Farm Bureau: Tax legislation will help farmers

In wrapping up the business of its lame duck session, the U.S. Congress addressed two pieces of important legislation that will directly impact California farmers and ranchers: the passage of an $858 billion tax relief and unemployment benefits package, and consideration of a national food safety bill intended to modernize the country's food safety laws.

Congress and President Obama approved late last week a bill that extends the 2001 and 2003 tax cuts approved during the Bush administration.

California Farm Bureau Federation President Paul Wenger said he is pleased by passage of the tax package, saying it provides relief to agricultural employers and stimulates the nation's economy.

"The tax package is critical to promote growth in the economy. That benefits everyone, including farmers and ranchers," Wenger said, "and parts of the package will be especially critical on the farm."

Wenger pointed to extension of tax rules for capital gains, gifts, income taxes and small businesses. In particular, he said, family farmers and ranchers welcome revised rules involving the federal estate tax.

"The estate tax forces farming families to take extensive and expensive actions to avoid having their farms broken apart when a family member dies," he said. "Even then, farmers are often forced to sell land and other assets to pay estate taxes. The tax package gives farm and ranch families two more years of certainty, but they still need a longer-term solution."

For the estate tax, the bill establishes an exemption of $5 million per person and a top rate of 35 percent for two years (2011-2012). The bill reinstates stepped-up basis to current market value and indexes the estate tax exemption for inflation. Estates of those dying in 2010 are given a choice of the new exemption and rate, or current 2010 law (no estate tax and modified carryover basis). The bill also provides for a spousal transfer of any unused estate tax exemption amount. The estate and gift taxes would also be reunified, creating a single exemption and graduated-rate schedule for both and is effective for gifts made after Dec. 31.

The package also extends for two years the existing capital gains income tax rates and Alternative Minimum Tax relief; extends higher Section 179 Small Business Expensing provisions; allows businesses to immediately deduct 100 percent of purchased property through 2011 and a 50 percent bonus depreciation in 2012; maintains an additional standard deduction for real property taxes (2010-2011); and extends a provision encouraging contributions of conservation easements (2010-2011). Additionally, the proposal contains a temporary cut to the payroll tax from 6.2 percent to 4.2 percent in 2011.

Farmer Grant Chaffin of Blythe said extending the current tax cuts will help his business.

"The estate tax relief gives my family some breathing room. I've got an aging father and once he passes away, then his estate is going to be subject to this tax, so we're absolutely concerned," Chaffin said. "Knowing that we have some resolution for the estate tax and other Bush-era tax cuts allows us to go forward with some capital improvements that we would not have made otherwise and give bonuses to employees."

Farmer Russel Efird of Caruthers said he would have preferred that farmers and ranchers be exempted from the estate tax altogether, and added that the tax bill will be in effect only for the next two years.

"They've passed this two-year extension, but what does that do? Business-wise, it does nothing for me. How do you make decisions on a two-year plan?" Efird said. "It is a two-year Band-Aid. All it says is, 'We in Congress cannot do what we have to do.' Yes, it saves me a nickel right now, but it doesn't help me as far as business decisions."

Final passage of the two-year tax package will give family farmers and ranchers time to seek longer-term reforms, Farm Bureau said. Farm organizations including CFBF have supported legislation sponsored by Sen. Dianne Feinstein, D-Calif., and Rep. Mike Thompson, D-Napa, that would defer estate taxes on family farm property as long as the farm remains in operation and stays in the family.

"We will continue to fight for this reform," Wenger said, "which will assure that farms and ranches can remain family businesses. The two-year extension that Congress just approved will pass quickly. We won't rest until family farmers and ranchers have permanent relief from the burdens of the estate tax."

In other action, Congress finalized the FDA Food Safety Modernization Act, which gives the Food and Drug Administration the power to mandate food recalls; enhances traceability of fruit and vegetable shipments to quickly locate any contaminated commodities; sets new standards for food manufacturers; and places stricter standards on imported foods. One bit of controversy in the bill is an amendment that exempts small producers and processors selling directly to consumers within 275 miles and with less than $500,000 in annual sales from some regulations if complying with local and state food safety laws. A big issue is how the new food safety bill will be funded. It is expected to cost $1.4 billion over five years.

As of our deadline on Monday, the bill was awaiting final action in the House of Representatives, followed by the president's likely signature.

Josh Rolph, CFBF national affairs director, said the bill completely revamps the relationship between the government and growers. While some aspects of the bill are welcome, he said, there are many more uncertainties.

"It will be many months, if not years, before we are able to assess the impact new regulations will have on our produce industry. The regulatory process becomes more important to make sure decisions aren't diminishing our competitiveness at home or abroad," Rolph said.

(Christine Souza is an assistant editor of Ag Alert. She may be contacted at csouza@cfbf.com.)

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