August 13, 2018
Farm families are benefiting from the Tax Cuts & Jobs Act (TCJA) President Donald J. Trump signed in December, according to the U.S. Department of Agriculture (USDA).
The Economic Research Service (ERS) studied 2016 Internal Revenue Service and USDA data and recently released findings showing farmers’ effective tax rate is 3-6 percent lower under the Republican-passed plan.
The TCJA’s most far-reaching provision was a 20 percent tax deduction for small businesses often taxed at individual rates under a “passthrough” provision. In 2016, 98 percent of farms were organized as passthrough entities. ERS found that if the TCJA been in effect, farm households would have faced an average effective tax rate of 13 .9 percent versus 17.2 percent under prior law.
The TCJA allows farmers to immediately write off the full cost of new equipment. The report estimated three times as many farmers made investments in 2016 that could not be fully deducted in the year of purchase than under the new tax plan.
Additionally, the TCJA’s doubling of the estate tax exemption would have applied to 87 percent of farms owing estate taxes in 2016.
While the ERS report focused on farmers, the TCJA also lowered individual income tax rates; almost doubled the standard deduction; expanded the Child Tax Credit; and preserved popular deductions including charitable contributions, mortgage interest, and state and local taxes.