Here’s Why Farmers Are Still on the Fence About Border Adjustment Tax

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Uncertainty about how a tax overhaul plan would exempt income earned from exports while taxing imports has led the agriculture industry to sit out a heated debate that’s engulfed retailers and manufacturers, farm policy experts told members of the House Agriculture Committee on Wednesday.

At a hearing devoted to tax reform, agriculture lobbyists and tax analysts told lawmakers that it’s hard to see how the government would know when a farm exporter should receive an exemption given the complexity of tracking agricultural goods leaving the country. Witnesses said that applying an export rebate would be difficult because many crops cant’ be traced back to a grower once they’ve been exported, posing a major problem for cereal grain products like wheat or corn, which end up mixed with batches of grain from other growers.

Doug Claussen, a Goodland, Kan.-based accountant for K·Coe Isom LLP, told lawmakers that a type of wheat grown in Kansas can be indistinguishable from wheat grown in neighboring states like Nebraska and Oklahoma.

“There’s not enough information available to say which farmer produced that grain in Kansas, and can they get that benefit,” he said. “The benefit would be to the direct exporter.”

Patricia Wolff, senior director of congressional relations for the American Farm Bureau Federation, said her group hasn’t taken a position on the House GOP’s border adjustment tax proposal because they’re not certain if the benefits of the proposal would outweigh its drawbacks.

The most significant shortcoming, Wolff said, is that farmers and ranchers rely on imported products like fertilizer and fuel. Prices for those goods could go up under a border adjustable system, meaning farmers budgets would need to deal with rising costs.

One benefit, Wolff said, is that about a quarter of U.S.-produced agricultural products are exported, and border adjustability could make American products more competitive overseas.

“We need to see how it’s actually structured, how it’s actually written” before taking a position, Wolff said.

Rep. Collin Peterson of Minnesota, the panel’s top Democrat, said at Wednesday’s hearing that he’s worried border adjustability could “collapse our export markets.”

The tax provision, part of the House GOP’s “Better Way” plan that’s backed by Speaker Paul Ryan (R-Wis.), wasn’t the only issue to grab lawmakers’ attention at the hearing. Several Republicans used their time to plug the GOP blueprint’s proposed repeal of the estate tax, which they believe adversely affects family farms.

Republican committee members called for the forthcoming tax reform package to steer clear of eliminating interest deductions that benefit farmers. The House GOP plan calls for the elimination of “special-interest deductions” in exchange for lower business rates and phasing out taxes for investment.

“We believe that the interest deduction should stay on the books, because agriculture needs it to secure the capital that they need and to make sure that the next generation of farmers can get started,” Wolff said.

Rep. Steve King (R-Iowa) said that talk of repealing interest deductions is a “harebrained idea” that would disadvantage farmers, while Rep. Bob Gibbs (R-Ohio) said he “can’t understand why anybody came up with that idea.”

“That’s a legitimate deduction,” Gibbs said.

Morning Consult