Ron L. Durst

The Potential Impact of Tax Reform on Farm Businesses and Rural Households

Several proposals calling for fundamental reform of the Federal income tax system have been put forth, including a report by the co-chairs of the National Commission on Fiscal Responsibility. The primary elements of reform—eliminating tax preferences, restructuring capital gains and dividend tax rates, lowering rates on individual income, and reducing the number of tax brackets—could have a signifi cant impact on the after-tax income and well-being of both farm businesses and rural households. This report uses published and special tabulation data obtained from the Internal Revenue Service, farm-level data from USDA’s Agricultural Resource Management Survey, and data from the American Housing Survey to examine the current tax situation for farm households and to evaluate the importance of various Federal income tax policies. For farm households, the effect of reform will primarily depend upon changes to existing treatment of investment and business income, including several important business deductions. In contrast, changes to existing individual tax credits, especially refundable tax credits, will likely be of greater signifi cance to nonfarm rural households.

Tax-deferred Exchanges of Farmland: Theory and Evidence from Federal Tax Data

Purpose - The purpose of this paper is to examine the use of Section 1031 of the Internal Revenue Code (IRC), a piece of US tax law that allows for tax-deferred exchanges of like-kind property. Design/methodology/approach - The paper derives a theoretical premium value for exchanges and presents the first national level analysis of Federal tax data on the use of like-kind exchanges involving farmland between 1999 and 2005. Findings - There is significant interest in Section 1031 from stakeholders in rural communities because there is widespread belief that the recent growth in farmland values may have, in part, been stimulated by Section 1031 exchanges of farmland. Despite these concerns, little is known about the extent of such exchanges. Originality/value - This paper provides insight into the value and use of the IRCs Section 1031 provision. Based on simulations of a theoretical model using plausible assumptions about asset growth, the paper shows how proposed tax changes will affect the tax value of the deferral.

U.S. macroeconomic and tax policy: impacts on U.S. farm operations

Agricultural economists have generally concluded that macroeconomic and tax policy matters regarding the financial wellbeing of U.S. farm operations. Farm operations react more quickly and with greater response to both anticipated and unanticipated macroeconomic policy changes than do the commercial business operations, sometimes resulting in overshooting in the agricultural economy. In the early 1980s, the Federal Reserve’s disinflationary policy and large federal budget deficits had disproportionately large effects on real agricultural interest rates. This paper concludes with a presentation of numerous potential researchable issues regarding macroeconomic and tax policy’s impact on farm financial well‐being.

Cash or Credit? Tax Credits and Conservation Outcomes

The use of tax policy to encourage conservation of agricultural and environmental resources is not a new idea but gained increased attention in the recently concluded farm bill debate. A new tax deduction is established for taxpayers who take voluntary measures to aid in the recovery of species that are either listed as threatened or endangered under the Endangered Species Act (ESA) or deemed by the Secretary of Interior or Commerce to be in need of protection under the ESA (“qualified species”). The farm bill also exempts retired and disabled individuals from self-employment taxes (the employer and employee shares of Social Security and Medicare taxes) on Conservation Reserve Program (CRP) payments. In addition, it extended for two years the special rule encouraging contributions of conservation easements. The Congressional Joint Tax Committee estimates that these three provisions, collectively, will reduce tax revenues by

How Do U.S. Farmers Plan for Retirement

1.366 billion over 2008 to 2017. Conservation tax credits were also part of the 2007/2008 farm bill debate but are not part of the final legislation. If they had survived the final farm bill negotiations, the tax credits would have had a far larger effect on federal revenues and conservation policy. The farm bill initially proposed by the…