Pennsylvania farmers could face a troubling future if several crucial issues related to the "fiscal cliff" are not resolved by Congress before the end of the year. Three key issues include the federal estate tax, capital gains tax and the Farm Bill.
If Congress fails to act, many small and average-size family farms will be subject to federal estate taxes if the existing exemption drops from the current level of $5 million to $1 million.
At the same time, the maximum tax rate increases from 35 percent to 55 percent. Based on U.S. Department of Agriculture Census of Agriculture statistics, the number of farms in Pennsylvania subject to the Federal Estate Tax would increase in 2013 from 436 to 9,351 (or 21 times as many farms), including farms with as little as 177 acres in cropland.
Another area that will negatively impact farmers is an increase in the capital gains tax from the current level of 15 percent to 20 percent.
Farmers are subject to capital gains in a variety of areas, including livestock, land and other assets. The estate tax and capital gains tax not only cut into profit margins, they also threaten the future of farm families, who often have to sell off assets, animals and land to pay off burdensome taxes.
In addition, farmers face the possibility of losing a popular tax break, which allows them to deduct a significant amount of the cost of farm machinery from their tax return during the year in which they make the purchase.
Farmers are also facing uncertainty because it is hard to plan for the future without a new Farm Bill.
The federal program helps protect farmers from catastrophic weather events, such as the drought of 2012. A strong risk-management program (similar to existing crop insurance plans) not only helps farmers, but also benefits American consumers, who have access to the safest, most abundant and affordable food supply in the world.
While funding for many federal programs are under a microscope due to the state of our nation's deficit, farmers have agreed to major reforms in a new Farm Bill, including the elimination of direct payments. What farmers want and need is a flexible range of crop insurance products to protect them from catastrophic revenue losses.
Opponents of Farm Bill funding greatly exaggerate how much money actually goes to farmers, and they forget how those programs are a public investment that benefits our nation's food supply, the environment and the economy.
Agriculture spending in the Farm Bill accounts for about one half of 1 percent of all federal expenditures, while 75 percent to 80 percent of the Farm Bill funds nutrition programs, such as food stamps, school lunch programs and the WIC program.
Pennsylvania farmers are urging Congress to take action on the Farm Bill, the federal estate tax and the capital gains tax before the end of the year. If lawmakers do nothing, the tax burdens could be financially destructive for many farm families, while the lack of a strong risk-management program under the Farm Bill could place the future of many farm enterprises across the country in jeopardy.
-- Carl T. Shaffer is presi dent of the Pennsylvania Farm Bureau.