U.S. Agribusiness: Explore Future Possible Federal Tax Policies

With the 2024 U.S. national election concluded, the agribusiness sector is poised to experience significant changes. President-elect Donald Trump’s platform includes proposed changes to income taxes, renewable fuels policy, and the Farm Bill, which could have substantial implications for agribusiness producers, processors, cooperatives, and related businesses.

Any proposal must pass through Congress to be enacted. Now that the election is over, here’s what we know.

Corporate income tax reduction

One of the primary tax policy initiatives is reducing the corporate income tax rate. Building on the Tax Cuts and Jobs Act (TCJA) of 2017, which lowered the corporate tax rate from 35% to 21%, there could be plans to further reduce this rate to 20% and possibly 15% for companies producing products in the United States. This reduction aims to enhance the global competitiveness of U.S. businesses, stimulating growth, and at the same time deterring companies from relocating outside the United States.

For agribusiness producers with C corporations and cooperatives they work with, a lower corporate tax rate could translate into higher net profits and more patronage dividends. This increase in cash flow could provide more capital for reinvestment in critical areas such as technology upgrades, infrastructure improvements, and business expansion. Enhanced financial health could also lead to greater resilience against market fluctuations and economic downturns.

Individual income tax implications

Individual income tax policies also greatly impact agribusiness. Proposals include simplifying the tax code and reducing individual income tax rates, including making the expiring individual income tax cuts from TCJA permanent.

This could keep the top ordinary income tax rate for individuals at 37% and continue the qualified business income (QBI) deduction on individual business income, making the top rate on individual business income 29.6%. The QBI deduction passed through from coops to ag producers also would likely remain in effect.

Some other individual income tax plans include:

• No planned changes to the capital gain and dividend rates
• Possibly reinstating itemized deduction for state and local taxes with no caps
• Expanding the child tax credit to $5,000 per child
• Exempting Social Security income from taxation

For agribusiness owners who file taxes as individuals or through pass-through entities, these changes could result in lower personal tax liabilities.

Impact on small- and medium-sized agribusinesses

Small- and medium-sized agribusinesses — which often operate on thinner margins — could particularly benefit from reduced income tax rates. Lower taxes mean more retained earnings, which can be used to improve operations, hire additional staff, or invest in sustainable practices. This could help these businesses to scale and compete more effectively.

Ethanol and biodiesel/renewable diesel

Tax policies could also indirectly impact the renewable fuels sector, including ethanol and biodiesel/renewable diesel. Lower corporate taxes could provide more financial resources for agribusinesses involved in producing these renewable fuels, fostering further investment and innovation in this area.

Ethanol and biodiesel/renewable diesel production provide a significant market for crops like corn and soybeans. The growth of renewable diesel, which can be produced from similar feedstocks, has also been notable. These renewable fuels not only support farm incomes but also contribute to energy independence and environmental sustainability. Following income tax credits and policy changes related to biofuels by the administration will be important.

U.S. Farm Bill impacts

The new administration is expected to significantly influence the upcoming U.S. Farm Bill. The potential approach to the Farm Bill includes increased support for traditional farming practices and crop insurance programs. This could provide more stability for agribusinesses, especially during periods of low commodity prices or adverse weather conditions.

Additionally, there may be a focus on reducing regulatory burdens and increasing funding for agricultural research and development. These measures could enhance productivity and innovation within the sector, benefiting both large-scale producers and smaller family farms.

Additional tax proposals

Several other proposed tax policies that could impact agribusinesses:

• Universal baseline tariff — Imposing a 10% or higher baseline tariff on imports. This could protect domestic agribusinesses from foreign competition but might also lead to higher costs for imported goods and potential retaliatory tariffs.
• Tariffs on China — Trump has routinely said he would implement a tariff of 60% on imports from China and, occasionally, has remarked that a higher tariff rate is possible. This could further protect U.S. agribusinesses but might disrupt supply chains and increase costs for imported agricultural inputs. Additionally, U.S. ag products exported to China could face retaliation tariffs.
• Wealth and estate tax — Make permanent the expiring estate tax cuts from the 2017 Tax Cuts and Jobs Act ($13.6 million estate tax credit for 2024).
• Exemptions — Exempting tip income, Social Security benefits, and overtime pay from taxation. These exemptions could increase disposable income for workers.
• R&D expensing — Restoring the research and development expenditure deduction.
• Capital expenditures — Restoring the 100% bonus depreciation deduction.
• Business interest — Restoring the EBITDA based interest limitation.

Long-term considerations

While lower income taxes can provide immediate financial benefits, it’s essential to consider the long-term fiscal implications. Reduced tax revenues could lead to higher national debt and potential cuts in government services or subsidies agribusinesses rely on. The new administration is looking at replacing personal income taxes with increased tariffs. Balancing short-term gains with long-term sustainability will be crucial for the sector.

How CLA can help with federal taxes for agribusiness

Income tax policies under the new administration could significantly impact U.S. agribusiness producers, processors, cooperatives, and related businesses. It’s important for agribusinesses to stay informed and adaptable to navigate the evolving landscape. With so many potential changes on the horizon, it’s especially important to weigh different tax scenarios and strategies. Contact CLA’s agribusiness team for personalized assistance.