Two recent laws enacted temporary provisions to the Federal tax code: the American Rescue Plan Act (ARPA) and the Tax Cuts and Jobs Act (TCJA). The authors of this report assess the impact of these expired and expiring Federal income and estate tax policies on tax liabilities for farm households. The authors estimate that the expiration of the temporary provisions of the ARPA and TCJA would increase farm households’ Federal income tax liabilities by $8.9 billion and estate tax liabilities by $647 million the year following expiration. The change in tax liabilities varies by farm size and for groups of farmers considered underserved by USDA programs. This analysis suggests that the combined effect of the sunsetting of reduced individual income tax rates, the increased standard deduction, a cap on State and local tax deductions, and the elimination of the personal exemptions would have the largest impact on underserved and all other farm households, except for very large farm households identified as those with annual gross cash farm income above $5 million. For these very large farm households, the sunsetting of the qualified business income deduction (QBID) would result in the largest increase in tax liabilities.
Details
Title
An Analysis of the Effect of Sunsetting Tax Provisions for Family Farm Households
Record Identifier
https://ageconsearch.umn.edu/record/340569
Language
English
Total Pages
59
Note
This report used financial and demographic data for farms and farm households from USDA’s Agricultural Resource Management Survey (ARMS) (2018–21) and data from the U.S. Internal Revenue Service. The data were used to run the USDA, Economic Research Service’s (ERS) Federal income tax model to estimate family farm household adjusted gross income and tax liability if: (1) all TCJA and ARPA provisions are active and (2) each provision of the TCJA and ARPA has expired. For the Federal estate tax estimations, the ERS’s estate tax model was used. This model is an actuarial model using farm financial information from ARMS (2018–21), mortality data from the U.S. Social Security Administration (2019), publicly available estate tax data from the U.S. Internal Revenue Service (2020), and average effective interest rates calculated by IRS from Farm Credit System rates (2021). This model was used to compare Federal estate tax liabilities for farm households in 2026 by applying the TCJA increased exemption levels and the exemption level that would apply if the elevated exemption amount is allowed to expire.
