Study analyzes how Tax Cuts and Job Act impacts farm households
The federal Tax Cuts and Jobs Act, passed in December 2017, will reduce tax rates for farmers and farm households. A new study provides a better idea of how much they might drop.
The study by the U.S. Department of Agriculture's Economic Research Service estimated what the legislation would have meant using 2016 tax-year data.
An important starting point in understanding the study: 98 percent of family farms, and 90 percent of the total value of U.S. agricultural production, are organized as passthrough entities. That means income from the operation is treated at the individual level along with the farm household's income from other sources such as off-farm jobs.
As a result, the biggest effects of the TCJA on farmers are from changes to the federal individual income tax code, says the report.
The study found that if the TCJA had been in place in 2016:
• Family farm households would have faced an average effective tax rate of 13.9 percent instead of 17.2 percent. That includes factoring in several tax cuts.
• Family farms of various sizes would have seen differing reductions in average effective tax rates. A family farm household with annual gross cash farm income of less than $350,000 would have seen a drop of 3 percent. Family farm households with annual gross cash farm income of $350,000 to $1 million would have seen a drop of 5.8 percent. The decline would have been 3.4 percent for family farm households with annual gross cash farm income of $1 million to $5 million and 1.7 percent for family farm households with annual gross cash farm income of more than $5 million.
• The size of the estimated tax rate cut also varies by type of commodity raised. For instance, producers of high-value crops would have seen a decline of 4 percent, while producers of beef cattle would have seen a decline of 2.6 percent.
The study was conducted using data from USDA's Agricultural Resource Management Survey and the Internal Revenue Service.