The partisan political hierarchy in Washington are abuzz about tax reform. Yet for those of us outside of the nation’s capital and Wall Street, there are dim prospects for trickle-down economic growth.
At Iowa Farmers Union’s annual convention earlier this month, if tax reform was raised, it was out of concern over who would benefit, and at what cost. IFU’s family farmer members had greater concern for low crop prices, increased corporate consolidation, and efforts to improve on-farm conservation practices. And their alternative priorities track with broader American sentiment, as the rest of America seems resigned to accept that current tax reform efforts just aren’t for them. A recent Quinnipiac poll found Americans oppose current tax bills by a margin of two to one, and CBS found that 70 percent of respondent don’t think tax reform should be a priority.
With so many challenges facing the country and rural America in particular, you, like me, might be asking what is Washington thinking? The next congressional agenda item appears to be entitlement reform out of concern over the skyrocketing national debt. At the same time and by Congress’s own estimate, these tax reform bills will add between $1-$1.45 trillion to the debt even after economic growth is factored in. As an American, its alarming to me that we will cut programs like Medicaid, social security, and nutrition programs to offset tax cuts that analysts predict will be a windfall for corporations and the wealthy.
Taming the debt is a worthwhile endeavor. According to the Congressional Budget Office (CBO) 2017 fiscal year revenue will fall short of what Congress will spend by roughly $666 billion. Annual deficits are only expected to grow from here according to CBO’s 10-year budget projections. Letting go of large swaths of revenue is not logical, both revenue and spending need to be managed.
That is unless the end goal is building a self-fulfilling prophecy. By ballooning the deficit through tax cuts, opponents of federal programs can cut them in the name of fiscal responsibility. As a farmer, that makes me extremely uneasy, especially considering farm bill reauthorization is due in 2018. I must ask myself, will deficit hawks see farm programs as wasteful spending? Is crop insurance too generous, are safety net programs market distorting, or are conservation programs outside of the government’s responsibility? These were criticisms thrown at the 2014 Farm Bill. While Iowans know these to be false, the spending spree brought on by tax reform just handed opponents additional arguments.
While I fear about future impacts to farm bills, I’m also concerned over immediate impacts to my business from the currently proposed reform. This could be a double whammy for family farmers.
For most family farmers, the benefits of this tax package are almost nonexistent. The estate tax could be repealed, or, at the very least the exemptions for it would be doubled to $10 million for individuals, $20 million for families. Our farm falls short of that threshold by orders of magnitude. Additionally, certain deductions are increased to sizes well beyond our small business. As an example, Section 179, an important expensing tool, increases from $500,000 to $5 million. That seems excessive by most family farm standards.
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On the flip side, some provisions do harm to tax deductions that actually do benefit family farmers. The deduction for domestic production activities (Sec. 199) is vastly reduced, which could do some significant damage to Iowa’s agricultural cooperatives. Likewise, reductions in carryback provisions on net operating losses are problematic, especially as many of us farmers cope with very low crop prices and high cost of production.
If economic growth is the objective from tax reform efforts, we seem to be headed in the wrong direction. Alan Greenspan recently stated, “It’s probably wise to bring down the corporate rate, but don’t look to that as a major factor in expanding the economy.” CBO projects growth from current tax reform bills to be around 1.8 percent, the same percentage that the federal reserve projects under current economic conditions. After tax profits are already near historic highs (8.5 percent of the economy). If profits drove investment, jobs, and wage growth, we would already be operating in a boom time. But they are not and we are not.
It’s time for Congress to place less faith in corporations’ abilities to drive the American economy. As they insist on finalizing tax reform, their plans should at the very least reinvest the money into the middle class and small businesses. It is us who can more fully jump-start our economy, reduce the deficit, and sustainably fund social and farm programs that Iowans rely on.
l Aaron Lehman is a fifth-generation family farmer from Polk County. He is president of the family farmer- and rancher-led Iowa Farmers Union.