Odds Good For Federal Tax
Changes Long Sought By Ag

WASHINGTON —(AP)— Agricultural groups have tried for years without success to get Congress to eliminate inheritance taxes and enact several other tax reforms sought by farmers. This year, farmers may get them.

The $1.6 trillion tax cut proposed by President Bush would phase out inheritance taxes, and farm-state lawmakers hope to add several other provisions that could benefit farmers. At the top of the list: creation of special tax-deferred savings plans for farmers and ranchers.

The change in leadership of the House and Senate tax-writing committees is likely to help the farm lobby get what it wants.

Sen. Charles Grassley, R-Iowa, has become chairman of the Senate Finance Committee. The committee's top Democrat is Sen. Max Baucus, D-Mont. Also, Senate Minority Leader Tom Daschle, D-S.D., has regained a seat on the committee.

In the House, the new chairman of the Ways and Means Committee is GOP Rep. Bill Thomas, who represents a major agricultural region in California.

Although Thomas has not endorsed specific tax proposals, ``he understands farmer problems,'' said Pat Wolfe, a lobbyist for the American Farm Bureau Federation.

The tax breaks being sought by farmers, including the tax-deferred savings accounts, ``are ripe for passage'' this year, she said.

The Farm and Ranch Risk Management accounts, or FARRM accounts, are designed to encourage farmers to save some of their income in good years so they have it when the economy turns down. As much as 20 percent of a farm's income could be put into the account in any one year and kept there for up to five years. Income deposited into the accounts would not be taxed until it is withdrawn.

An estimated 900,000 farmers would contribute about $2.8 billion a year to the accounts, an average of $3100 per person.

The accounts were first proposed when Congress rewrote farm policy in 1996 and scaled back on federal price supports.

There is a good chance Congress will approve them this year, Grassley said. He expects to get the accounts included in any tax cut plan that comes out of the Senate, except in the unlikely event lawmakers agree to pass Bush's plan with no changes, he said.

``It's pretty unrealistic that there won't be some individual smaller items'' in the tax bill ``that individual members want and have been working on for a long time,'' Grassley said.

The FARRM accounts would cost the government about $800 million in lost revenue over the next 10 years.

The inheritance tax that Bush wants to abolish hits a relatively small number of farmers — about four percent of total farm estates nationwide, according to the Agriculture Department. But the tax has became increasingly unpopular with farmers in areas where land values rose significantly during the 1990s.

With proper estate planning, as much as $2.6 million of a farm's value can be exempt from the tax, which runs as high as 55 percent. But farms and ranches near urban areas can easily be worth $10 million to $15 million, said Linda Klemme, a Denver accountant.

``The taxes are so high that there is no way the family can keep'' the farm, she said.

Democrats say a tax cut as big as Bush has proposed could actually hurt farmers if there is not enough money left over for emergency spending programs or if revenues fall short of projections.

The government has provided about $9 billion in supplemental income assistance to farmers over the past year and will be asked to provide similar aid again this year to compensate for low commodity prices and the soaring cost of fuel and fertilizer.

Bush's tax plan ``leaves no room or accounts for no possibilities for emergency spending,'' said Mike Siegel, a spokesman for Baucus.