House Ways and Means Committee Finishes Markup of Tax and Spend Reconciliation Package
On Sept. 15, the last of the Authorizing Committees in the House of Representatives concluded their markups on the FY22 Reconciliation Spending Package and transmitted their respective bills to the Budget Committee. The bill must be consolidated and will have changes made by leadership before it heads to the floor for a vote by the full House, with a self-imposed deadline of Sept. 30.
A congressional budget resolution with reconciliation instructions provides for an expedited process to consider legislation that will change current law to affect one or more of: current spending, the debt limit, deficits, and tax revenue. It creates a privileged vehicle in the Senate that only requires a simple majority to pass and is not subject to the filibuster. This process has been used successfully twice in the last four years. Republicans used it to pass the Tax Cuts and Jobs Act in 2017, and Democrats used it earlier this year to pass the American Rescue Plan.
The bill contains $2.1 trillion in tax increases, $800 billion in budgetary offsets, and an estimate of $600 billion in Gross Domestic Product growth as a result of the policy changes contained within the bill to offset a total spending number of $3.5 trillion across all committees. While the elimination of the capital gains tax provisions known as stepped-up basis and 1031 like-kind exchanges were not included in the final bill, Farm Bureau continues to remain vigilant in making sure those tax provisions are maintained. At the same time, the bill did include several changes to estate tax law that are concerning. Farm Bureau is continuing to work with leaders in Congress to ensure this package is not paid for on the backs of farmers and ranchers.
This is a quick summary of the individual tax increases that may affect farmers and ranchers that were included. Estimates of the amount of revenue the provisions will raise in the first 10 years are in parenthesis. The final four all have to do with estate tax law.
- Individual Top Rates ($170b): Sec. 138201 increases the top individual income tax rate to 39.6%. The new rate would be effective for taxable years beginning after December 31, 2021.
- Capital Gains Rate Increase ($123b): Sec. 138202 increases the top capital gains rate from 20% to 25% (which under current law does not apply to anyone earning less than $400,000). The amendments made by this section would apply to taxable years ending after the date of introduction of this Act. A transition rule provides that the preexisting statutory rate of 20% continues to apply to gains and losses for the portion of the taxable year prior to the date of introduction. Gains recognized later in the same taxable year that arise from transactions entered into before the date of introduction pursuant to a written binding contract are treated as occurring prior to the date of introduction.
- Net Investment Income Tax ($252b): Sec. 138203 expands the net investment income tax to cover net investment income derived in the ordinary course of a trade or business for taxpayers with greater than $400,000 in taxable income (single filer) or $500,000 (joint filer), as well as for trusts and estates. The provision clarifies that this tax is not assessed on wages on which FICA is already imposed. The amendments made by this section apply to taxable years beginning after December 31, 2021. This provision makes the effective top capital gains rate 28.3%.
- Section 199A Restriction ($78b): Sec. 138204 amends the Section 199A Small Business Deduction by setting the maximum allowable deduction at $500,000 for joint filers, $400,000 for individual returns, $250,000 for married filing separately, and $10,000 for an estate or trust. The provision would take effect for tax years beginning after December 31, 2021.
- Limitation on Excess Business Losses for Non-corporate Taxpayers ($167b): Sec. 138205 extends the revenue raiser in the American Rescue Plan to permanently disallow business losses beyond a taxpayer’s business income. The provision allows taxpayers whose losses are disallowed to carry those losses forward to the next succeeding taxable year. The provision currently applies until 2027. The change makes the provision permanent.
- Estate Tax Exclusion Limits ($50b): The TCJA doubled the estate and gift tax exemption to $24,000,000 for married filers. The provision is currently scheduled to expire on December 31, 2025. Sec. 138207 moves the expiration date up to December 31, 2021, meaning the estate tax exclusion limits would be $5 million/person, $10 million/couple (indexed).
