Give New Farmers Tax Incentives
"[Obama] will also provide tax incentives to make it easier for new farmers to afford their first farm. Obama will increase incentives for farmers and private landowners to conduct sustainable agriculture and protect wetlands, grasslands and forests."-- Obama's Blueprint for Change
By Emily Vaughan
Likely due to bipartisan concerns about America’s aging farm population, Obama promised in his Blueprint for Change to provide tax incentives that help new farmers. And despite a crowded presidential agenda, farmers advocacy groups are positioning themselves to capitalize whenever they become the next priority.
Last year’s Food, Conservation and Energy Act of 2008, commonly known as the Farm Bill, set federal farm policy effective until 2013. The law includes several loan programs for beginning farmers, but absent from the bill are any tax credits.
“The farm bill doesn’t usually deal with tax issues,” said Ferd Hoefner, policy director for the National Sustainable Agriculture Coalition. Despite the fact that tax changes were included in the Farm Bill, there wasn’t much push to establish tax credits for beginning farmers. “We weren’t really prepared to make a push,” said Chuck Hassebrook, executive director for the Center for Rural Affairs.
Instead, the Farm Bill expanded some loan programs for beginning farmers, including the federal Down Payment Loan Program, which provides capital to new farmers to buy land and equipment -- typically the biggest barrier to opening a new farm. Under the new bill, the interest rate was lowered and the loans are guaranteed by the Department of Agriculture. “The program has just really been going gangbusters in the last year,” Hoefner said. During the first 14 years of the program, about 3,000 loans were issued, but there have been close to 1,500 in the last year alone, he said.
The Farm Bill also included a pilot program that matches up to $6,000 in a farmer’s savings account if the money is used to buy farmland and livestock, make early mortgage payments, or pay for similar expenses.
Still, the success of the Farm Bill’s loan strategy hasn’t made Obama’s promise obsolete, advocates say. “Loans are important, but access to the money does not necessarily get you access to the land,” Hoefner said. “Policy needs to work comprehensively and the tax incentive side is part of that equation.”
By putting cash back in the hands of beginning farmers, the tax incentives are “of a bit more value to the young person who’s trying to make some of their initial investments before they take on any substantial debt to buy land,” Hassebrook said. CFRA is currently working on developing a bill on microenterprise tax credits for small farmers and businesses, which they hope to add to a congressional tax bill. The idea is to be prepared by the time another tax bill goes through Congress.
There are two types of potential tax credits at the federal level, Hoefner said: a federal equivalent of the state tax-supported first-time farmer loans (or “aggie bonds”) and capital gains tax breaks. Currently, an IRS tax ruling makes federal aggie bonds impossible, and there hasn’t been much political will to overrule it. Congress did not include any provisions for changing the ruling in last year’s Farm Bill. But “the White House and Treasury could make the change administratively,” Hoefner said. “The ball is very much in their court, should they want to begin to fulfill the campaign pledge.”
Capital gains tax breaks -- if targeted specifically to beginning farmers -- would also help, Hoefner says. Several bills proposing that have been introduced in the last decade, but none have gone far. Now, it’s not even at the top of NSAC’s agenda, let alone that of any legislators. Hoefner anticipates his organization will start pushing for it next year.
Tax credit programs for beginning farmers exist in two states: Iowa and Nebraska. Under these programs, landowners get a tax credit for renting agricultural assets such as land, livestock or equipment to beginning farmers. CFRA helped with the passage of both programs, which help connect new and retiring farmers, says Traci Bruckner, assistant director for rural policy at CFRA.
Obama is the first president to specifically outline tax credits for new farmers, Hoefner said, but he doubts anyone in the administration is paying attention to it with bigger issues looming. Bruckner calls Obama’s promise a “first step in the process.”
Even if advocacy groups are ready, there’s no guarantee that tax credits will become law, especially given the country’s other economic challenges “We’re facing big deficits right now,” Hassebrook said. “There’s not going to be an immediate opportunity to create new tax incentives, more likely than not. But a lot of the success in passing legislation involves getting ready and prepared so that, when there is an opportunity, you’re ready to go.”