opinion

Proposed tax reform doesn’t add up for Iowa farmers

As Iowa’s farmers are wrapping up harvest in the fourth consecutive year of stagnant grain prices, we are crunching the numbers, many of us trying to figure out how to pay the bills and keep the farm going another year.

What shouldn’t be a part of that calculation is a higher tax rate on Iowa farm families.

Most Americans would agree that tax reform is needed to bring jobs and investment back to our local economies. I was pleased to see President Trump and our Iowa Congressional members stay true to their word of finding solutions to simplify the tax code and lower tax rates for individuals and businesses.

Unfortunately, one provision that is left out of the “Tax Cuts and Jobs Act” is an important part of the tax code for Iowa's farm families.

That provision, known generally as Section 199, recognizes the unique challenges presented within the cooperative business model by allowing cooperatives to deduct the proceeds earned from products that are manufactured, produced, grown or extracted and pass those deductions directly back to their members.

So, a farmer-owned cooperative like Landus Coop in Ames is able to apply Section 199 to the proceeds of farmer-grown and -raised corn, soybeans, dairy, livestock and other products and then pass the deductions directly back to their 7,000 farmer-members to reinvest in their operations.

In its current form, the proposed tax bill repeals Section 199 with the assumption that cooperatives and their members would benefit from the proposed reduced corporate and lower individual tax rates.

If you crunch those numbers, the math doesn’t add up for the farm sector.

That’s because farmer-owned cooperatives are not taxed like traditional corporations, so they cannot benefit from lower corporate rates like most other industries. What’s even more troubling is that changes to the individual tax code would not be enough to offset the loss of the Section 199 agriculture deductions passed through to farmers.

That means repealing Section 199 would hurt the majority of America’s farmers and ranchers who belong to a farmer-owned cooperative. That’s a big deal for local economies and jobs supported by farming and agriculture in states like Iowa, particularly at a time when the farm economy is bleak and farmers are doing their best to keep a roof over their families’ heads. If Section 199 is repealed, Midwest grain farmers alone could see their taxes increase by more than 12 percent.

It would seem any tax reform plan focused on creating economic opportunity and jobs should maintain Section 199 in order to protect the good-paying jobs and the economic return generated by the presence of farmer-owned cooperatives in rural communities. In Iowa, farm coops have 129,000 member-owners and provide almost 6,500 good jobs in more than 600 communities. If Congress allows for Section 199 to be repealed, it would be at the expense of these farmers, their families, and Iowa communities.

Members of farmer-owned coops support tax reform and see lower corporate rates as a good thing for the American economy, but let’s come up with a solution that makes sense for everyone. I hope the men and woman representing Iowa in Washington and President Trump will stand with America’s farm families and protect Section 199 for farmer-owned cooperatives.

John Scott, a farmer from Odebolt, Iowa, is president of the Landus Cooperative Board of Directors.