I completely agree, Dale, that this is something that is a significant
issue that is going to have to be addressed. I had a briefing this
past week before we came home from Washington, actually last
week, regarding this whole biotech issue, and, of course, it is ex-
tremely important for this university, and I see some folks here
that have been right on the cutting edge on biotechnology, and in-
terestingly, again going to you, David, you know, with BT Cotton,
and I recognize that there is cotton seed oil that you actually in-
gest, but I said surely a goodness because this is something we
wear, external fibers that there is not the controversy about biotech
cotton. And they said, believe it or not, in England——

Mr. BLAKEMORE. Marks & Spencer.

Mr. HULSHOF. They are calling it—instead of Frank & Foods,
they are calling it Frank & Pants to create this controversy about
biotech cotton, even though we have fibers that we don’t ingest,
and so I think—I clearly think this is an issue that we are going
to have to address.

Now for the tough one, You know, my good friend from one of
the local print media that had a deadline and had to leave, I recog-
nize an editorial in that esteemed newspaper some months ago in
talking about the Farm and Ranchers agement account, gave
me the title “Hulshof the Tax Fiddler,” was the title for the edi-
torial. And the thrust of the editorial was, and the question I ask
you is, why is it that farmers need this special break? We don’t do
it for the shoe industry. We don’t do it for the steel industry. Why
is it, then, that you, Richard, or any of you, I am not just singling
you out, but what answer would you give or what would you give
me as ammunition to those naysayers that say, why are we carvin;
out this special tax treatment for farmers or ranchers, what woul
be your response?

Mr. ERISMAN. The big thing that jumps at you is that none of
those other industries are 100 percent or at least 90 percent de-
pendent on what mother nature does on the weather. That is the
one variable that a farmer can only control if he has got some irri-
gation for rainfall, but he can’t control it if he has got too much
rain, if he has got a flood, he has got all of those variables that
are beyond his control.

You can control the input you put in the ground yourself, you can
control what you pay for the things that you are buying, the trac-
tors and the breeding stock and the roof over your head and all of
those things, but you cannot control the weather. And if this coun-
try is going to have an abundance of good, quality, nutritious and
cheap—and I emphasize the word “cheap,” I should say inexpensive
because cheap is the wrong connotation, inexpensive food, we pay
less than 12 percent of our income out for food in this country and
if we are going to continue to have that, we have got to have farm-
ers that are willing to take risks. And you have got to have some-
thing behind that to back it up, something to know that when you
got more rain than you can use or not near enough, that there’s
some funds available that you can draw on to continue to live to
try again next year.

Mr. HuLsHor. In fact, let me propose this hypothetical to you.
Let’s say that the Environmental Protection Agency through the
Missouri Department of Natural Resources came out to your farm


Statement of the
Missounl Soybean Association

to
‘The House Committee on Small Business
‘The Honorable James Talent, Charman

Hearing on
“Smail Farm Tax Burdens”
August 10, 1999

Oral Statement

by
Dole R. Ludwig, Executive Director/CEO, Missouri Soybeon Association

The Missourt! Soybean Association would like to thank you for the opportunity to testify «
on farm tox related issues here this morning.

There are indeed many uncertainties associated with production agriculture. To list just
afew, they would include weather, prices, ag pollcy. goverment regulation, and the
{ist could continue on.

tapplaud your efforts in addressing tax issues fo stabilize production agriculture as well
‘Gs small businesses in every way possible.

The Missouri Soybean Association as well as the American Soybean Association are on
fecord as supporting the Farm and Ranch Risk Management [FARMM] bill. Previous
evaiiation by the joint committees on taxation estimates that FARMM would save
formers and ranchers $500 million over 5 years and $900 million over 10 years. This is one
way that we could help stabtize agriculture,

We need only go back to 1997 to a much more prosperous time in agriculture.
Soybeans were priced in Chicago at well over $8 and most all of agriculture was much
healthier thon today. That was a time when farms were profitable and an excellent
lime for producers to have a program allowing them to put up to 20% of their farm
income info an account that would not be taxed. Tha! would allow them to prepare
for what has seemed to be a inevitable period of time when they ore no longer in the
black ond ore required to use assets that they have saved, or in many cases borrow
additional dollors, Just fo continue to operate.

The FARMM program would be extremely helpful in allowing producers to help
themselves, leveling farm income and giving them o sofeguard during difficult
‘agricultural periods ike we are In now.


FARRM accounts that have been discussed among policymakers
would generally conform with the special account concept cotton farmers
have supported. As you know, profitable years are getting further and
further apart, it is becoming more and more important to have provisions to
let farmers take advantage of such years. Thanks to the leadership of
Representative Hulshof and Chairman Talent, a bill addressing this
fundamental need was added to the tax package which passed last week.

While we have sought unlimited entries into FARRM accounts, we
understand that budget implications serve to limit what is politically feasible.
The 20% which is allowed in the tax measure just passed will be most
helpful to many farmers if signed into law. 1 would add that we appreciate
the leadership of Representative Hulshof in keeping restrictions on what can
be done with the accounts to a minimum and making them as easy as

possible to set up.

With the concurrence of all other segments of the U.S. raw cotton
industry, producers also support other tax measures, including: the
continuation of income averaging and legislation to accelerate the timetable
for 100% deductibility of health insurance premiums paid by self-employed
individuals.

