The political landscape for sweeping tax reform is ripe as the Presidential campaign heats up and 2012 tax sunset deadlines near. The top GOP candidates are calling for major tax changes before the clock runs out next year on lower rates for capital gains and estate taxes, both of which American Farm Bureau Federation Tax Specialist Pat Wolff says are important for agriculture.
"We have candidates supporting repeal," Wolff said. "We know the President has been on record supporting a 45% rate and a $3.5 million exemption."
That versus the current $5 million exemption and 35% rate, which is set to revert to $1 million and 55% after 2012. Wolff says the current 15% capital gains tax is also an issue on the campaign trail. The Administration has supported extending the current capital gains tax rates, but put a income threshold of $250,000, and above that they support increasing the capital gains tax rate.
"A farmer would almost certainly be above the threshold in the year they sold their business or made a large sale of property," Wolff said. "So even though a farmer and rancher might be under the threshold most years, it's highly likely that in the year that they do sell an asset that they would spike over the threshold and pay the higher amount."
Meanwhile the current lower rate reverts to 20% regardless on Jan. 1, 2013. Wolff says if Congress moves early enough next year comprehensive reform is possible but the need is there to resolve long-standing tax uncertainty for farmers and others.
"If you don't know how much taxes you are going to pay and what you are going to be taxed on how can you make business decisions that make sense," Wolff said. "So Congress needs to stop with the temporary extensions and figure out what tax policy is going to be so businesses have something they can count on."
Wolff complains that without action early next year, Congress might again face the prospect of a piecemeal end-of-year approach that further puts off a more permanent tax fix.