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Over the last year, I have
had the opportunity to meet so many people across the three counties
and offer educational opportunities and assistance on a whole range
of topics. A lot else has changed since last year, especially in
policies that impact agricultural production. Two policy topics that
can impact producers most in Logan County are changes to the federal
tax code and a trade war. What happens in Washington, D.C., may not
seem like it affects us here, but federal policy changes can have a
profound and lasting impact on how we operate our farms.
Taxes are never a fun subject to discuss, especially when changes to
the federal tax code could have significant consequences for some
farm households. In 2017, Congress passed the Tax Cuts and Jobs Act
(TCJA), which changed nearly all parts of the federal tax code.
Additional changes were made with the American Rescue Plan Act of
2021 (ARPA). Many of these changes have expired or are set to expire
in the coming months. The United States Department of Agriculture
Economic Research Service (USDA-ERS) released a report in 2024
projecting the impact of these changes on farm households. The
changing provisions can be grouped into individual income, business,
and estate taxes.
Many of the expiring
individual income tax provisions from the TCJA and ARPA expired in
January 2025 and are important for those farm businesses that pass
their income through to the household. The TCJA adjusted the income
tax brackets, rates, and standard deductions. The expiration of
these provisions is expected to increase tax liabilities by
approximately $4.5 billion, with large and very large farms facing
increased tax burdens. The child tax credit was increased from
$1,000 to $2,000 under the TCJA, with additional changes made in
ARPA. With the credit reverting to the $1,000 level, the number of
farm households that receive this tax credit will decrease, with low
and moderate-sales farms most impacted. All told the expiration of
this provision would increase tax liabilities by approximately $2
billion. With these and other individual income tax provisions
expiring, the total expected increase in tax liabilities will be
around $9 billion.
On the business tax side, the two major changes are the qualified
business income deduction (QBID) and bonus depreciation. QBID was
introduced to create parity between businesses that pass their
income to the household and corporations. Approximately 45% of farm
businesses used QBID, with larger-scale farms facing the most
significant increases. The report found that very large farms could
see an increase of $87,000 in their tax liability. Bonus
depreciation was introduced in the TCJA and relates to capital
expenses made by a farm business. The expiration of bonus
depreciation would primarily affect large and very large farms, to
the tune of up to $200,000 in increased taxes.
Finally, the TCJA increased the exemption level for federal estate
taxes to $11.18 million. This is set to revert to the previous
exemption level of $6.98 million. If an estate exceeds the exemption
level, they must file and potentially pay federal estate taxes. A
decrease in the exemption level would cause the number of farms that
must file federal estate taxes to increase to 3.9%, and the number
of estates that would owe would rise to 1.1%. This decrease could
generate approximately $1.2 billion. But, as with all things policy,
it depends on whether Congress will act to prevent these expirations
and changes. Whether Congress will act to extend or make these
provisions permanent remains to be seen. Work directly with your tax
professional to understand how these changes can impact your
operation and strategies to protect your operation for the future.
Another area of federal
policy that has received more attention in recent weeks is trade,
specifically tariffs imposed on other countries. But what exactly is
a tariff? Why would the United States impose a tariff on other
countries? What impacts would a trade war have on producers here in
Central Illinois? Trade is a complex issue, but you don’t have to
have a PhD in agricultural economics to understand how trade and
tariffs work. Trade with other countries has been around since the
days of the Silk Road, but the current state of global trade as we
know it came around following World War II. Free trade agreements (FTAs)
are agreements between countries that allow goods to flow between
them with little to no trade barriers.
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Tariffs are some of the most
common trade barriers and are taxes imposed by a country on goods
being brought in (imported) or sent out (exported). FTAs can be
bilateral or regional and can include other things, such as the free
movement of people or a common currency. The most notable examples
of FTAs are the United States-Mexico-Canada Agreement (USMCA) and
the European Union (EU).
A tariff is usually paid by the entity importing or exporting a
particular good. For example, if a meat processor in the United
States wants to import beef from Australia, it usually costs $100
per metric ton. However, if a 25% tariff on beef imports is imposed,
the price to import that beef from Australia is now $125 per metric
ton. The tariff would generate revenue for the country and protect
domestic beef producers, but it could also cause beef imports to
decrease and increase the cost for consumers. Furthermore, in
response to the tariffs, Australia could impose retaliatory tariffs
on the United States, starting a trade war.
The trade war of 2018-2019 started when the U.S. government imposed
tariffs on goods from several countries, including China. In
response, six countries imposed retaliatory tariffs on the U.S.,
mainly on agricultural goods. A USDA-ERS report analyzed the effects
of these tariffs and found that U.S. agricultural exports sharply
declined, with states in the Midwest most affected. Iowa and
Illinois were the most affected states in the Midwest and the entire
U.S., mainly due to a large number of agricultural goods from these
states bound for export. Illinois soybean producers lost an
estimated $1.25 billion in lost revenue, while corn producers lost
an estimated $30 million. The amount of agricultural exports from
Illinois dropped by approximately 10.6%, the effects of which can
still be felt today.
Changes in policy at the state
and federal level can severely impact agricultural producers here in
Central Illinois and across the United States. It is essential to
have plans and strategies in place to protect your operations for
the future. That is where I and Illinois Extension can help. Whether
you need help diagnosing issues affecting your crops or want to
learn about current topics affecting agriculture, Extension has vast
resources to help you through these challenges. I am always here to
help. I can be reached by calling the Logan County Extension office
at (217)732-8289 or by email at
rgtibbs@illinois.edu.
Have a safe and successful
growing season!
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