The tax reform framework proposed by President Trump during a recent trip to Indiana eliminates many deductions current being taken by businesses and consumers. One such elimination would have a serious economic impact both for producers and rural communities. Section 199, also known as the Domestic Production Activities Deduction (DPAD), was enacted as part of the American Jobs Creation Act of 2004 and applies to proceeds from agricultural products that are manufactured, produced, grown, or extracted by farmer cooperatives, or that are marketed through co-ops. The great majority of cooperatives pass the benefit through directly to their farmer members. It is estimated that the deduction returns nearly $2 billion annually to rural areas in all 50 states.
The National Council of Farmer Co-ops has expressed strong opposition to the elimination of this deduction. “Farmer co-ops have consistently supported tax reform and related policies that support economic growth in rural America as well as the broader economy,” said Chuck Conner, president and CEO of NCFC. “The elimination of the Section 199 deduction for agriculture increases the tax burden on farmers and their co-ops and obviously runs counter to that goal. In a time of continued low commodity prices, those hardworking Americans who grow our food can ill afford for Congress to pass a law that will raise their taxes.”
While many provisions in the tax reform framework will benefit agriculture, Conner is concerned that this deduction will get ignored. “As both the House Ways & Means Committee and the Senate Finance Committee begin considering detailed tax reform packages, they must preserve the Section 199 deduction for agriculture and recognize that lower rates by themselves will not offset a loss of the deduction,” Conner continued. “It would be a strange irony indeed if a Republican Congress and a Republican President pass a law that increases taxes on America’s farmers.”