Two tax breaks that are widely used in agriculture are at stake as Republicans and Democrats renew what is likely to be a multiyear battle over tax policy.
The House Ways and Means Committee on Tuesday advanced a group of tax bills that would restore a bonus depreciation provision to 100% and raise limits on the Section 179 expensing allowance. Both provisions are used by farmers to reduce the cost of equipment and machinery.
The legislation has no chance of passing the Democratic-controlled Senate — if for no other reason than Republicans also are seeking to repeal tax incentives for clean power and electric vehicles — but the GOP legislation represents an opening offer in potential negotiations with Democrats and the White House.
Starting this year, key provisions of the Tax Cuts and Jobs Act of 2017 begin to sunset or phase down unless Congress acts to restore them. The sunsets and phase-downs were intended to reduce the cost of the GOP-authored tax law.
Under the TCJA, the bonus depreciation provision that allows a business to immediately write off the cost of equipment or buildings drops from 100% to 80% of the purchase price this year and then falls to 60% in 2024, 40% in 2025 and 20% in 2026 before ending in 2027. The GOP tax package considered Tuesday would restore the provision to 100% through 2025, aligning it with the expiration of other key provisions of the TCJA, including an expanded estate tax exemption and the Section 199A 20% deduction on pass-through business income.
The Section 179 expensing allowance, which can be combined with bonus depreciation, was made permanent under the TCJA but would be expanded under the new GOP plan.
Under the TCJA, businesses this year can write off up to $1.16 million of the cost of equipment and software a year, but the limit is phased down dollar for dollar as spending exceeds $2.9 million. The Republican legislation would raise the expensing limit to $2.5 million, increase the phaseout threshold to $4 million and index both to inflation.
Kristine Tidgren, a tax policy specialist at Iowa State University, said bonus depreciation and Section 179 expensing have become even more important to farmers than they were before 2017, when the TCJA restricted Section 1031 like-kind exchanges to real property.
“As prices have climbed, the Section 179 limits are starting to disqualify some farmers,” she said in an email to Agri-Pulse. She said the phaseout of bonus depreciation will ultimately affect farmer purchasing decisions.
A GOP member of the Ways and Means Committee, Randy Feenstra of Iowa, told colleagues the Section 179 allowance is a top concern of farmers. “Farming, like many other industries … is very capital-intensive,” Feenstra said.
Another Republican on the panel, Illinois Rep. Darin LaHood, said the bill’s provisions were “a direct response for my agricultural community and farmers.”
Dustin Sherer, a director of government affairs for the American Farm Bureau Federation, said the business provisions in the GOP legislation would essentially serve as a bridge to 2025 when other TCJA provisions expire, including the estate tax exemptions and the Section 199A income deduction. But Democrats will want something significant in return — likely an expansion of the child tax credit — if they’re going to agree to address business tax provisions this year, including the restoration of 100% bonus depreciation, he said.
“We’re going to be in the situation at the end of the year where there’s going to be a small set of extenders that need to be looked at, and the Democrats are going to want some kind of child tax credit enhancement,” Sherer said.
Democrats took Republicans to task for proposing to extend tax cuts on the heels of the debt-ceiling agreement that Republicans used to cut projected budget deficits.
Republicans “suffer from deficit attention disorder,” said Rep. Lloyd Doggett, D-Texas. “They are so focused on deficits when Democrats are in charge, and they can slash programs that they never supported in the first place. … When they are in charge they tend to forget, to lose their attention on deficits.”
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He said the sunsetting and phasing down of provisions such as bonus depreciation were intended to hide the true cost of the tax cuts.
Rep. Mike Thompson, D-Calif., said Democrats would be willing to negotiate a new tax bill and specifically mentioned the child tax credit as a priority.
Rep. Gwen Moore, D-Wis., suggested Republicans will have to agree to offset the cost of business tax breaks with increased revenue.
But Ways and Means Chairman Jason Smith, R-Mo., argued that the business provisions in the GOP plan “have a proven track record of success. Following passage of the TCJA, the economy grew on average a full percentage point higher than the average of the prior decade.”
Republicans also are using the tax legislation to highlight the issues of foreign farmland purchases. The legislation includes a proposed 60% excise tax on purchases of land by individuals or businesses based in China, Russia, Iran, North Korea, Cuba and Venezuela.
Defending the proposed tax, Smith said “it’s critical that we secure our supply chains to counter the Chinese Communist Party's unfair trade practices and the first step is protecting our homeland. Chinese companies are buying up American farmland to gain access to U.S. agriculture.
“Our issue is not with the Chinese people, but with companies and officials tied to, and controlled by the Chinese Communist Party, that are utilizing economic forces to invade our country and threatened our economic and national security,” he added.
But Rep. Judy Chu, D-Calif., noted the tax would apply to individuals, not just governments. She called the proposal a “Red scare tactic” that would foment discrimination against Asian Americans. She noted foreign nationals own less than 3% of U.S. farmland, and that Chinese investors own less than 1% of that.
“It’s unfortunate that my colleagues on the other side are attempting to legislate on feelings and fear rather than responding in a way that’s proportional to the threat,” she said.
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