Congressional Tax Proposals Would Come at a Cost to Agriculture

A study released Thursday by Kennedy and COE, LLC and Farmers for Tax Fairness shows proposed changes to the tax code restricting the use of cash accounting by agricultural operations would reduce agriculture's access to capital by as much as 12.1-billion dollars over the next four years.

According to the study - prepared by Informa Economics - U.S. ag producers forced to switch from cash-basis to accrual-basis accounting under new laws would have to pay out as much as 4.84-billion dollars in taxes during the next four years. Over the same time period - borrowing capacity of these operations would decrease by another 7.26-billion dollars.

Kennedy and Coe CEO Jeff Wald says the study quantifies what producers across the U.S. have been saying - this tax payment and subsequent loss of financial flexibility will have a major negative effect on agriculture in the U.S. The study states that - in aggregate, these farms have less than 1.4-billion dollars in current cash on hand to pay the additional taxes. If the tax bill associated with deferred income comes in an unprofitable farm year - or if the producer cannot otherwise meet the capital requirements - the farmer or livestock producer may have to downsize to survive. Kennedy and Coe Director of Federal Affairs Brian Kuehl says the impact would extend beyond producers and affect their lenders, processors and other key suppliers. He says producers will no longer have funds available to buy tractors and combines or invest in labor and other inputs.

The House Ways and Means Committee and the majority staff for the Senate Finance Committee both released discussion drafts of tax-reform proposals in 2013 that would reduce the number of agricultural operations that can use cash method of accounting. Kuehl explains that cash accounting is a simpler form of accounting that allows farmers to better manage volatility and risk. Requiring a change to accrual-based accounting - he says - takes away the one thing farmers can actually control - their cash flow.

The study released Thursday used USDA data to estimate the financial impact of congressional proposals to require agricultural operations with more than 10-million dollars in gross receipts to shift to the accrual form of accounting. Earlier this year - more than 30 agricultural organizations - including the American Farm Bureau Federation, National Cattlemen's Beef Association, National Corn Growers Association and National Pork Producers Council - sent a letter to the Finance Committee to express concerns with the proposed changes to the cash-accounting rules. Farm Bureau President Bob Stallman says cash accounting combined with the ability to accelerate expenses and defer income gives farmers and ranchers the flexibility to manage their tax burden on an annual basis by allowing them to target an optimum level of taxable income, commensurate with long-term annual earnings. In addition - he says cash accounting gives farmers and ranchers the flexibility they need to plan for major investments in their businesses - and in many cases provides guaranteed availability of some agricultural inputs.

For a full copy of the Informa Economics report - visit www dot FairFarmTax dot com (

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