit that will affect farm businesses in Oregon: the large reduction in the deduction for state and local taxes. We pay about $8000 in state taxes, plus $3000-ish in property taxes, and we only own 48 acres. For a big farm (owning over 1000 acres and grossing over $1 million), the property taxes alone are well above the $10,000 cap on all SALT taxes that are deductible. As all tax laws are aimed at influencing behavior, this change will likely influence farms in one way: they will increase their rented acreage while divesting of more owned lands, a trend we’ve been seeing for years. What they get with renting is that all expenses are totally deductible, thus decreasing their adjusted gross income. I can think of many negatives for our county in having more land rented than farmer-owned, but I’ll save those thoughts for a different note.
I could continue refuting the editorial point by point, but I simply wanted to observe that the editorial board is essentially endorsing an agriculture that is bigger and more debt-financed at the expense of local communities and poorer taxpayers. And we haven’t even delved into the labor and immigration issues!