In November, America’s trade deficit surged to over $50 billion, ensuring that the 2017 U.S. trade deficit is over $500 billion. In fact, the U.S. has not shown a trade surplus for more than 25 years. It is a troubling fact that reflects the inability of many sectors of the U.S. economy to compete, largely due to trade barriers enacted by foreign governments. We all know that fair trade was an issue championed by President Trump during his campaign for the White House. Americans were and are justifiably concerned that unfair trade can hurt the American economy and job creation.
Few sectors of our economy feel this pressure more than agriculture. We are in one of the longest running periods of time in which the majority of farm commodity prices have remained below the average cost of farm production. In fact, net farm income has declined for each of the last three years. This is creating deep hardships within rural farming communities throughout the Nation. Last February, a Wall Street Journal headline proclaimed that “The Next American Farm Bust Is Upon Us.”
American farmers are some of the most productive in the world and support free trade, but we are hurting due, in part, to trade imbalances and unfair competition created by foreign subsidies and barriers. It is a difficult situation for American agriculture and it could get worse. While most businesses will see a strong benefit from tax reform, export driven businesses are facing an unforeseen challenge. Fortune magazine recently reported that “the tax plan is expected to give the U.S. economy a short-term boost that may strengthen the dollar, making exports more expensive and widening Trump’s loathed trade deficit.”
For agriculture, the negative consequences of a good idea – tax reform – were softened by specific provisions in the bill designed to promote tax fairness for farmers and provide a new tool to fight against unfair trade. But that relief may be short lived due to a proposed legislative ‘fix” under discussion in the halls of Congress. This proposed action would destroy a bright ray of hope for American farmers by repealing favorable tax language and undermining American agriculture’s ability to compete in world markets.
My name is Mike McCloskey and I am a dairy farmer and a leader in Select Milk Producers, a dairy cooperative owned by its family dairy farmer members. Banding together as a cooperative, the farmers of Select Milk Producers generate $2.5 billion in annual sales, allowing family farmers to compete globally.
U.S. citizens have the lowest percentage of disposable income spent on food in the world and the safest and most abundant food supply known to mankind. We are the most food-secure nation on the planet and a powerhouse in agriculture exports despite high and rising foreign subsidies, tariffs, and non-tariff trade barriers. Agriculture is a competitive and national security advantage for the U.S., and it is something worth protecting. But now, American agriculture is under threat from an unlikely source: the U.S. Congress.
A piece of the new tax law, known as Section 199A, is the most important tax reform for the farming community in a generation. Unfortunately, Sec.199A has become needlessly controversial among the legislators who wrote and approved it, and among some agriculture companies who purchase farmers’ crops but are not organized as cooperatives. If a farmer belongs to a cooperative, he receives a federal tax deduction equivalent to 20% of the farm’s gross sales to the coop. In most cases, the amount of the deduction will allow farmers to have a substantially lower tax rate than in any other previous federal farm tax law. Farmers who do not belong to a cooperative do not receive this tax advantage, but they still may receive an advantage through the deduction created for pass-through companies.
Select supports the idea that all farmers, whether independent or cooperative, should receive the same tax treatment that cooperatives were granted in the new law. By attempting to compensate for the loss of the old Section199 Domestic Production Activities Deduction (DPAD) from which cooperative farmers have long benefited, Sec 199A creates a strong competitive tool - one which should be expanded to the entire farm sector. Select supports making minor adjustments as needed that would assure ALL farmers could participate without causing any significant additional loss of tax revenue.
After reading the law, I concluded that it was written with the simple and clear purpose of helping to strengthen the ability of the 2.1 million farms in the U.S. and the workers they employ to compete in world markets. Section 199A is a strong tax reform because it is straightforward, substantially reduces farm taxes, and could potentially be available to all farmers who take exceptional risks each day with relatively small margins. It is a tool that allows U.S. farmers to produce commodities and products to feed a hungry world at a competitive cost while helping soften the blow of trade barriers.
After those who do not receive the benefit of the new law expressed concerns, some legislators now say it was a mistake that would have "unintended consequences." However, those who wrote and voted for this law had a clear opportunity to understand its impact and the majority agreed to make it the law of the land.
Many legislators are now looking for political cover because leaving out non cooperative companies created a “have and have not” scenario. This could, in turn, create an imbalance in agriculture markets, putting large independent buyers of farm products at a disadvantage to farmer coops. As a family farmer, I believe in fairness and I agree that this must be corrected – but not by undercutting our ability to compete in against the stacked deck of global competition. Instead, the entire farming community should be included in Section 199A.
Farmers struggle from year-to-year to show a small profit margin and many of our rural communities are becoming ghost towns. When I show any business person from outside of agriculture the capital intensity of farming, together with the risk factors and its minimum margins, the first response is always, “Why would anyone invest in a business like this?”
American farmers shoulder the risk because we love what we do – and we are the best in the world at it. But to most people in the business world, we look like fools. We incur the same general business risk as any other business but we also manage the enormous additional challenges of weather, weeds, and pests. For those of us in livestock, we have the added complexity of dealing with live animals, protecting them from disease and death while understanding and managing the complexity within the relationship of health, productivity, and government regulation. We undertake this risk because we love what we do, but we need a level playing field on which to compete.
This is our “Call To Action”. We are asking every farmer, coop farmer, and independent farmer to join forces with their purchasers (coops and independent commodity buyers) and contact their U.S. Senators and Congressman and ask them to support Sec 199A for all farm interests. We only have a short time to make a difference. It is imperative that you contact your member of Congress today.
The message is simple. The American farmer is the foundation of our Nation. It’s time to stand up for agriculture and family farmers. Expand a well-designed Sec 199A benefit to all, but don't “fix" what isn't broken by taking a way a vital competitive tax tool for farmers.
About the Author: Mike McCloskey and his wife Sue farm in Fair Oaks, Indiana. You can read more about their innovative work at fortune.com and foodandwine.com.
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