Commentary: Congress needs to act immediately on tax policy


Issue Date: November 12, 2014
By Josh Rolph
Josh Rolph
Farm Bureau and other organizations will urge Congress to act on tax-reform measures during its end-of-year session.

What happened in last week's midterm elections will have important consequences for federal tax reform in the next session of Congress.

Tax reform has been on the minds of voters for decades. As the tax code gets more complicated for individuals and businesses, the call for a more simple, fair tax system increases. The last major change to the tax code occurred in 2001 and 2003 under President Bush, with many of those changes made permanent by President Obama in tax year 2012.

The challenge for the president and Congress is to enact a tax reform proposal that meets the needs and demands of a diverse and sophisticated population, not to mention the fundamental need to cover the costs of government and begin to pay down an ever-expanding deficit.

Because every interest group has a "sacred cow" list of tax credits and deductions, the will for Congress to institute sweeping tax reforms—such as a fair tax or flat tax—remains far from likely. It therefore becomes more a matter of who makes the strongest case for preserving tax incentives that have already benefited a specific industry or group.

Such was the case about 10 years ago, when the Bush administration floated the idea of eliminating the residential mortgage deduction. The public outcry was so strong that the idea never saw the light of day.

Similarly, both the House and Senate proposed last year to change cash accounting rules that would impact many farmers, who would find it costly, difficult and unrealistic to move to a cash accrual system. We fought that proposal and at least for now, the threat of such a change seems to have dissipated.

Since the last general election in 2012, there have been important changes to the estate tax and capital gains rate, as well as many credits and deductions we at Farm Bureau championed.

The best news: The estate tax exemption level was raised to an historic high that will allow future generations of California family farms and ranches to be passed down without a tax hanging over them. There is still a tax for those that exceed the exemption levels, which is unfortunate, and we remain steadfastly opposed to the estate tax. But after years of lobbying against the tax, we now have a much improved estate tax in place.

After these changes were made, both parties in Congress came together for a broader look at tax law and a mutual desire to overhaul the tax code.

In early 2014, both chambers of Congress put forward tax reform packages that looked very similar to the Bush tax cuts, while reflecting the divergent Republican House and Democratic Senate priorities.

The House was able to clear many of its tax proposals before the full chamber, though in incremental fashion.

The Senate Finance Committee made similar progress, but was unable to pass a comprehensive tax reform bill on the floor of that chamber by this past spring.

Despite our urging for quick passage of these changes, the possibility of congressional action came to an end once election season kicked into full gear in late summer.

Now that Republicans have taken over the Senate, chances for tax reform aren't just possible, they are, in my opinion, certain.

With the exception of income tax brackets and other areas of the tax law that were made permanent, the game being played in Washington during the last five years has been one of temporary tax changes extended incrementally every one or two years. That has not worked for California farmers and ranchers, who need tax certainty to make important business decisions.

Currently, of all the credits and deductions on the books, the most pressing issue I am hearing from our membership is whether Section 179, which deals with business expensing of purchased and leased equipment, will be extended.

Remember talk of the "fiscal cliff" that led to passage of the bill that created a combination of budget cuts and tax credits? One of the provisions contained within that law was extension of Section 179 business expensing and bonus depreciation.

The bill was signed into law on Jan. 2, 2013, effective both for the current 2013 tax year and the previous year (2012). After waiting out the entirety of 2012, however, most small businesses had deferred making equipment purchase or leasing decisions. When Congress made this particular tax break retroactive, it was effectively null for 2012. Equipment purchases did not occur in 2012; they had simply been put off for 2013.

We face the same predicament this year. Many farmers are eager to make equipment purchases that would help their businesses and give a needed boost to the economy. But the difference between a $500,000 deduction and the current $25,000 deduction is enough to cause growers to wait to see what happens.

For this reason, we will send the message to our representatives in both the House and Senate that the Section 179 limit of $500,000 should be enacted quickly. We have a list of other tax incentives, such as bonus depreciation, that would provide even more encouragement for farmers and ranchers to make those big purchases now.

Congress will be in session through Thanksgiving and then possibly again in December. Farmers can't wait until January, February or March of next year to make equipment purchasing decisions. Congress needs to act now.

(Josh Rolph monitors tax policy for the California Farm Bureau Federation Federal Policy Division. He may be contacted at jrolph@cfbf.com.)

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