Economy & Business

The Tax Bill’s Accidental Attack on Small Farmers

A farmer drives a tractor on a farm near Dixon, Ill., in 2013. (Jim Young/Reuters)
Republicans need to fix this ASAP.

America has long held the farmer as an icon of industry, purity, humility, and a lot of other virtues that end with “y.” Glorifying the humble farmer makes a lot of sense given that 1) we all need food every day and 2) most of us no longer have to grow it ourselves, so we really appreciate those who do it for us. It’s also just good politics for anyone with their eye on the Iowa caucuses.

Therefore, Washington needs to quickly fix an unintended loophole in the new tax law. The reform’s goal, in part, was to scrap superfluous deductions and thereby simplify the tax code. But while trying to preserve a tax break for farmer-owned cooperatives, Congress accidentally birthed a loophole that makes selling to corporate co-ops more profitable than selling to other companies — including independent farmers who buy crops to feed their livestock, as well as other family-owned agricultural businesses.

This new provision — section 199A — gives farmers a bonus 20 percent deduction for goods sold to cooperatives. This will force many crop-buyers to choose between forming co-ops and being run out of business, a particularly troubling development given the trend of mega-consolidation in agriculture, which presages higher food prices and environmental damage.

Picking winners and losers shouldn’t be the government’s job, but this loophole will create a lot of losers. The shockwaves from this impact will hurt not just independent farmers, but every business in their supply chain: livestock, dairy, biofuels, you name it.

And when it comes to winners, lawyers might be the biggest, because there’s a lot of legal work involved in forming a co-op. For example, one legal filing could cost Minn-Kota Ag Products $100,000, according to a recent Reuters article. “It’s wasted money. It makes us inefficient but it’s what we have to do for this law,” said their CFO, Dale Beyer.

We expect this kind of behavior from Democrats — “welfare for lawyers,” as Dilbert creator Scott Adams described it when he endorsed Trump — but it’s inexcusable when the GOP controls the House, the Senate, and the White House.

Finance Committee Chairman Orrin Hatch (R., Utah) quickly realized and admitted the problem with this piece of the tax bill. But farmers and non-farmers alike can feel confident in a positive outcome, since Hatch assigned the task to Chuck Grassley (R., Iowa), Pat Roberts (R., Kan.), and John Thune (R., S.D.): basically, the Senatorial Dream Team of America’s Breadbasket.

Farmers need to start writing contracts and planning for this year’s crops. Planting will start in April.

But they need to move fast. Farmers need to start writing contracts and planning for this year’s crops. Planting will start in April. Independent farmers deserve a better option than costly legal fees or certain extinction. Congress must fix this law as soon as possible, and could if they roll it into the upcoming omnibus appropriations bill.

While naysayed by professional naysayers on the left, the tax bill is proving a great success. Investors and consumers are predicting it will add to the already amazing economic growth during President Trump’s first year in office and the bill is now more popular than unpopular. Small-business confidence is at a record high, joblessness is at a 49-year low, wages are on the rise, and the new-homes market is at a 25-year high.

While many are predicting a “blue tidal wave” this year, 2018 may instead be an economic victory lap for the GOP. They just need to be sure to do the right thing for America’s farmers. The Iowa caucuses are only two years away.

Jared Whitley — Jared Whitley worked in D.C. for ten years: in the Senate, the Bush White House, and the defense industry. Recently he completed his MBA from Hult International Business School in Dubai.

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