Rates Would Be Cut for Most Family Farmers

President Reagan’s tax proposal would lower rates for most family farmers and tighten loopholes for those who see agriculture as a convenient way to write off business expenses, Agriculture Secretary John R. Block said Wednesday.

“If some of these tax-shelter advantages are eliminated, we’re going to see less people diving headlong into agriculture to find a way to shelter income,” Block said.

But Chuck Hassebrook of the Center for Rural Affairs in Walthill, Neb., said the plan that Reagan announced Tuesday night “is a disappointing step backward” from what he described as the tougher reform plan initially proposed by the Treasury Department earlier this year.

“Tax shelters cause overproduction of farm commodities and put family-size farmers at a competitive disadvantage with large operations and high-income investors who can effectively exploit tax subsidies,” Hassebrook said.

Reagan’s proposal would help close some tax loopholes, he said, but not to the extent indicated in the earlier Treasury plan. The center is a family farm research organization.

15% Bottom Bracket

Block said Reagan’s tax plan would put about three-fourths of all farmers in a new 15% tax bottom bracket. Only about half fall in that bracket now, he said. The lower tax rates and Reagan’s proposed increase in personal exemption would offset the limits planned for some deductions and credits.

Also, he said, reducing the individual maximum tax rate to 35% from the current 50%, would help reduce the “excessive production capacity for some commodities” caused by tax-loss farming operations.

The other main feature of the Administration’s plan includes a new tax depreciation system for farm assets such as buildings and machinery. The new system would be “slightly less generous” than the current method of writing off new investments in a relatively short time.

Block, who briefed reporters but did not respond to any questions, said the Reagan plan to restrict farming tax write-offs is “going to be disappointing” for those who use the current loopholes. “But for agriculture in total, it’s going to be net positive,” he said.

Non-Farm Investors

The current tax structure is often used by non-farm investors to gain depreciation for investments in new facilities for dairies, poultry and other enterprises. Vineyards are another example, Block said.

But family-size farmers also use depreciation as a part of their management plan, regularly writing off new facilities such as farrowing houses and other installations.

A background sheet distributed at the Block briefing said the Reagan tax plan would affect orchards, vineyards and livestock operations more than others.

“Under current law, farmers can claim immediate tax deductions for the costs of caring for new orchards and vineyards until they reach bearing age and the costs of raising dairy, draft, breeding or sporting livestock,” the report said.

“The President’s plan will require that these costs be capitalized--added to the cost or basis of the asset, to be claimed in later years as tax depreciation deductions, or subtracted from sales price to obtain the capital gain.”