Guest column submitted by U.S. Senator Mike Crapo
A major problem with the U.S. economy is a drought in capital investment. This problem is worsened by the uncertainty of the U.S. tax code. However, when businesses and individuals are confident enough to invest, unemployed Americans will be put back to work and consumer spending will come back to life. Action to make permanent the current tax rates on capital gains and dividends would help restore this confidence and encourage the investment and job creation needed for economic growth.
As noted by the Congressional Research Service (CRS), initial confusion with the taxation of capital gains income has led to almost 100 years of legislative debate, and capital gains tax rates have changed constantly since the establishment of the income tax. If Congress does not act before the end of next year, tax rates on capital gains and dividends will change again, through a scheduled increase. Working together to make the current tax rates on capital gains and dividends permanent will decrease some of the uncertainty in our nation's current tax code.
Representative Peter Roskam (R-Illinois), Chief Deputy Whip and member of the House Ways & Means Committee recently joined me in introducing legislation in both the U.S. Senate (S. 1647) and House of Representatives (H.R. 3091) to permanently keep the capital gains and dividend tax rates at 15 percent. This legislation is needed to avoid the impending tax hike that would particularly affect American businesses, seniors and investors of all sizes.
The agriculture community is among those especially vulnerable to the capital gains taxes due to the significant long-term investments in land and buildings needed for production. Such assets that are often held for long periods of time usually appreciate in value significantly. In a report regarding how federal tax policies affect farm households, the U.S. Department of Agriculture's Economic Research Service (ERS) noted that capital gains are a key component of income for many farmers. ERS reported that "according to the Internal Revenue Service, 40 percent of all farmers report some capital gains, nearly double the share for all taxpayers," and "the average amount of capital gain reported by farmers is about 50 percent higher than the average capital gain reported by other taxpayers."
While expressing support for our legislation, American Farm Bureau Federation (AFBF) President Bob Stallman indicated that the imposition of higher capital gains rates makes it difficult for many family farms to shed unneeded assets to generate revenue to adapt and upgrade their operations and obtain land, buildings and animals needed to stay efficient. Additionally, high capital gains tax rates threaten the transfer of land to the next generation of farmers and ranchers. This is especially devastating for the thousands of our nation's family farms that are struggling to stay solvent amid the current economic climate.
AFBF is joined by a broad coalition of more than two dozen other American businesses and organizations in supporting our legislation. This support and continued input to Congress and the Administration on the need to keep these tax rates low will be instrumental in pushing this legislation over the finish line.
Pro-growth tax policy that will generate investment, capital formation and job creation is critical to reversing the uncertainty and sluggishness in our economy. Providing certainty for farmers and ranchers, along with other business owners and investors, starts with the guarantee of fair and competitive tax reform. That reform starts by stopping increases in capital gains and related investment taxes. Congress needs to adopt pro-growth tax reform, and extending the current capital gains and dividend tax rates will help address both the short and long-term needs of our economy.
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