Thankfully, these cotton industry concerns have also been addressed
in recent legislation. Omnibus legislation passed last year made provisions

for income averaging permanent.


Statement of the
Missouri Cattlemen's Association
To
The House Committee on Small Business
The Honorable James Talent, Chairman
Hearing on
"Small Farm Tax Burdens”
August 10, 1999

Oral Statement

John Cauthorn, President Elect, Missouri Cattlemen's Association

MCA is proud to be able to provide for you this facility for listening to ours and other
views about some of the issues that affect each and every one of us in agriculture. We
believe that the issues being addressed here today are an important part of the solution to
agriculture's current and future dilemmas related to profitability. Government certainly has
a place in our industry. We believe that the best place for that government is in opening
the doors that allow us to control our own destiny. We as Missouri cattlemen have been
able to avoid most of the complications of government assistance. Our number one desire
from government is to ailow us to do the job we know that we can.

We believe that our success will help the grain producers and merchandisers, the animal
health professionals, livestock markets and all those that we depend upon for our
livelihood. Changes that can be sustained and that make economic sense will benefit all of
those in agriculture. Real and sustained improvements in the rural sector may only be
possible with changes in those programs that limit our ability to utilize our income in the
most effective manner.

Our long-term interests obviously are focused around our concerns with the "Death Tax"
and the restraints that it places on us in our vision for our cattle operation. Put yourself in
my position and imagine that you operate a medium-size diversified grain and livestock
‘operation. At the end of my life the current "Death Tax" laws will take the equity that is
the profit in my operation and divide it between my heirs and my government. In turn my
heirs will begin their farming experience with a shortage of equity. That shortage will
prevent them from maximizing the potential from the farming operation. The process then
repeats itself when they again will have to split that equity between the next generation of
farmers and the next generation of government programs funded by the taxes collected.

The alternative would be that my children would be able to take advantage of my years of
hard work and to build upon the history of our family farm. To be able to withstand the
ebbs and tides of the marketplace all while investing in their own future. That investment
in a family farm means local grain dealers and merchandisers, animal health professionals,


of doing that becomes much smaller than it looks originally on the
surface.

The other things that happens, if we do it correctly, if we move
those soybeans into the right countries, we not only help some peo-
ple that have serious problems as far as food needs, but we also
will be able to long term build markets around the world. If we
move soybeans into countries that 5 years from now when—their
economies will be better, they will have cash to buy products, then
they will be familiar with what they can do with some of these soy
products, not just soybeans, but soy flour and isolated soy proteins
and some other products as well.

And as a result of that, we lower the carry out and we don’t
spend the next 5 or 6 years trying to work out of a mountain of
soybeans that we have today. So that is the advantage. The costs
are much smaller than they appear on the surface because of the
offset in deficiency payments.

Longer term we see a couple of other things that we need to do.
In the commodity bean market, we have worked with, along with
corn growers and a number of other people, alternative uses for
these crops. We are at a stage right now where we think that we
will have two commercial products that will come out every year
for the next three or four. We need some things like tax credits,
we need support from the Small Business Committee to turn these
things into real products and real businesses. That is not just good
for agriculture. That is good for small businesses in the State of
Missouri as well as the general farm economy and the economy in
general. So if there are ways that the Small Business Committee
can address that issue, we certainly would be supportive and ap-
preciative of that.

The other thing that we need to or something—that we have
worked hard the last 2 years at trying to set Missouri up as being
a State that can participate in the identity preserve soybean mar-
ket. Initially, that is food beans that would primarily go to Asia,
but longer term it has to do with a number of different products
that are developed with biotechnology, which is why the whole
GMO issue is so critical.

It is one that we are going to have to work throu; ih. Certainly,
we need the export markets that we have, especially when you
think about soybeans. Every other row, 50 percent, of all the soy-
beans that we grow we export, we move somewhere else. So that
at any time we are having exports reduced or stopped as a result
of GMOs, it is a serious issue. But I think that is part of what it
is, a trade issue especially with Europe, and we have to approach
it as being that.

The other thing i in our green-peace groups across the country are
working very hard at creating a problem so that they can ask for
money to solve it. If you take a look at the products that happen
to be on the market now are really insignificant as to what bio-
technology is going to do long term. The one for soybeans happens
to be Roundup Ready Soybeans today. The other interesting thing
about Roundup Ready Soybeans, that they have been working and
researching Roundup Ready Soybeans for 15 years. It isn’t like it
came on the market 3 years ago and nobody knew anything about
them. We have also worked through 3 years now, and have you


MISSOURI DAIRY ASSOCIATION

1954 Sumer Ridge Court ~ Chesterfield, Missouri 63017 + (636) 5199300
Fax (636) 519-1403 + email MODairy@uol.com

‘Testimony before the House Committee on Small Business
Small Farm Vax Burdens
August 10, 1999

Columbia, Missouri

Good morning! I'm Rich Palmer, president of the Missouri Dairy Association (MDA) and a dairy
farmer from Old Monroe, just north of St. Louis. MDA represents 1700 dairy farmers in the state
of Missouri.

