The Senate Majority Leader, Trent Lott of Mississippi, has committed to re-introducing his proposal for capital gains tax relief and including the legislation Grassley introduced to establish a tax-free savings account for farmers. Lott told Grassley he would re-file the tax relief bill put forward this week immediately following the July 4th recess.
The bi-partisan bill Grassley introduced in May with Sen. Max Baucus of Montana would encourage farmers to save income during good years to supplement income during bad years. The bill uses the tax code to more fully equip farmers to deal with factors outside their control, such as weather and trade barriers. "I am pleased to have the support of the Senate leader for this pro-farmer initiative," Grassley said. Seventeen other senators have co-sponsored the Grassley bill.
Specifically, the Farm and Ranch Risk Management Act of 1998 allows eligible farmers to make contributions to tax-deferred accounts known as FARRM accounts. The contributions would be tax-deductible and limited to 20 percent of a farmer's taxable income for the year. Contributions would be invested in cash or other interest-bearing obligations. The interest would be taxed during the year it is earned. Grassley said funds could stay in the account for up to five years. Upon withdrawal, the money would be taxed as regular income. If the funds were not withdrawn after five years, they would be taxed as income and subject to an additional ten percent penalty.
"Essentially, farmers are given five-year windows to manage their money in a way that is best for their own operations. A farmer could contribute to the account in good years and withdraw from the account when his or her income is low," Grassley said.
The 1996 freedom to farm bill took planting decisions out of the hands of the government and returned them to individual farmers. Farmers now have the ability to plant according to the demands of the market. Grassley said his bill helps farmers manage their income and smooth out the highs and lows of the commodity markets. "Right now, when prices are high, farmers often pay so much of their income in taxes that they're unable to save anything. When prices drop again, farmers can face liquidity problems. This bill would give farmers a tool to accompany freedom to farm."
Grassley is a member of the Senate Agriculture Committee and the tax-writing Finance Committee. He is chairman of the Senate subcommittee on international trade.