ANALYSIS: Tax code fix may not be quick or easy for agribusinesses

Fixing President Trump’s US tax code to ensure farmers receive the same tax treatment regardless of who they sell their goods to is unlikely to be easy or quick, as procedural and budgetary issues may hamper efforts, according to policy analysts interviewed by Agricensus.

Last month, the US Senate passed President Trump’s flagship Tax Cuts and Jobs Act, which has been hailed as the biggest overhaul of US tax policy in three decades.

As well as slashing corporation and income taxes, the bill initially removed a tax provision that allowed farmers to offset revenues from the sale of agricultural goods.

However, a last-minute special provision that sought to reinstate the deductions threatens to overhaul traditional agribusiness supply chains as it inadvertently reinstated the tax break for goods sold to co-operatives but not corporations.

The amendment took lobby groups representing big agribusinesses, such as Archer Daniel Midland, Bunge, Cargill and Louis Dreyfus by surprise, and they have since pledged to work urgently to level the playing field.

But policy analysts have warned undoing the impact of the bill is not straightforward, as procedural and budgetary issues may hamper efforts.

According to Vince Smith, director of agricultural studies at the American Enterprise Institute, the most obvious ways to level the playing field are either to give farmers a similar tax cut when selling to corporations, or remove the tax cut for selling to co-operatives.

And according to experts, these solutions will require legislative intervention.

“There is a concerted effort as we understand it to make some changes, but they’re going to have to find a legislative vehicle to do it. And given the rules of the Senate it might not be easy,” said Jon Doggett, executive vice president at the National Corn Growers Association.

Technical correction

Republicans have spoken of a new technical correction bill since December, even before the legislation had been passed, largely with the view of fixing minor errors arising from a rush to get the bill signed before the end of 2017.

Yet policy analysts seem to think this is the most likely route to reversing the impact of the amendment, despite the changes being substantive.

“In the past technical correction bills were non-controversial – Congress would pass a major bill and there would be a misplaced comma or a cross reference that goes nowhere – and they would pass unanimously,” said Seth Hanlon, at the Centre for American Progress.

“But the issue here is not the subject of a technical correction – it is a substantial correction and then there is the issue of whether it can even be corrected,” Hanlon said.

Indeed, to stand any chance of being passed, a technical correction bill would have to be badged as a budget reconciliation measure, which allows it to pass the Senate with a simple majority rather than the normal 60 votes required to end debate.

In order to qualify as a reconciliation it must only touch budgetary measures and not the regulations themselves, which can be a grey area, analysts say.

Yet if any new bill was to pass that hurdle, it would also need to be revenue neutral, otherwise it could exceed the federal budget.

And that may exclude extending the same tax break that farmers receive from selling to cooperatives to selling to companies.

That leaves the option of removing the tax break altogether, which is unlikely.

“It will be difficult to get  that rolled back because farm interests groups are going to be supportive of getting a tax deduction, so they are not going to be supportive of getting rid of that provision and neither are the companies that are benefitting from that provision,” Smith of the AEI told Agricensus.

Speedy resolution

Nevertheless, both senators from the Dakotas that sponsored the amendment in the bill have pledged to change what they see as an unintended consequence of the amendment.

“Senator Thune is now aware of the unintended situation this new provision could create in the agriculture industry and is working with Senator Hoeven, other Senate colleagues, and industry stakeholders to find a reasonable solution,” according to a statement from the office of Senator John Thune of South Dakota sent to Agricensus.

“Ultimately, Senator Thune believes that producers should make decisions about where and how to sell their products without the tax code unfairly tipping the scales in favor of marketing to one type of business entity or another,” it continued.

However, while lobby groups, lawyers and companies wrangle with how to fix the measure, it is unclear what impact, if any, it will have in the short term.

That is because of the significant control over infrastructure that corporations play in US agricultural trade.

“Will there be a major shift in how products are moved? It may be commodity specific. For grain the capacity shift seems  likely to be very modest in the short term,” said the AEI’s Smith.