‘We are pleased to address several subjects before you today which are constant burdens to our
members. Bach dairy farm is a small business! So many rely on us such as veterinarians, milk
haulers, farm equipment dealers, seed dealers, electric cooperatives to name a few--every
day--365 days a yeas--not to mention our dairy cooperatives and processors.

Our end product is a cheap, wholesome, constant supply of calcium and nutrients in the form of
milk for Missouri’s consumers.

‘Bur dairy farming isan endangered species in Missouri. We've lost 1,100 dairy farms since
1988. When you lose the farms, you lose the producer and the cows, and

supply. Missouri is almost a billion pounds of milk chart now to supply the uid and
product aeeds of our growing population.

There are many reasons why we ve lost those farms. Price volatility is one of the biggest
reasons, We feel the proposed Farm and Ranch Risk Management Act (FARRM Accounts)
would hepa gest dau, The end of et year sew anal tine high smi pic for frmers bt by
April we experienced a 40% drop in income-~

‘The short lived good prices only allowed us to catch up on some feed and vet bills.

Deferring taxes on up to 20 percent of net farm income saved in a FAARM account would’ve
been a great too! to have had for some of the income we experienced last fall MDA supports
your efforts to provide this new risk management tool.

Passing the farm on is another reason. Your efforts to phase down and eventually repeal estate,
gift and generation-skipping transfer taxes in 10 years can not happen soon enough for Missour’s
dairy producers. Many are over 55 now and trying to entice their family to continue in the dairy
business more


Missouri Pork Producers Association

WORKING FOR MISSOURI PORK PRODUCERS SINCE 1

House Committee on Small Business
Regardiog Small Farm Tax Burdens
Tuesday, August 10, 1999
Colurabis, Missouri

Congressman Hulshof, Congressman Talent, my name is Rick Rehmeier, My family elong with my
parents and brothers family operate a diversified farm near Augusta, Missouri with primary coterprises
being pork and crop production. I am past president of the Missouri Pork Producers Association and I
am here today to testify on their behalf,

‘Without question, we in agriculture are enduring some of the most trying times in history. We
understand that there are a variety of reasons that lead to the challenges we currently face and We
appreciate your interest to listen, learn and take action in some key areas that can be of assistance.

Fin otk producers have and cntinucto suport effonato esis the FARM accounts ogra.
is unfortunate that this program hasn't been in place during the past few years, it's extremely
Inporane that we make every effort to pass this measure, which is of utmost importance to all of
sgriculure.

Pork producers are also long-time supporters of efforts to eliminate or repeal the death tax wich in
many cases forces families to scll the fanm in order to pay taxes rather than pass it on to the next
generation.

Capital gains taxes also create an unfair burden for farmers who have worked for years to build equity in
their operations. Capital gains tax implications continue to make it difficult for farmers to sell or transfer
farming operations to youtiger farmers without incurring prohibitive tax consequences, In essence, the
capital gains tax discourages sucess and it should be dramatically improved upon if not eliminated.

Farming is an extremely competitive business with new challenges at seemingly every torn. Whether it
‘be Crought conditions, low commodity prices, or a host of other concems, agriculture is difficult at best,
‘The additional burdens of the desth tex and capital gains taxes compound our business even morc,
Considering the many challenges we face, relief in these two areas is extremely important. Again, we
urge the US Congress to press forward with repid and meaningful reform.

Another area of significant importance relates to the farmer's inability to deduct 100% of health
insurance costs. While some progress has been made in this area, farmers continue to be at a
disadvantage when compared to other businesses that enjoy full deductibility of health insurance costs.

8235 WEST CUNNINGHAM RIVE
:StuM


While succession planning has received considerable attention as a key to long-term family
business success, issues surrounding ownership transition - particularly liquidity problems
associated with paying estate taxes - have been largely overlooked. Families in business
lend to concentrate much of their wealth in the business, often keeping assets in the
estate(s) of the founding generation. This long-term, “patient capital" approach serves
many family businesses well -- until the death of the founder. At that point, the
concentration of wealth in the family business can create a significant liquidity problem.
Assets are often deployed in a long-term manner, and family business stock frequently has
little, if any, marketability. The impact of death taxes is certainly not unique to families in
business. However, businesses with widely dispersed ownership are not as vulnerable to
the taxes imposed on the death of any single owner. In such cases, where a relatively small
portion of the company's assets is at stake, remaining owners are more likely to be able to
provide liquidity to one group of heirs. This option is much more difficult in cases where
ownership is highly concentrated in the estates of only a few owners.

The financial aspects of estate taxes and planning burden family firms in several ways:

© They drain resources from the family and the business when taxes come duc

They consume time and money spent in plannin;

© They force families to make decisions which are in conflict with business growth.
Rather than reinvesting in the growth of their businesses, they focus on generating
liquidity to pay the expected death tax burden. The less liquid the assets of the family
business, the greater the impact of death taxes -- and the less that families can do to
minimize that impact.

© They place family agri-businesses in a virtual no-win situation when death taxes come
due. Estate taxes are particularly burdensome to those with a high proportion of land
in their family business assets. While the value of the estate may be driven by the
current value of the land, the only way to realize this value quickly is to sell the land.
In selling the land, the family dissolves the family business.

