Daily Debunk: Most farmers gain in Fair Tax
Center for Tax and Budget Accountability debunks resistance from Illinois Farm Bureau
The vast majority of Illinois farms would benefit from the Fair Tax, according to a new study by the Center for Tax and Budget Accountability. (One Illinois/Ted Cox)
By Ted Cox
In spite of resistance from the Illinois Farm Bureau, the vast majority of Illinois farms would benefit from a graduated income tax, according to a new study from the Center for Tax and Budget Accountability.
The study, released last week, examines the almost 73,000 farms across the state for the 2017 tax year, finding that about two-thirds, 48,000, turned a profit averaging $118,000, while slightly more than a third, 25,000, suffered a loss averaging just over $24,000.
Those suffering losses would pay no taxes and would obviously benefit from the added revenue and farm services the state could offer from the estimated $3.4 billion in revenue to be brought in through the progressive income tax, with rates already set so that only the top 3 percent of taxpayers making more than $250,000 pay more than the current 4.95 percent flat tax, up to a top bracket of just under 8 percent for those making more than $1 million a year.
But the study breaks farms down further into three groups: traditional family farms, called sole-proprietor farms; small-business farms, where profits are sometimes shared between multiple owners or shareholders; and corporate farms, licensed as a corporation.
The study emphasizes that, any other agricultural-oriented tax breaks aside, farms are treated no different from any other small business or corporation. Both sole-proprietor farms and small-business farms pay individual income taxes on any profits, while corporate farms, like any corporation, will see their basic tax rate rise from 7 percent to the same 7.99 percent paid by million-dollar earners.
But the vast majority, 61,000 farms, or about 85 percent of the total, are owned by sole proprietors, about a fifth of those shared by multiple households (think of a multigenerational farm family). In 2017, 39,000 of those farms turned a profit, averaging $98,000, while 22,000 declared losses, averaging $20,000. The latter would pay no taxes, while among those showing profits, at a $98,000 average, few would top $250,000 to pay a higher rate. The study estimated the average tax rate for a family farm at 4.88 percent, slightly below the current 4.95 percent flat tax.
The almost 5,000 small-business farms make up 6.3 percent of the total, and in 2017 3,500 turned a profit, averaging $225,000, while just over 1,000 posted losses, averaging $55,000. Again, the average suggests that most of the profitable farms would not top the $250,000 threshold, and the study points out that many small-business farms have multiple owners or stockholders, so that even that average $225,000 profit was oftentimes split up, with the revenue claimed by each individual owner as a “pass through,” same as with any other small business. Again, the effective average tax rate was 4.92 percent, below the flat tax.
The study reemphasized that many family farms and small-business farms have multiple owners, making it even less likely they’d pay a higher tax rate, and it went on to state: “This only reinforces that most sole-proprietor and small-business farms that experience profits in a given year would see some tax relief.”
“Since the tax increases under the Fair Tax would impact few sole-proprietor and small-business farms in Illinois, those farms would not only benefit from the tax relief but would also benefit from the revenue raised by the Fair Tax.”
The 4,000 corporate farms remaining make up 5.5 percent of all Illinois farms, and in 2017 3,000 made a profit, averaging $287,000, while 1,000 posted losses averaging $74,000, and of course were liable for no income taxes. The profitable farms would pay on average $2,800 more in taxes in the hike of the corporate rate from 7 to 7.99 percent. So if corporate farmers have a problem, it’s with that accompanying tax hike, not the actual Fair Tax Amendment, which only allows the state to impose a graduated income tax.
The monetary gains for smaller farms were minor, averaging about $65 a year for both family farms and small-business farms, but the study stressed larger gains to be had from adopting a progressive income tax and adequately funding farm programs and the Department of Agriculture.
“If implemented, the Fair Tax legislation can be expected to help Illinois’s private-sector economy — like farming and agriculture — recover more quickly from the current downturn, and grow faster after this recession ends,” wrote study author Allison Flanagan, the center’s director of policy analysis. “That’s because an increase in tax revenue from the increase to the corporate tax rate and increase in tax rates for the top 3 percent of income earners in the state would mean Illinois could avoid spending cuts on public services. For example, the Illinois Department of Agriculture would benefit from Fair Tax revenue because General Fund revenue already provides public-service spending of about $17 million for promotion of farm sales, infrastructure, inspections, and many other vital programs to aid in farm operation. If the Fair Tax does not pass, Illinois’s contingency plan is to increase the flat-rate income tax for all residents or cut services spending, both of which would hurt sole-proprietor and small-business farms far more than the Fair Tax.
“Since the tax increases under the Fair Tax would impact few sole-proprietor and small-business farms in Illinois, those farms would not only benefit from the tax relief but would also benefit from the revenue raised by the Fair Tax.”
The Illinois Farm Bureau has formally urged its members to vote against the Fair Tax Amendment, but its arguments fall back on much of the same conservative, anti-tax dogma that has already been debunked, such as its pronounced “reality” that “rates will have to be increased on the middle class, to keep up with Springfield’s spending,” a scare tactic imagining would could conceivably happen instead what a graduated income tax actually accomplishes.
The center’s study suggests that the vast majority of Illinois farmers would be voting against their own self-interests if they reject the Fair Tax Amendment.