~~My colleague Chris Hesse was invited to speak in front of the House Ag Committee yesterday and here is his update from the session:
Chris Hesse, a principal in the National Tax Office of CLA, testified today at the full House Ag Committee in Washington DC. Chris was raised on farm in the Portland Oregon area. Today, his son and nephew farm in Grant County in eastern Washington state. Due to Chris’ background, he has a wide knowledge of ag tax, including estate and gift tax provisions applicable to farmers.
The hearing was held to inform the Members of the House Ag Committee as to the various tax provisions used by farmers and ranchers in fulfilling their income tax responsibilities. Chris covered the gamut of the rules, including farm income averaging, the March 1 deadline, income deferral and prepaid expenses.
“The Members of the Committee seemed to be most interested in the tax reform proposal to make interest expense nondeductible. The Members were unanimous in their concern for agriculture if this becomes a reality.” The interest expense nondeductibility is proposed as a trade-off to allow full deductibility of depreciable asset purchases. Chris pointed out that over 90% of farmers today can deduct all of their equipment purchases under the Section 179 provision allowing expensing of up to $510,000.
Another concern was the border adjustment tax. Pat Wolff of the American Farm Bureau testified that Farm Bureau doesn’t have a position on the tax. Members and the witnesses expressed concern as to the uncertainty which will be created as a result of a new type of tax.
The estate tax and step-up in basis made it into the top three questions. One Member noted that with the increased exemption (currently, nearly $5.5 million), very few estates are subject to the tax. However, Chris pointed out that the numbers are deceptive, since taxpayers spend as much money planning to avoid the tax as the tax raises in actual revenue collected by the government. “This is a dead-weight loss. It doesn’t benefit the economy for our clients to pay us in consulting to avoid the tax. We aren’t producing anything for the economy.” Chris testified that the tax needs to be eliminated so that taxpayers don’t have to incurs expenses in that form of planning.