¢ Having reached $978 billion, farm assets are believed to have exceeded $1 trillion in
1997, Farm land represents a large portion of these assets.13 At the same time, 47%
of farm and ranch operators are 55 years or older.14 As the assessed value of farmland
continues to increase, many heirs of these farmers and ranchers may be faced with the
need to sell the family farm in order to pay the death tax bill.

Estate taxes dramatically alter decision-making processes in family firms, Estate taxes
represent the primary government-imposed barrier to long-term family business survival
and growth. Ina study of more than 700 family businesses which had failed in the past
three ycars, the heirs most often attributed business failure to inadequate estate planning.

While more than three in four of the founders in this study had an estate plan in place,
these plans turned out to be severely flawed. They neither minimized estate tax liability nor
provided liquidity to pay the tax. The data presented in this report also indicate that death
taxes represent a significant past, present and pending burden to many of the firms studied.


force us to make investments and retain investments in ways that
aren’t always in our best interests.

Investments in breeding livestock and the production of seed
stock for your own operation have become a nightmare. The result
is a shrinking Missouri seed stock industry and less than optimal
business decisions on the part of the producers that support that
industry. Again, we believe that lowering and eventually elimi-
nating the capital gains tax would allow those dollars to freely
move in our communities generating jobs, economic development
and improve stability in the farm economy at every turn. My pur-
chases of seed stock, equipment, inputs and supplies, and my in-
vestments, must be based on sound business principles. Capital
gains does not help me accomplish that goal.

Agriculture is a business. Missouri Cattlemen’s Association be-
lieves that Congress should address our needs and our industry
just like a business. We hope that continued efforts to give agri-
culture the same benefits as traditional businesses are successful.
Our health insurance and other business-related expenses are just
as important as any other small business. We don’t believe our
sole-proprietor oriented structure should preclude us from the same
deductibility levels that a more traditional small business may op-
erate under.

Programs such as Representative Hulshof’s proposal to provide
farmers with FARRM accounts seems to be a tremendous step in
the right direction. The FARRM account would again allow us to
manage our income levels in the most efficient manner. All of us
in agriculture know that we will have both highs and lows in the
market. Supply and demand will also be a harsh truth for us to ex-
pect. This tool and others like it will allow us to manage our affairs
with our long-term goal of continuing our family farming oper-
ations is a great door for you to open for us.

I would like to close by stating our appreciation for you offering
this opportunity to speak. We know that you have supported our
desires in the past, and we hope that you continue to work together
in the future.

I would like to comment on Mr. Talent’s earlier comment about
the percent we're paying as a nation in the taxes. You know, his-
tory states that if we pay over 40 percent of our income as tax-
payers, that that nation is doomed for failure. It is a matter of
time. And as far as the ag community, you know, I think there was
some questions alluded to marketing. I think the ag community
needs to be more focused on marketing. We need to take more
share of the pie, and we can use some help from the government
for that.

Thank you, gentlemen.

[Mr. Cauthorn’s statement may be found in the appendix.]

Chairman TALENT. Thank you, John. I will resist the opportunity
to comment except to say that I agree with you completely.

All right. Rick Rehmeier of Augusta, who is the past President
of the Missouri Pork Producers Association. Rick, thank you for
being here.



Our current FARMM program {sa good one, Freedom to farm and growing for the
markets are a practical way to approach operating an industry like agriculture,
However, | think It ls also important to note that when you grow for the market, you
hove to have access to the market. One of the things that agriculture has been
denied, specifically soybean farmers who export up to 50% of all the soybeans they
grow. is access to international markets. The inability for Congress to pass legislation
that would give the President trade negotiating authorlty is one more Justification for
some type of tox relief for producers. include environmental regulations that gel more
difficutt fo meet and more costly for producers every year. more must be done if we
want fo protec! and feed the people whe feed the world, farmers.

The Mésouri Soybean Association Is also on record for favering the reduction or
elimination of estate taxes for sail businesses, including farm business estates, below $5
milion, The capital gains tax also should be towered and investment tax credits for
Agricultural production of equipment should be reinstated. .

Addressing the estate tax or death tax issue is the most fundamental act that Congress
can do te protect the long-term viabllity of people in agriculture. in a time when cost
‘of owning and operating c farm continues to escalate, when economies of scale
require us to farm more acres fo spread costs of expensive equipment, we can't
continue to assess farmers the huge fees requiring generation after generation to.
mortgage or sell part of their operation just to survive.

Chairman, | would fike fo thank you for the opportunity to testify and wou'd be more
than happy to answer any questions,


hear your central concerns and recommendations for both imme-
diate and long-term relief.

Record high disasters and record low commodity prices are hurt-
ing Missouri’s farmers and ranchers. Plainly, we have to help them
through the tough times. Tax responses are by no means the only
thing we should do. We need to aggressively open markets for our
products abroad, and we need relief for hard-pressed farmers and
ranchers in these difficult years of drought and low prices.

I have cosponsored H.R. 2748, the Farm and Ranch Emergency
Assistance Act, which was introduced by Representative Emerson.
The bill would double 1999 AMTA payments, reform trade sanc-
tions, fund crop insurance, fund expanded concessions sale and do-
nation programs, and suspend the limits on loan deficiency pay-
ments.

