Grassley said his amendment would assist farmers across the nation. "In the midst of one of the worst farming crises we've seen, in addition to the estate tax repeal, it seems to me we ought to be doing everything we can to help farmers survive," Grassley said. His tax relief amendment includes the following:
- FARRM Accounts. These farmer-savings accounts would allow farmers to contribute up to 20 percent of their income in an account, and deduct it in the same year. FARRM accounts would be a very important risk management tool that will help farmers put away money when there's actual income, so that in the really bad times there will be a safety net. This Grassley-sponsored measure enjoys strong bipartisan support and was approved last year as part of the Taxpayer Relief Act which President Clinton vetoed.
- Reversing unfair IRS decisions on self-employment tax for farmers. Grassley said farmers who participate in the Conservation Reserve Program are unnecessarily struggling during tax season because of a recent case pushed by the IRS. The latest 6th Circuit Court's ruling treats CRP as farm income subject to the additional self-employment tax rate of 15 percent. Sen. Sam Brownback of Kansas has taken the lead on fixing this problem. This unfair tax not only ignores the intent of Congress in creating the CRP, it discourages farmers from using environmentally pro-active measures. "At a time when farmers are struggling to regain their footing economically and do the right thing environmentally, it's important that Congress support them by upholding its promise on CRP," Grassley said.
In addition, this portion of the amendment includes a Grassley provision to reverse an IRS attempt to apply the self-employment tax on farmer's cash rental income.
- A tax deduction for farmers to donate to food banks. Sen. Richard Lugar of Indiana has led an effort to expand the current program where companies can donate to food banks so that farmers can donate surplus food directly to needy food banks. His proposal is included in the tax relief amendment. Grassley said it would be "a win for the farmers and a big win for people who depend on food bank assistance."
Specifically, the Hunger Relief Tax Incentive Act would make changes to the federal tax code that could greatly enhance the ability of local food pantries, homeless shelters and non-profit organizations to stock their shelves and help feed hungry families. It would let farmers, restaurant owners and small businesses take advantage of the tax deduction for food donations now available only to corporations. It would increase the tax deduction for donated food to include expenses incurred by the business owner or farmer. And it would let those donating the food and groceries to deduct the fair market price.
"Every year, 96 billion pounds of food goes to waste. We need to encourage new and existing food donors to contribute to the campaign against hunger," Grassley said.
- Income averaging for farmers who are caught in the Alternative Minimum Tax. This provision also was part of last year's vetoed tax bill. When Congress approved passed income averaging for farmers a few years ago, it neglected to take into account the problem of running into the alternative minimum tax, which many farmers are facing now. Grassley said this amendment will fix this growing problem.
- Expansion of first-time farmer loans, or Aggie Bonds. The amendment expands opportunities for beginning farmers who are in need of low interest rate loans for capital purchases of farmland and equipment. Current law permits state authorities to issue tax exempt bonds and to loan the proceeds from the sale of the bonds to beginning farmers and ranchers to finance the cost of acquiring land, buildings and equipment used in a farm or ranch operation.
Unfortunately, Aggie Bonds are subjected to a volume cap and must compete with big industrial projects for bond allocation. Grassley said Aggie Bonds share few similarities to Industrial Revenue Bonds and should not be subjected to the volume cap established for IRBs. Insufficient allocation of funding due to the volume cap limits the effectiveness of this program. "We can't stand by and allow the next generation of farmers to lose an opportunity to participate in farming because of competition with industry for reduced interest loan rates," Grassley said.
- Repeal of the installment method for certain small businesses. The amendment would repeal a law that was passed at the end of last year that's had a very negative effect on the small business community. Grassley said repeal of this draconian installment sales method is one of small businesses' biggest priorities.
- Farmer Co-op initiatives. Recently the IRS determined that some cooperatives should be exposed to a regular corporate tax due to the fact that they are using organic value-added practices rather than manufactured value-added practices. "This is unfair, and needs to be fixed," Grassley said. In addition, he said that small cooperative producers of ethanol should be allowed to be able to receive the same tax benefits as large companies. The amendment addresses these problems. Overall, Grassley said this amendment "would do more for the American farmer regarding taxes than any measure in recent memory."