- Treatment of Grantor Trusts ($7b): Sec. 138209 changes the estate and gift tax rules that apply to grantor trusts so that they are more like the income tax rules. In general, a grantor trust is a trust where the person putting assets into the trust controls it so closely that they’re treated as earning the income from the trust directly. This provision applies only to future trusts and future transfers. This provision also taxes a sale from a grantor trust to its owner the same way as a normal sale of assets.
- Modifications to Estate Tax Valuations ($20b): Sec. 138210 changes the valuation rules to ignore discounts from partial ownership or lack of control of an asset in determining its value. This rule applies only to assets that are not used in a business. This provision is limited to passive assets, so these discounts are still permitted for family farms and businesses in the same way as current law.
- Expanded 2032A Special Use Valuations: Sec. 138208 amends section 2032A to increase the special valuation reduction available for qualified real property used in a family farm or family business. This reduction allows decedents who own real property used in a farm or business to value the property for estate tax purposes based on its actual use rather than fair market value. This provision increases the allowable reduction from $750,000 to $11,700,000.
Legislature Must Uphold Rural Voice in Redistricting
Preserving the rural voice in the Nebraska Legislature doesn’t just help rural Nebraska; it helps all Nebraska. That was the message Nebraska Farm Bureau First Vice President Sherry Vinton delivered to the Nebraska Legislature’s Redistricting Committee during a series of public hearings this week. Vinton, a rancher from Arthur County, testified before the committee on behalf of Nebraska Farm Bureau, driving home the point that while population trends continue to move from rural areas in greater Nebraska to urban and suburban areas around Lincoln and Omaha, it is vital for the state to make sure that rural issues have a place of prominence in Congress and the Nebraska Legislature.
Fischer Introduces Legislation to Expand Farmers’ Access to Precision Agriculture Equipment
U.S. Senator Deb Fischer has introduced the Precision Agriculture Loan (PAL) Act. The bipartisan legislation would create a program within the U.S. Department of Agriculture (USDA) to provide loan financing to farmers and ranchers interested in purchasing precision agriculture equipment. Precision agriculture is a wide range of new technologies in farming and ranching that can allow producers to reduce their environmental footprint, lower costs, and improve productivity. This would be the first federal loan program dedicated entirely to precision agriculture. Instead of paying upwards of 5 percent in interest, producers would be eligible for interest rates lower than 2 percent through the new program with loan terms from 3 to 12 years in length.
USDA Asks for Input on Lab-Produced Meat and Poultry Labeling
Recently, USDA’s Food Safety Inspection Service (FSIS) published an advance notice of proposed rulemaking (ANPR) to solicit comments and information regarding the labeling of meat and poultry products made using cultured cells derived from animals under FSIS jurisdiction. FSIS will use these comments to inform future regulatory requirements for the labeling of such food products. Comments are due to USDA on Nov. 2, 2021.
This announcement comes following a March 7, 2019, USDA and FDA announcement of a formal agreement to jointly oversee the production of human food products made using animal cell culture technology and derived from the cells of livestock and poultry to ensure that such products brought to market are safe, unadulterated, and truthfully labeled. Under the agreement, FDA will oversee cell collection, growth, and differentiation of cells. FDA will transfer oversight at the cell harvest stage to FSIS. FSIS will then oversee the cell harvest, processing, packaging, and labeling of products. FDA and FSIS also agreed to develop joint principles for the labeling of products made using cell culture technology under their respective labeling jurisdictions. Seafood, other than Siluriformes fish, falls under FDA’s jurisdiction, whereas meat, including Siluriformes fish, and poultry are under FSIS’ jurisdiction.
The ANPR is requesting comment on specific topics to be considered during rulemaking related to statutory and regulatory requirements for the labeling of these meat and poultry products: consumer expectations about the labeling of these products, especially in light of the nutritional composition and organoleptic qualities (taste, color, odor, or texture) of the products; names for these products that would be neither false nor misleading; economic data; and any consumer research related to labeling nomenclature for products made using animal cell culture technology.
Nebraska Farm Bureau intends on submitting formal comments in the weeks ahead. If you would like further information or would like to submit comments, please click here.