Today we want to explore the small farm tax burdens and how
H.R. 2488, the Taxpayer Refund and Relief Act, which was ap-
proved by the House and Senate last week, can help in deali:
with this crisis. Farmers and ranchers, indeed all Americans, nee
tax relief. The average family now pays more in taxes than it
spends on food, clothing, shelter and transportation combined. Fed-
eral taxes consume about 21 percent of national income, the high-
est proportion since World War II. Total Federal, State and local
taxes stand at a record 32 percent of national income.

My parents were starting out in the early ’50s. The average
American family paid about 2¥ to 5 percent of its total income in
Federal taxes. That has increased by four to ten times as a percent-
age of income in the last 45 years.

The Tax Code, moreover, is an unwieldy mess that gives the IRS
the power to tax you the highest if you work hard, save and invest.
Consequently, it hurts family farmers and ranchers heavily. These
people, who put their good name and reputation on the line to cre-
ate jobs and to grow food and wealth for their loved ones and their
communities, are among America’s greatest resources. Yet, after

aying on income and investments throughout their lives, the dead-
i; estate and gift, or death tax as my friend calls it, is crushing
them.

While death taxes collect only approximately 1.4 percent of Fed-
eral receipts, they consume over 65 cents on every dollar in en-
forcement and compliance cost. They force the sale of thousands of
farms, ranches and businesses throughout our country and destroy
jobs and economic potential. Dollars alone don’t tell the whole
story.

Family farmers own and work their land on average nearly 30
years. Inflation makes them appear to be land rich while actually
they are cash poor. They make their living growing food and fiber,
not speculating in land and equipment. The death tax, therefore,
is the single most devastating tax on virtue. It destroys the Amer-
ican dream by penalizing hard work, sacrifice, perseverance and
faith in our farmers and ranchers with a hefty 55 percent death tax

levy.

T will digress, and the people who are familiar with the hearings
of this Committee, know that my digressions often take up more
time than my actual statements, but a few years ago the then, I
think, Under Secretary of Treasury, is now the Secretary of Treas-


well understand the desperate plight our farmers are in today.

I do find it encouraging that the Senate eventually gave strong
bipartisan support to a significant Emergency Agricultural Assistance
package. A doubling of AMTA payments, reinstatement of cotton’s Step 2
program and the increase in payment limits for marketing loan gains would
be very meaningful. It would permit some farmers who otherwise could not
have covered their obligations to survive for one more year. Hopefully, the
package will be retained when the House and Senate conference their

respective appropriations bills.

1 would also observe that Representative Emerson has just introduced
a bill that includes these essential provisions for cotton and other southern
crops. As a member of the Agricultural Appropriations Sub-committee, she
will be a conferee when the House and Senate appropriations bills are
reconciled after the August recess. I commend her initiative in introducing
this bill and look forward to her continuing leadership on the conference

committee.

Looking beyond the current crop year and the help we hopefully will
get from an Emergency Relief package, current farm law provides farmers
virtually unlimited cropping flexibility. Generally speaking, farmers liked

this aspect of current farm law when it was under consideration by the


and said you got a problem with your lagoons and we want you to
do some mitigation, at your own cost of course. Is there any way
for you to pass that cost on?

Mr. ERISMAN. Absolutely not, because the farmer is the only per-
son, the only business that we buy at retail and sell at wholesale.
I think that is the clearest explanation of the whole thing. We are
not usually a market maker. We are a price taker. We need to have
some of the flexibility and some of the reserves and sometimes
some plain help to be ready to continue to do the things that need
to be done.

Mr. HuLsHor. The other point that I think probably could be
made and especially with our friends from the livestock industry
who will be here shortly, is that when you got a 220-pound live hog
that is ready for market, you can’t inventory that hog like you can
with steel or with some other raw products. I mean even in the in-
stance of corn or cotton or soybeans, I guess, obviously, you can put
it in the dryer or put it in the bin, but, of course, there is storage
cost as well. If you don’t have storage, that is another input cost.

So I appreciate hearing those answers because it is often, and
even in Washington I think Jim can attest, that people have asked
why is it that we need a special provision just for farmers and
ranchers, and I appreciate your—Ron, did you have a——

Mr. McNEALL. I would like to add to what he said. Also, is that
agriculture is the only industry that feeds the world that we have
to eat and agriculture feeds it. And the other thing, agriculture
probably produces—and I am not real good with statistics—prob-
ably 75 percent of the industry in this country thrives somewhere
off of agriculture somewhere along the line. So if you take the bot-
tom of the pyramid out from under the pyramid, I think the whole
pyramid would tumble.

Mr. HuusHorF. Dale, do you have another comment?

Mr. Lupwic. A couple quick comments. One is when we talked
about an implemented freedom to farm, one of the things that we
talked about was opening up markets around the world. We have
never given the President trade negotiating authority and is some-
thing we need to do.

It is like, let them do what they said they are going to do, and
“they” is the Federal government, and if they do all of those things,
it helps us keep us out of situations like we are in. We are counting
on exporting 50 percent of our soybeans and if they don’t let us de-
velop those markets, now we are not able to participate in a num-
ber of agreements that are being drawn up and signed today by
other countries as a result of not having that trade negotiating au-

ority.

