The huge farm bill working its way through the final stages of the House/Senate Conference Committee appears to have preserved at least a few tax provisions. In March, the conference committee had stripped out the tax provisions that had originated with the Senate Finance Committee. However, when it came time to count votes, negotiators decided that some of the tax provisions had to stay in.The farm bill can be looked at as a net tax increase, with the somewhat unusual feature for legislation in recent years of providing for more revenue-raising offsets than tax incentives. The negotiators have agreed on $1.4 billion in tax incentives and $10 billion in offsets. The figure of $1.4 billion is a significant reduction from the $2.4 billion in tax incentives originally proposed by the Senate Finance Committee.
It is this effective tax increase feature of the legislation that is one factor in drawing a veto threat from the Bush administration over the farm legislation. Conference negotiators are currently working on a cutback in farm subsidies to wealthy farmers to try to bring the administration on board with the legislation.
In announcing agreement on the $1.4 billion in tax incentives and $10 billion in offsets, the conferees did not immediately indicate which provisions survived in those totals. Often with Congress, when the details are delayed, this means that the details are still being worked out. The only agreement reached was on the dollars, and not necessarily what would be included in those dollars. Still, some indications of what is likely to be included have been leaking out.
Some of the tax incentives that appear to have survived in the conference committee so far include the following provisions:
* Agricultural equipment depreciation would be accelerated from a seven-year period to a five-year period. This is likely to have survived since it is projected to have a net 10-year cost of zero dollars.
* Retired farmers and farmers on disability who participate in land conservation reserve programs will be permitted to count payouts under the program as investment income, preventing the payouts from resulting in any decrease in Social Security or disability benefits.
* The loan limit on Aggie Loans would be increased from $250,000 to $400,000.
* The legislation includes authorization of forest conservation bonds for certain qualified projects up to a maximum of $1.5 billion.
* The cellulosic ethanol per-gallon tax credit would be raised from 51 cents to $1 per gallon.
* One of the provisions included to secure enough support from Senate Republicans is a provision creating an uniform three-year depreciation for horses and also making the 15 percent capital gain rate applicable to horse sales.
Other tax incentives that may or may not survive the final legislative negotiations include a conservation reserve tax credit; a permanent extension of the special rules encouraging contributions of capital gain real property for conservation purposes; a tax credit for endangered species recovery and restoration; a deduction for endangered species recovery expenditures; an exclusion for certain payments and programs relating to fish and wildlife; a credit for residential and business wind property; a credit for certain Department of Agriculture conservation easements; a deduction for qualified timber gains; several provisions related to timber REITs; modifications to the alcohol credit; extension and modification of the credit for biodiesel and renewable diesel used as fuel; extension and modification of the alternative fuel credit; an agricultural chemicals security credit; and a credit for drug safety and effectiveness testing for minor animal species.
Initially, the key revenue-raising offset to reach the $10 billion number was to be the inclusion of a stock basis reporting requirement, which was projected to raise $6 billion over the course of ten years. This appears to have been dropped in conference due to opposition from the administration. The following are some of the revenue offsets that appear to have survived:
* The legislation would limit the ability of “gentlemen farmers” to use farm losses to offset their non-farm income. Under the legislation, a limit of $200,000 would be imposed of the Schedule F farm losses that non-farmers can claim.
* Another revenue raiser would reduce the corn ethanol per-gallon tax credit by six cents, from 51 cents to 45 cents per gallon.
Other possible revenue raisers still included in the package include $4 billion raised over 10 years from customs user fees.
As of this writing, the conference committee on the farm bill is purportedly nearing its conclusion. Final negotiation efforts appear aimed at heading off the administration’s veto threat issued against the House and Senate versions of the bill. Negotiators have announced agreement on $1.4 billion in tax incentives and $10 billion in revenue offsets to support some of the spending provisions elsewhere in this large farm bill.
In the grand scheme of tax legislation normally before Congress, these are not large numbers on the tax side. They largely represent a tweaking of tax policy toward general support for alternative energy resources at a time of general prosperity in the agriculture sector.
George G. Jones, JD, LL.M, is managing editor, and Mark A. Luscombe, JD, LL.M, CPA, is principal analyst, at CCH Tax and Accounting, a Wolters Kluwer business.
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