GOP Tax Cut Bill To Include
Provisions For Agriculture

WASHINGTON —(AP)— The downturn in farm country has caught the attention of Republican House leaders, who plan to include several items to benefit farmers in a tax-relief bill to be presented next month.

House Speaker Newt Gingrich, R-Ga., said farm-state Democrats should support the overall tax-cut measure as they try to help producers weather a $7.5 billion drop in farm income this year, due mainly to reduced exports and large crops overseas, plus regional natural disasters.

"You go out to agricultural America, you go to where the pain is today," Gingrich said last week. "I suspect you're going to see some rural Democratic senators come back here and say, ‘You know, this isn't such a bad idea. Maybe we should do tax relief.’"

Ideally, House Republicans would use about half the projected $1.55 trillion budget surplus through 2008 for a variety of tax cuts. The rest would go to safeguard Social Security. President Clinton and the Democrats, along with some reluctant GOP senators, don't want to go that far with tax cuts.

Rep. Bill Archer, R-Texas, chairman of the tax-writing Ways and Means Committee, plans to outline a more modest tax-cut bill next month, which is expected to include several provisions to ease farmers' financial burden.

"I've just committed that we're going to do something to help badly hit farmers in this country and do it appropriately in the tax code," Archer said.

None of the items under consideration for farmers have been set in stone. But a few have bubbled to the surface as the most likely to be included in some form:

— Lengthening the time a farmer can claim deductions for losses due to weather, disease or some other crop failure. Current carry-back provisions limit the deduction to the past two years.

— Making income averaging permanent, rather than having it end in 2000 as under the current law. With averaging, farmers smooth out the peaks and valleys of boom and bust years to provide more stable tax liability.

— Eliminating the estate tax or accelerating the timetable that would exempt estate transfers of up to $1 million. Last year's tax law changes gradually raise the tax-free exemption from $600,000 to $1 million by 2006.

One other item of keen interest to farmers is the capital gains tax rate, which House Republicans want to reduce from 20 percent to 15 percent. This tax is particularly important to farmers because agriculture is capital-intensive, and the tax affects assets ranging from livestock to farmland.

Just how important capital gains policy is to agriculture is demonstrated by a new study by the Agriculture Department's Economic Research Service of the 1997 tax-relief law.

The study found that the capital gains tax rate reduction from 28 percent to 20 percent, with lower rates for people in lower income-tax brackets, will save America's farmers $725 million a year in taxes, based on 1993 and 1994 returns.

This is expected to boost land prices and investment in breeding stock, which are particularly sensitive to the capital gains tax rate.

Overall, tax changes made in 1997 are projected to save farmers $1.6 billion a year in income taxes, or 10 percent, and $150 million in estate taxes, according to the study.

"Although farmers are less than two percent of the population, they receive a disproportionate share of the tax savings, largely because they are more likely than other taxpayers to report capital gains or to owe estate taxes," the USDA report says.