Number two, and you hit it, is regulations and environmental
regulatory concerns and additional costs as a result of that. I would
venture to say that part of the problem with the pork industry and
the lack of capacity to actually process pork was as a result of EPA
regulations discouraging people from growing and getting into that
processing industry. And, you know, that’s something that I have
said for a long time, and it’s a part of that additional regulation.

Finally, the comment is, consumers across this country don’t
want there to be a lack of competition to grow and produce food.


will help. Sometimes we worry about it being too little too late. So
we urge you in these reforms that the sooner the better.

Outside of the tax thing, we, of course, appreciate your all’s sup-
port with our 1-A projects in the Congress today and the compact
issue, of course.

So I will relinquish to my time. I think we have gone long
enough, and we would open it up for comments. Thank you, sir.

(Mr. Palmer’s statement may be found in the appendix.]

thairman TALENT. Thank you, Rich. It is fitting that you would
testify last as far as I am concerned because I am headed from here
down to join Representative Blunt on his ag tour, and I am sure
the dairy issues will be mentioned very often.

I am going to—in fact, let me just go ahead and yield directly to
Mr. Hulshof and then I may ask a closing question. Go ahead.

Mr. Huxsuor. Let me just—and, again, I don’t want anybody to
think that—we have many members of the media that are here,
and I don’t want it to be said that the Congressman was picking
on one particular medium; that is, one of the local newspapers, but
it happened to be that in Saturday’s paper an editorial regarding
the estate tax and our efforts and what you talked about. And so
let me ask again, because when you tell the story, I think it has
a special power and eloquence rather than when politicians are
talking about it.

One of the points made by the author of this particular article
said that, really the only ones who are interested or who would
find this to be welcome news; that is, the repeal to the death tax,
is about 1 percent of the U.S. Population that is worried about hav-
ing to pay those estate taxes, and each of the three of you have
mentioned it and our preceding panel of four witnesses mention it.
Are we just fortunate that we have seven people that are here that
constitute the very wealthy? 1 mean, why is this not—or is it the
repeal of the death tax, John, is it something that just benefits the
well-to-do?

Mr. CauTHORN. I think I have alluded to the fact that we do
work for nothing many years in our life to build ¢quity. And if we
are working—if we are providing our labor for nothing, then we are
providing a service to someone else in this Nation, and the ag com-
munity has been an independent group, but we cannot continue to
pay large taxes like this and pass the farming ground on. It just
won't work, too much debt.

Mr. HuLsHor. Anybody else? Rick.

Mr. REHMEIER. en we have some extra profit—when we did
have some extra profit, let me put it that way, we would go out and
either expand or buy more property. We didn’t go out and buy a
new boat or a house at the lake or something like that. So we did
this to let the next generation have a place to go.

My son is a senior in high school. Hopefully he’ll come here next
year. Boy, I said, maybe you want to get a different education than
in agriculture. So that is why these tax breaks are very beneficial
to us. It is hard enough now without having to give half the farm
away to restart the next generation.

Mr. HuLsHOF. Rich.

Mr. PALMER. Basically, I’m reiterating, but as an example a fam-
ily close to us had four sons involved and a father, and one morn-


that can be sustained and that make economic sense will benefit
all of those in agriculture. We are all tied together in this business.

Real and sustained improvements in the rural sector may only
be possible with changes in those programs that limit our ability
to utilize our income in the most effective manner.

Our long-term interests, obviously, are focused around our con-
cerns with the death tax, the restraints that it places on us in our
vision for our cattle operation. Put yourself in my position, imagine
that you operated a medium-sized diversified grain and livestock
operation. At the end of my life the current death tax laws will
take the equity that is the profit in my operation and divide it be-
tween my heirs and the government. Actually, the ag community
has sacrificed income over the years to create equity in their busi-
ness. We have worked for less because there are not too many peo-
ple that would work—start out their life and start out a year and
think about making $40,000 and end up with nothing, but the ag
community seems to do that quite frequently.

In turn, my heirs will begin their farming experience with a
shortage of equity. That shortage will prevent them from maxi-
mizing the potential from the farming operation then repeats itself,
when we again will have to split that equity between the next gen-
eration of farmers and the next generation of government programs
funded by tax collection.

The alternate would be that my children would be able to take
advantage of my years of hard work and to build upon the history
of our family farm to be able to withstand the ebbs and tides of
the marketplace all while investing in their own future. That in-
vestment in a family farm means local grain dealers and merchan-
disers, animal health professionals, feed mills, equipment pro-
viders, suppliers, and all of those in the community also profit from
our profitability.

Now, I would like to state that a lot of government programs
that send money out, did not help a community in the productivity
of that community. That money seems to be held in very tight
hands, and we need people working in our Nation building commu-
nities, building small communities.

The Kennesaw study referenced in our written material shows
that death tax is a definite drain on our already ailing local com-
munities. Those studies showed that if the death tax was elimi-
nated, thousands of additional dollars would be eliminated in each
of our local communities and the Federal budget would benefit by
millions. Those studies also would lead us to believe that the real
losers in the elimination of the death tax would be those attorneys
and probate specialists who consume some 68 cents out of every
dollar collected, and we all love lawyers. The more—sorry about
that.

Mr. Hu.sHoF. That is all right, John.

