Farm Tax Relief Introduced

February 14, 2001

Sen. Chuck Grassley (R-IA), chairman of the Finance Committee, has introduced a package of tax relief measures to help preserve family farms and fisheries. Grassley said the legislation would assist family farmers across the nation. "With the number of family farms shrinking every year, it seems all of us ought to be doing everything we can to help independent producers survive," Grassley said. "Our safe and abundant food supply depends on it."

The legislation, the Tax Empowerment and Relief for Farmers and Fishermen Act (TERFF), has Sen. Max Baucus (D-MT), ranking member of the Finance Committee, as the lead bipartisan co-sponsor. The bill includes:

–FFARRM Accounts. These farmer savings accounts would allow farmers to contribute up to 20% of their income in an account and deduct it in the same year. FFARRM accounts would be a very important risk management tool to help farmers put away money when there's actual income, so that in the really bad times there would be a safety net. This measure enjoys strong bipartisan support and was approved in 1999 as part of the Taxpayer Relief Act, which President Clinton vetoed.

--Reversing IRS decisions on self-employment tax for farmers. Grassley said farmers who participate in the Conservation Reserve Program (CRP) are unnecessarily struggling during tax season because of a case pursued by the IRS. The latest 6th Circuit Court of Appeal's ruling treats CRP payments as farm income subject to the additional self-employment tax rate of 15%. Grassley says the tax not only ignores the intent of Congress in creating the CRP, but it also discourages farmers from using environmentally pro-active measures. "At a time when farmers are struggling to regain their footing economically and do the right thing environmentally, it's important that Congress support them by upholding its promise on CRP," he said. In addition, the bill includes a Grassley provision to reverse an IRS attempt to apply the self-employment tax on farmers' cash rental income.

--Income averaging for farmers who are caught in the Alternative Minimum Tax. This provision also was part of the vetoed tax bill. When Congress passed income averaging for farmers a few years ago, it neglected to take into account the problem of running into the alternative minimum tax, which many farmers are facing now. Grassley said this legislation would fix a "growing problem."

--Expansion of first-time farmer loans, or "aggie bonds." This expands opportunities for beginning farmers who are in need of low-interest rate loans for capital purchases of farmland and equipment. Current law permits state authorities to issue tax-exempt bonds and to lend the proceeds from the sale of the bonds to beginning farmers and ranchers to finance the cost of acquiring land, buildings and equipment used in a farm or ranch operation.

Aggie bonds are subjected to a volume cap and must compete with big industrial projects for bond allocation. Grassley said aggie bonds share few similarities to industrial revenue bonds (IRBs) and should not be subjected to the volume cap established for IRBs. Insufficient allocation of funding due to the volume cap limits the effectiveness of this program. "We can't stand by and allow the next generation of farmers to lose an opportunity to participate in farming because of competition with industry for reduced interest loan rates," Grassley said.

–Farmer co-op initiatives. Recently the IRS determined that some cooperatives should be exposed to a regular corporate tax due to the fact that they are using organic value-added practices rather than manufactured value-added practices. "This is unfair, and needs to be fixed," Grassley said. In addition, he said, small cooperative producers of ethanol should be allowed to be able to receive the same tax benefits as large companies. Grassley's legislation addresses these problems. Overall, Grassley said, this bill "would do more for the American farmer regarding taxes than any measure in recent memory."

American Farm Bureau Federation President Bob Stallman said, "America's farmers and ranchers are currently facing the fourth straight year of slumping commodity prices, with no sign of a rebound in the immediate future. The package includes provisions to help the next generation of farmers get the low-interest funds they need to start farming and offers important initiatives for farmer cooperatives to help producers capture more dollars from value-added markets. We agree with Sen. Grassley's assessment: this legislation will help all farmers and ranchers, no matter their situation."