Farmers, ranchers, small business owners and chamber of commerce members talked taxes with North Dakota’s senators this week.
“From the farmer and rancher’s side, we’ve got to hang on to that stepped-up basis,” North Dakota Farm Bureau President Daryl Lies told Sen. John Hoeven, R-N.D., Thursday, laying out agriculture’s priorities when it comes to tax reform.
President Donald Trump has released an outline for proposed tax reform. It will be up to the Senate Finance Committee and House Ways and Means Committee to draft actual legislation, so North Dakota’s senators were back in their home state taking input from constituents.
Hoeven told attendees of his Bismarck roundtable event that the Senate will vote on a federal budget bill next week, needing 51 votes to pass it and including procedures that will allow tax reform legislation to then also pass with a simple 51-vote majority, rather than the usual 60 votes needed. And Republicans want to get it all done by the end of the year.
The House passed its 2018 budget resolution last week by a 219-206 vote. But there was some who split from their party, with 18 Republicans voting against the resolution, along with all the Democrats present.
The GOP used the same strategy for Obamacare repeal but failed. They are hoping for a better outcome with tax reform but with 52 Republican senators the Senate can’t afford defection.
Sen. Heidi Heitkamp , D-N.D., has expressed interest in working with Republicans as long as the plan is designed to benefit the middle class.
A recurring theme from roundtables she held to garner input was simplification of the tax code. The current proposal would consolidate seven individual tax brackets into three, with rates of 12 percent, 25 percent and 35 percent. Where lawmakers choose to set the income levels for those brackets could be one of the issues that makes or breaks support for the bill, both from Heitkamp and potentially from some Republicans.
“There is still a lot we don’t know about the president’s tax reform proposal, and we need more details to determine if it truly supports hard working North Dakotans," Heitkamp said in a statement.
For farmers, as well as other small business owners, the stepped-up basis loophole allows them to pass on assets to their heirs without those heirs being taxed for any increase in value that was realized on those assets. For example, a farmer dies and passes on farmland that is worth more today than it was when it was purchased. The farmer’s heirs get a step up to the land’s present value at the time of the farmer’s death without getting taxed for the increase in worth.
“That’s something in agriculture that we’re not willing to give up,” Lies said.
Keeping interest deductions was another priority, as was relief from capital gains tax.
Because producers use debt financing to purchase land and equipment, it is important to them to be able to take deductions on the loan interest. And when they have to pay capital gains tax after selling off animals or equipment to make it through a rough patch, it gives them less cash to pay back debts, Lies said.
Hoeven worked to set the farmers’ minds at ease, promising to work to keep the stepped-up basis and the interest deductions. He said where major negotiations may have to take place come in relation to efforts to eliminate the estate tax, deductions of state and local taxes and possible changes to business expense deductions.
The estate tax applies when the owner of an estate worth $5.49 million, double that for a couple, dies. A tax is paid on that wealth, which Republicans want to get rid of. According to IRS data the tax affected 15 North Dakota families in 2014, 19 in 2013, and 15 in 2012. In 2015, that number was less than 10 families.
Hoeven would also like to keep taxpayers from deducting the cost of state and local taxes, other than property tax, from their federal taxes.
And when it comes to deducting expenses, there is an offer that would allow for a deduction of all business expenses for five years. Current tax code allows deductions of up to half a million of the first $2 million in expenses. Hoeven said, to keep those expense deductions in place long term, he and other lawmakers from agriculturally dominant states are willing to let the other offer go.
Hoeven said he is not sure what other sticking points might be, both in passing the budget bill and passing tax reform, but when it comes to the budget, he’s hopeful any issues within his own party have already been worked through to get the needed votes next week.