ECONOMIC ISSUES IN AGRICULTURE

Agricultural & Applied Economics
The University of Georgia
March, 2001
 

Farming has many unknown, but...

Without trying to place blame for the current state of farming, there are some things on the horizon that appear likely to happen in 2001- that will affect farmers.

Tax reduction would be phased in over five years, beginning 1/01/01 if the bill passes in its present state. It provides lower marginal tax rates for all taxpayers. The new lowest tax rate (now 15%) would drop to 12% this year and to 10% in 2006.

Other marginal tax rates would begin to decline in 2002 and work lower through 2006. The current six marginal tax rates would be reduced to four in 2006 (10%, 15%, 25% and 33%). 
 

Table 1. Proposed Tax Legislation Would Lower Marginal Tax Rates
	Proposed Marginal Tax Rates
Married Filing Jointly Taxable Income	Current Tax Rate	2001	2002	2003	2004	2005	2006
0 to 12,000	15%	12%	12%	11%	11%	11%	10%
12,000 to 43,850	15%	15%	15%	15%	15%	15%	15%
43,850 to 105,950	28%	28%	27%	27%	26%	26%	25%
105,985 to 161,450	31%	31%	30%	29%	28%	27%	25%
161,450 to 288,350	36%	36%	35%	35%	34%	34%	33%
More than 288,350	39.6%	39.6%	38%	37%	36%	35%	33%

Most taxpayers can ultimately expect about a 10% tax reduction IF the bill is passed and WHEN the proposed rates would be fully implemented. See examples below. Political opponents want to speed -up the rate reduction. 
 

Calculated Federal Income Tax - Married Filing Jointly - Excluding Social Security Tax
Taxable Income	Current	2001	2002	2003	2004	2005	2006
5,000	$750	$600	$600	$550	$550	$550	$500
25,000	3,750	3,390	3,390	3,270	3,270	3,270	3,150
60,000	11,100	10.740	10,578	10,458	10,297	10,297	10.015
100,000	22,300	21,940	21,378	21,258	20,697	20,697	20,015
500,000	170,688	170,308	164,477	161,685	157,124	154,452	147,099

Those with children and dual income married couples will likely receive additional benefits in the tax package: Higher tax credits for children and elimination of the "marriage penalty".

Other tax legislations are being considered in separate bills. ONE OF THEM would make Conservation Reserve Payments received by operating farmers not be subject to self employment tax. AND there is some support to allow self employed persons to immediately deduct 100% of their health care premiums.

Estate Tax Reform is another legislative initiative. One proposal calls for phasing out all federal estate taxes. More than likely some larger exemption will likely win approval greater than the current $675,000 - but not a total elimination. However, this is currently scheduled to go to $1 million in 2006.

Of major interest to farmers in this debate is a proposal to eliminate the "stepped-up-basis". Currently assets receive a market value basis when an estate is settled. If the stepped-up-basis is eliminated, heirs would receive property at the basis of the previous generation. Any sales of this property would result in greater tax liabilities due to higher capital gains. 

The prospect of a tax cut and increased spending on defense and education leaves little room for programs at USDA. Farm emergency programs are not included in the proposals. Without them farm income is expected to drop 10% this year.

Congress and the White House both agree some amount of aid is needed for farmers to get by in 2001. So some will likely be coming. Emergency aid and tax cuts may be the best bet for this year.

But the real battle for farm aid will begin next year when government subsidies are supposed to be completely phased out, in keeping with the 1996 farm bill.
 

Keith Kightlinger
 

Sources:
Doanes Agricultural Report William Givan, Editor Extension Economist 

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