Vice President Kamala Harris and former President Donald Trump are offering far different tax plans that would have significantly different impacts on agriculture and on federal budget deficits, according to analysts.
The next president will be confronted with a massive political challenge due to the looming expiration of key provisions in the Tax Cuts and Jobs Act (TCJA), signed into law by Trump in 2017. But the new president’s ability to shape the outcome will be determined by which party wins control of the House and Senate, or if Congress remains divided.
If the White House and Congress are controlled by the same party, tax cuts and increases, or a simple extension of the TCJA provisions, could be enacted with simple majorities in both the House and Senate using the budget reconciliation process. If the government is divided, the president and lawmakers are going to have to find some kind of compromise on tax policy and the TCJA or else their constituents will face major tax increases.
Trump wants to extend all TCJA provisions that expire at the end of 2025, including reduced tax rates; an increased standard deduction; the Section 199A, 20% deduction for small business income; and a doubling of the estate tax exemption.
“If the Trump tax cuts are allowed to expire, the vast majority of people are going to get a tax increase,” said Roger McEowen, an agricultural law and tax expert at Washburn University in Kansas, referring to the TCJA.
For example, married couples with incomes between $23,200 and $94,300 would see a 25% increase in taxes, just because of the restoration of pre-2018 tax rates, he said.
Roger McEowenA study released earlier this year by the USDA Economic Research Service has estimated that expiration of individual tax provisions alone would increase taxes by $4.5 billion on farm households, with the largest percentage increases falling on farms with sales of $150,000 to $350,000. ERS classifies farms of that size as “moderate sales.”
Expiration of the 20% deduction for business income would result in an average tax increase of $2,464 per farm household, but the cost would be far higher for larger operations. Farms with sales of $1 million to $5 million, which ERS classifies as large, would owe an average of $11,868 in additional taxes. Farms with sales of more than $5 million would owe an extra $87,219 on average.
McEowen recently reviewed a Kansas farmer's tax return that included a $682,000 business income deduction, which would "go to zero if TCJA sunsets, and that is a huge one for many farmers," he said.
Trump has gone beyond proposing to extend the TCJA provisions and also called for exempting tips and Social Security income from taxation, and he has proposed to offset at least some of the cost of his tax plan through increased tariffs, which economists say could raise consumer prices significantly. Trump has called for imposing across-the-board tariffs of up to 20% on imported products and raising tariffs on Chinese exports by as much as 60%.
“Republicans will support baseline tariffs on foreign-made goods, pass the Trump Reciprocal Trade Act, and respond to unfair trading practices. As tariffs on foreign producers go up, taxes on American workers, families and businesses can come down,” the Trump-directed GOP platform says.
Trump also has proposed to repeal President Joe Biden’s green energy tax credits, enacted as part of the Inflation Reduction Act. (The IRA provisions include new tax incentives for biofuels.)
The cost of Trump’s plans could be steep. The Tax Foundation, a nonpartisan but center-right research and analysis group, estimates that Trump’s tariffs could raise $3.9 trillion in revenue over 10 years to go with the $921 billion saved from repealing IRA incentives, but still fall $1.3 trillion short of offsetting the cost of extending the expiring TCJA provisions and on ending taxes on tips and Social Security.
The Tax Foundation also estimates that foreign retaliation against Trump's proposed tariffs would cost the economy 362,000 net jobs. Other analyses have determined U.S. agriculture would be especially hard hit by trade retaliation.
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For her part, Harris has made clear that her priority is lower-income families and middle-class taxpayers. Her economic plan calls for expanding the child tax credit to $6,000 for the first year of a child’s life. At the same time she’s proposed raising the corporate rate from 21% to 28%, reversing a major and permanent change made by the TCJA.
Harris hasn’t released details of how she would address the expiring TCJA provisions that affect individuals and small businesses, although she has pledged that no one making less than $400,000 a year would see a tax increase. She hasn’t specified how that threshold would affect specific provisions, including the 20% pass-through business income provision.
Ag tax experts say the $400,000 threshold wouldn’t account for annual variability in farm income.
“It would help, but agricultural income is very cyclical, so you might have one year where you make higher than $400,000 and you might have another year where you have $100,000,” said Kristine Tidgren, an agricultural law specialist at Iowa State.
Kristine TidgrenA fixed cap such as Harris proposes “isn’t necessarily a good way to go when it comes to agriculture and protecting them with respect to tax rates,” Tidgren said on a recent edition of Agri-Pulse Newsmakers.
McEowen said that when they propose the $400,000 threshold, Democrats are probably only thinking of W-2 wage income, which doesn't fluctuate as much as small business income. "They're not thinking of small businesses. They're not thinking of farmers. They're just thinking wage earners," he said.
According to the Tax Foundation, extending the expiring TCJA provisions for people making under $400,000 would cost $2 trillion over 10 years. Harris has proposed $4.1 trillion in tax increases, including a top capital gains rate of 33%, to go with the expanded child tax credit, which costs an estimated $1.6 trillion over 10 years, and a few relatively small tax cuts.
Another unanswered question is how Harris would approach the estate tax exemption, which was doubled by the TCJA and indexed to inflation. The exemption is $13.6 million this year for an individual.
If the higher estate tax exemption expires, about 1% of farm estates would owe some tax, up from 0.3% under current law, according to the ERS study. About 7.3% of farms with $1 million to $5 million in sales would be affected, and about 8.5% of farms with more than $5 million in annual sales, according to ERS.
Dave Juday, an executive adviser to The Directions Groups on economics and trade, said he would expect Harris to try to pursue restrictions on stepped-up basis. “If something unfolds on that, that takes a lot of business planning if you’re a farmer,” he said.
The Democratic Party platform calls for ending the use of stepped-up basis for inherited assets. Stepped-up basis means that the capital gain on an inherited asset is calculated from the date that the original owner died, rather than when he or she acquired the property. Under current law, heirs don't owe taxes until the assets are sold.
In 2021, President Joe Biden and some Senate Democrats pushed for imposing taxes on capital gains at death, but the idea was eventually dropped from what eventually became the IRA.
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