Agriculture Policy & Farm Bill Briefing Book
Congressional Research Service

Redistributed as a service of the National Library for the Environment

Tax Changes Affecting Agriculture

Gregg A. Esenwein

Tax reduction is a high priority for the Bush Administration and a prominent issue before the 107th Congress. Agricultural interest groups are interested in some specific tax changes that they assert are needed to assure the long-term profitability of the farm sector.

For example, they have indicated interest in a reduction in the capital gains taxes assessed on the sale of farm land; elimination of the estate and gift tax; changes to ensure that when farmers use income averaging that they do not trigger the alternative minimum tax (AMT); an exemption from self-employment taxes for conservation reserve payments and farm rental receipts; and an acceleration in the full deductibility of health insurance premiums for the self-employed (now set to take effect in 2003). Agricultural interest groups are also seeking passage of Farm, Fishing, and Ranch Risk Management Accounts (FFARRM). These accounts would permit farmers to set aside income in tax-deferred accounts similar to individual retirement accounts (IRAs). The proceeds from these accounts would be taxable when they were withdrawn, presumably in periods when farm income is low.

Congressional Action

A comprehensive tax relief bill (H.R. 2488, adopted by the 106th Congress but vetoed by President Clinton on September 23, 1999) contained several of the above provisions, including FFARRM accounts.

In the 107th Congress several tax related farm bills have been introduced. Senators Grassley and Baucus, key sponsors of FFARRM accounts in the last Congress, have introduced the Tax Empowerment and Relief Act (S. 312, S. 313, and S. 314). The main components of this legislation would:


The Conservation Reserve Program Fairness Act of 2001 (S. 315), introduced by Senator Brownback, would also exempt conservation reserve payments from the self-employment tax.

In the House, Congressman Herger has introduced the Farmer Tax Fairness Act (H.R. 658) which would allow farmers to disregard the AMT when calculating their regular income taxes using income averaging. Congressman Herger has also introduced the Small Business Tax Relief Act (H.R. 656) which would expand the availability of the cash method of accounting to small businesses that have, over a three-year period, annual average gross receipts of $5 million or less.

Also in the House, Congressman Tom Osborne has introduced legislation (H.R. 294) that would permit taxpayers to exclude from taxation the capital gains income from the sale of farmland.

Congressman John Boehner and Senator Richard Lugar have introduced the Rural America Prosperity Act of 2001 (H.R. 627 and S. 333). Among other things this legislation would;


Given Congressional interest in this area, it is likely that some form of tax relief for agriculture will be enacted in this Congress.

Page last updated March 12, 2001.

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