Mr. CAUTHORN. The more immediate concerns involve the cur-
rent capital gains tax. We applaud the recent improvements in cap-
ital gains rates and support the current packages in Congress that
reduce those rates even further. The true answer to capital gains
is to eliminate it. The capital gains tax and its result on farming
and ranching operations across Missouri and this country is to


Congress, Unfortunately, cropping flexibility loses much of its appeal when
futures prices suggest no feasible alternatives. Cotton, corn, soybean and
rice prices are all below the full economic cost of production for most
farmers in this region, and a global surplus in virtually every commodity
must be worked down before there is much likelihood of significant price

recoveries.

We're told the economic problems in Asia may persist for at least
another couple of years. If so, any reduction in surplus stocks will be slower
than normal, America’s farmers and ranchers may face an extended period
of poor economic conditions, and they will certainly need more than short-

term emergency relief to remain viable in the years ahead.

Clearly, tax reform can be an important component for restoring the
long-term health and vitality of American agriculture, f commend Chairman
Talent, Representative Hulshof and your colleagues for your leadership in
this arena. Income taxes, capital gains and estate taxes all need a careful

review, as do the tax rates for gasoline and diesel fuel.

With respect to income taxes, cotton farmers have continually
expressed, united industry policy through the National Cotton Council, their
strong preference for a system of taxation that permits establishment of a
special account for farmers that would allow them to defer income in
profitable years for use in tough years. Such a system would be highly
beneficial to farmers in dealing with the wide year-to-year swings in taxable

income,


turn this situation around. We don’t have to continue as we were
100 years ago at the mercy of these cycles, these wild cycles in
commodity prices and the things you all have mentioned, the kinds
of long-term tax relief Representative Hulshof has pushed. Having
a single-minded focus on getting markets open abroad, we must in-
crease demand in the longer term, we just have to do it, and stop
sacrificing that to the shadows of foreign policies.

The value-added concept, Dale, and I want the Committee to get
into this very hard, and this is within the jurisdiction of the Small
Business Committee. How we can provide some seed money, no
pun intended here, to open up some of these value-added processes
that farmers can participate almost on a co-op kind of basis so you
are not as dependent on the commodity price, because now part of

your operation is what you are getting for the processed good or the
factured good, which is not going to be subject to these wild
swings.

One point you all did not mention, is the government doing its
job in building infrastructure to reduce your cost in getting things
to market, and to have a decent infrastructure serving your com-
munities? I think if we do those things, then the future for the ag
community changes, and yes, we will still have bad years, but the
bad years won't hurt as bad and you will have a lot more good
years and you will be a lot more stable.

You all want to comment on that at all before I yield to my
friend here?

Mr, BLAKEMORE. I would make one comment on the infrastruc-
ture issue, and this will probably not be exactly popular with the
Farm Bureau and our soy! Fean boys; however-——

Chairman TALENT. Good. A little provocation here on the panel.

Mr. BLAKEMORE. They have freedo lom to farm with grains, they
can swap back and forth. You speak of infrastructure; you cannot
put soybeans through a cotton gin, you cannot put corn in a cotton
warehouse, you cannot harvest anything with a cotton picker but
cotton. We do not have freedom to farm. You cannot continue grow-
ing those crops when you don’t have an infrastructure to process
cotton.

And we talk about Will Rogers and the 1937 farm bill, the first
effort by the government really to help the farmer out, and we are
at prices that are, in those terms or those dollars, about the same

ight now. They did look at the infrastructure at that point, and
everything they did at the farm bill at that time. I don’t know that
we have looked at our infrastructure with this last farm bill.

Chairman TALENT. Any other comments?

Mr. Lupwic. I am not sure I disagree with that. He didn’t make
me mad, because many of our members also grow cotton in south-
east Missouri. But I think infrastructure-wise—and Richard may
want to comment on this—I think the 15-year thway plan, the
concept of it at least was important as it built Tone Q de leveloped
roads in rural Missouri that were going to make us more effective
at being able to start some of these small businesses that we talked
about across the State of Missouri. Obviously, the river and con-
tinuing to update their infrastructure on the Mississippi River is
very important if we are going to continue to export half the prod-
ucts that we grow here.


feasible alternatives. Cotton, corn, soybeans and rice prices are all
below the full economic cost of production for most farmers in this
region, and a global surplus in virtually every other commodity
must be worked down before there is much likelihood of significant
price recoveries.

We are told that the economic problem in Asia may persist for
at least another couple of years. If so, any reduction in surplus
stocks will be slower than normal. America’s farmers and ranchers
may face an extended period of poor economic conditions, and they
will certainly need more than short-term emergency relief to re-
main viable in the years ahead.

Clearly, tax reform can be an important component for restoring
the long-term health and vitality of American agriculture. I com-
mend Chairman Talent and Representative Hulshof and your col-
leagues for your leadership in this arena.

Income taxes, capital gains and estate taxes all need a careful re-
view, as do the tax rates for gasoline and diesel fuel. With respect
to income taxes, cotton farmers have continually expressed united
industry policy through the National Cotton Council, their strong
preference for a system of taxation that permits establishment of
a special account for farmers that would allow them to defer in-
come in profitable years for use in tough ees. Such a system
would be highly beneficial to farmers in dealing with the wide
year-to-year swings in taxable income.

