AgWeek Opinion
In 2017, President Donald Trump signed the Tax Cuts and Jobs Act into law. This legislation has done so much for the agricultural industry, particularly during the last four years of record-high inflation and economic struggles.
Namely, the industry has benefitted from the exemption threshold on the estate tax, also known as the death tax, which was doubled, and tax deductions like Section 199A that encouraged agricultural investment and competition for smaller companies. The Ways and Means Committee has been working to preserve and extend benefits like these, which are set to expire in 2025. We are also working to improve things like the 45Z tax credits, which aim to incentivize businesses to invest in sustainable energy solutions but are far too restrictive to be effective.
Many families rely on the wealth they have built to ensure their children and grandchildren have opportunities to succeed and carry on the family business. The death tax burdens those families who have worked tirelessly to build their legacies. It punishes people for their hard work and sacrifices, forcing them to dismantle family businesses or liquidate assets to pay for taxes upon their loved one's passing. The TCJA roughly doubled the exemption threshold for lifetime gifts and estates from $5.5 million for single filers to $11.1 million. Because the provision also adjusts for inflation, the current exemption is up to $13.61 million.
If this provision is allowed to expire, the exemption will revert back to around $7 million, and nearly 30,000 farms in western Minnesota would see their exemption cut in half. Repealing the Death Tax is not just about financial relief; it is about preserving heritage and decades, even hundreds of years of work for future generations. That is why I am a proud cosponsor of the Death Tax Repeal Act, which would entirely repeal the estate tax and the generation-skipping transfer tax.
Another provision of the TCJA is section 199A, the Qualified Business Income Deduction, which provides crucial tax relief for small businesses and encourages investment. This allows farmers and cooperatives operating as pass-through entities, like sole proprietorships, partnerships, and S corporations, to deduct up to 20% of their qualified business income (QBI) plus 20% of qualified real estate investment trust (REIT) dividends and qualified publicly traded partnership (PTP) income. In the Seventh District, that accounts for nearly 60,000 eligible taxpayers. By reducing their tax burden, farmers have more capital to invest in their operations, enhancing productivity, and making smaller family farms more competitive with larger agribusinesses. Like the repeal of the death tax, this also allows family farms to be passed down to future generations more easily.
Of course, these tax provisions in today’s economy have allowed many farms to simply stay afloat. If this provision is allowed to expire next year and these smaller businesses must pay an extra 20% in taxes, many will likely have to cut staff, reduce wages, and delay investing in equipment and technology to improve productivity if they want to stay in business. I am an original cosponsor of the Main Street Tax Certainty Act, which makes the 199A provision permanent.
In addition to preserving and expanding on the TCJA, I have been working towards solutions to make the 45Z tax credit more farmer-friendly. In theory, producers would receive credits for producing biodiesel, agri-biodiesel, renewable diesel, second-generation biofuel, sustainable aviation biofuel (SAF), alternative fuels, and alternative fuel mixtures. Although this tax credit is set to go into effect and intended to replace the 40B tax credit on Jan. 1, 2025, the Treasury Department has yet to publish guidance, causing a lack of certainty for both industry and farmers.
The Treasury Department has guidance for 40B, which operates similarly to the 45Z credit. The guidance for this credit allows for calculating climate-smart agricultural (CSA) practices. While the Department of Agriculture formally recognizes over 50 CSA practices and 100 activities, the Treasury’s new guidance only recognizes three. Additionally, these three recognized practices must be bundled together to qualify. The CSA calculation requires corn growers to engage in three climate-smart practices on the same acreage. Corn growers have to practice no-till farming, cover crop planting, and use “enhanced-efficiency” nitrogen fertilizer.
Soybean growers must use both cover crops and no-till farming. This greatly diminishes the opportunity for producers to receive the full value of the credit. In fact, if current practices continue, only 9% of the nation’s distillate fuel supply qualifies for this credit. Congressman Finstad and I have sent a letter to the Treasury asking the Department to give our farmers certainty by quickly issuing guidance that expands the CSA practices allowed and removes the bundling requirement.
The provisions in TCJA have been critical for Minnesota’s farm industry during these difficult economic times. If they are allowed to expire next year, as my colleagues on the Left have threatened if they are in the Majority, the average taxpayer in the 7th District would see a 25% tax hike, the average family would pay an extra $1,500 in taxes, and over 50,000 small businesses would be facing a 43.4% tax rate. I will continue working diligently on the Ways and Means Committee and with the entire Republican Conference to expand or make permanent many of these provisions to help family farms succeed.
