Overview
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Federal tax policy plays an important role in the well-being of
farm and rural households and the viability of farm operations. In
recent years, Federal income taxes on both farm and nonfarm income
accounted for nearly two-thirds of the farmer's total Federal tax
burden, while Social Security and self-employment taxes represented
nearly a third. These taxes can have a significant effect on the
financial well-being of farm households, with impacts varying by
farm household type. Beyond a farm operation's income, the tax
code influences farm management and other decisions, such as
capital purchases and dispositions, and farm estate planning. The
tax code can also affect eligibility for Federal program payments,
because they are linked to measures of adjusted gross income
(AGI).
The Federal tax code can also have a significant impact on the
well-being of rural households. Rural households have lower
incomes and are more likely than urban households to live in
poverty, and the tax code assists low-income families through
refundable credits, particularly families with children.
ERS research focuses on the most important features of Federal
tax law and how they affect agriculture and the broader rural
economy, and analyzes the impact of significant tax reform and
other tax proposals. ERS also conducts research related to the use
of the Federal tax system for the delivery or targeting of farm
program benefits, including income caps for farm program payment
eligibility.
ERS research indicates that:
- Changes in Federal tax provisions affecting both individual and
business income taxes have reduced average tax rates for all farm
households, while increases in the amount of property that can be
transferred free of estate tax has greatly reduced the number of
farm estates subject to the Federal Estate and Gift tax and the
amount of tax owed.
- The expanded use of tax credits, such as the earned income and
child tax credits, has provided a substantial boost in income to
low- and middle-income rural taxpayers and has reduced the rural
poverty rate.