WASHINGTON (DTN) -- An analysis conducted earlier this year by USDA's Economic Research Service showed farmers would see their tax obligations grow by $8.9 billion if the Tax Cuts and Jobs Act (TCJA) is not extended.

The analysis was part of a webinar on Thursday hosted by the Farm Foundation.

"Right now, farmers can ill afford any further hits to their bottom line," said Todd Van Hoose, president and CEO of the Farm Credit Council.

BREAKDOWN OF IMPACTS

The bulk of those higher taxes would come primarily from increased tax rates, resulting in about $4.5 billion in additional costs.

Losing the 20% deduction on Qualified Business Income would add another $2 billion to farmers' tax liabilities. Approximately 45% of all farmers take advantage of the Qualified Business Income deduction, which reduces their tax liability by about 9%, on average.

"The QBI deduction is a much larger impact than just a 20% decision in our positive farm income," said Elizabeth Swanson, a tax consultant with Pinion.

Another significant loss for farmers comes from the rollback of the Child Tax Credit from $2,000 a child to $1,000 a child, a change that has already occurred. That costs farmers about $1.25 billion.

The effect of other tax breaks, such as bonus depreciation on business expenses, is less significant because the vast majority of farmers would still have access to Section 179 write-offs for business purchases.

SECTION 199A(g) DEDUCTION

One deduction not examined by the ERS is the Section 199A(g) deduction, which is equal to 9% of income for cooperatives. The National Council of Farmer Cooperatives conducted a survey of its members last year and found the Section 199A(g) deduction amounted to just shy of $2 billion per year, with 95% of those savings being passed through to the farmer-owners. A spokesperson for NCFC said those figures exclude some cooperatives, suggesting the impact may be larger.

LARGER THE FARM, LARGER THE LIABILITY

ERS also broke down the average impact for farmers. For farmers with $1 million to $4.99 million in sales or more, the average tax liability would increase around $10,624, an increase of about 7.5%.

For the largest farms, those with $5 million in sales or more, the average increase in tax liability would be around $27,588, ERS stated. The percentage of tax liability for those largest farms would be about 5.4% -- a smaller percentage than farms in other income levels.

Farms with "moderate" sales -- $150,000 to $349,000 -- would experience the highest percentage increase in tax liabilities of 15.6%. Their tax liability would increase on average $2,283.

Overall, farmers would see tax liabilities increase about 11.5%. But percentage-wise moderate sales farms would see a greater impact.

ESTATE TAXES

Reverting the estate tax exemptions back to 2017 levels also would lead to about $640 million in higher taxes for farm estates large enough to pay the estate tax. Adjusting for inflation, the estate tax exemption for individuals is expected to reach $13.95 million by the end of 2025. Without a new tax law, the exemption will revert to the pre-TCJA level (adjusted for inflation) of $6.98 million. These exemption amounts double for married couples.

With land values continuing to rise, farmers and livestock producers are concerned about the impact of reverting back to 2017. The National Cattlemen's Beef Association (NCBA) conducted a survey of 1,200 producers. Of the respondents, 35% have already had to pay the estate tax more than once. But 61% of respondents expect they would pay estate taxes if the law snaps back.

"When you look at the significance of farm and ranch operations, many times they are 'asset rich and cash poor.' I know that is a phrase that's been used many times, but it's true. Our greatest value, or greatest asset, is the land," said Kent Bacus, executive director of government affairs for NCBA

Swanson added, "We are seeing very similar results with our clients and have concerns if the estate-tax exemption is cut in half."

LOOKING AHEAD

The 10-year cost projection for extending the TCJA is $7.75 billion. But President-elect Donald Trump also campaigned on eliminating taxes on Social Security, tip income and overtime income.

On Thursday, while at the New York Stock Exchange, Trump also said he wants to cut the corporate tax rate to 15% from 21%. "But only if you make your product here -- otherwise you pay 21%," Trump said at the NYSE, according to Dow Jones.

Currently Republicans in Congress are trying to figure out what they will include in a budget reconciliation package early in 2025. House Republicans want to have tax cuts in a package that will include energy policy and deal with border security and immigration. Incoming Senate Majority Leader John Thune, R-S.D., is proposing to hold off on a tax cut package until later in the year.

Paul Neiffer, an accountant and creator of the Farm CPA Report, said Congress won't pass a permanent tax cut but more likely will trim back the years of the tax cuts to reduce the costs. The bill also could incorporate revenue from tariffs to offset some of the costs.

Bacus said he thinks Congress will move more quickly on tax cuts. The outcome may depend on Trump weighing in on what he wants. It also will come down to messaging. Any extensions that fail to preserve lower tax rates will likely be perceived as tax increases on small businesses, he said.

"Anything that doesn't preserve those rates is a tax increase," Bacus said. He added, "As far as revenue raisers, I think it will be tough to implement new taxes."

Chris Clayton can be reached at Chris.Clayton@dtn.com

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