F, accounts that have been discussed among policy makers,
would generally conform with the special account concept cotton
farmers have supported. As you know, profitable years are getting
further and further apart. It is becoming more and more important
to have provisions to let farmers take advantage of such years.
Thanks to the leadership of Representative Hulshof and Chairman
Talent, a bill addressing this fundamental need was added to the
tax x package, which passed last week.

ile we have sought unlimited entries into FARRM accounts,
we understand that budget implications serve to limit what is po-
litically feasible. The 20 percent, which is allowed in the tax meas-
ure just passed, will be most helpful to many farmers if signed into
law. I would add that we appreciate the leadership of Representa-
tive Hulshof in keeping restrictions on what can be done with the
accounts to a minimum and making them as easy as possible to set

‘up.

Fyvith the concurrence of all other segments of the U.S. Raw cot-
ton industry, producers also support other tax measures, including
the continuation of income averaging and legislation to accelerate
the timetable for 100 percent deductibility of health care insurance
premiums paid by self-employed individuals. Thankfully, these cot-
ton industry concerns have already been addressed in recent legis-
lation. Omnibus legislation passed last year made provisions for in-
come averaging permanent.

The tax package just passed cuts the capital gains tax from 20
percent to 18 percent and permits indexing beginning 2000 for indi-
viduals, though not for corporations. The bill also accelerates the
time for 100 percent deductibility of health insurance premiums
paid by self-employed persons, including provisions for investment
tax credits, and phases down inheritance taxes, ultimately repeal-


‘The Taxpayer Refund and Relief Act of 1999 also eliminates the federal Death
Tax. Death should not be a taxable event. We cannot in good conscience inhibit the
ability of a family farm to be passed from one generation to the next because of a punitive
death tax. Both Chairman Talent and | have been aggressive in our efforts to eliminate the
Death Tax. Hopefully, we will soon achieve this goal

Many of Missouri's farmers and ranchers are self-employed. If these individuals
were a corporation like Ford or IBM, they would be able do completely deduct the cost of
buying their health insurance. However, this rule as it applies to corporations does not
apply to our self-employed farmers and ranchers. This is a matter of basic fairness. A
self-employed individual deserves the same tax treatment as a corporation when they buy
health insurance. Chairman Talent and Senator Bond should be commended for their
leadership in remedying this inequity and getting the 100% deductibility of health
insurance for the self-employed included in the recently approved tax relief package.

Lastly, we need to continue the effort to reduce capital gains taxes. Agriculture is
a capital intensive business. To be profitable. Missouri's farmers invest heavily in capital
assets like land. buildings and equipment. However, since these items are held for longer
than 12 months, they are subject to the capital gains tax when sold. To help reduce the
tax burden on our farmers and ranchers, we should reduce capital gains taxes and index
capital assets for inflation. 1 am pleased that the tax bill recently approved by Congress
does both.

As I said at the beginning of my statement, we need a comprehensive strategy to
address the crisis that is plaguing rural America. A key part of this overall strategy is
making changes to the tax code that will help agriculture. 1 thank Chairman Talent for
coming to Columbia today to discuss this important issue and commend him for his
leadership in providing tax relief to rural Missourians.


Opening Statement of U.S. Representative Jim
Talent (R-MO), Chairman

U.S. House Committee on Small Business
Columbia, Missouri
August 10, 1999

I would like to thank my friend Representative Hulshof, and each of the witnesses here
today, for welcoming me to Cohimbia, Missouri for this hearing. Your willingness to testify
today makes it possible for us to listen to your concerns. and to make them known to Congress in
developing a strong agriculture agenda,

On August 24", the Small Business Committce also will hold a meeting with fermers and
ranchers in Kansas City, Missouri to discuss agriculture and regulatory policy. The crisis in
agriculture is staggering, and we want to learn your central concerns and recommendations for
both immediate and long-term relief.

Record high disasters and record low commodity prices are hurting Missouri's farmers
and ranchers. Plainly, we must help them through these tough times. Tax responses are not the
only thing we should do. we nced to aggressively open markets for our agricultural products
abroad and we need relief for hard-pressed farmers and ranchers in difficult years of drought and
low prices. 1 cosponsor H.R. 2743, the Farm and Ranch Emergency Assistance Act, introduced
by Representative Jo Ann Emerson (R-MO). The bill would double 1999 AMTA payments,
reform trade sanctions, fund crop insurance, fund expanded concession sale and donation
programs, and suspend limits on loan deficiency payments.

Today, we will explore your small farm tax burdens, and how H.R. 2488, the Taxpayer
Refund and Relief Act (approved by the U.S. House and Senate last weck). can help. Farmers
and ranchers ~ indeed all Americans ~ need tax relief. The average family now pays more in taxes
than it spends on food, clothing, shelter and transponition combined. Federal taxes consume
about 21 percent of national income, the highest proportion since World War If, Total federal,
state and local taxes stand at a record 32 percent of national income

The tax code, moreover, is an unwieldy mess that gives the IRS the power to tex you the
highest if you work hard, save and invest. Consequently, it hurts family farmers and ranchers
heavily. These hard-working people, who put their good name and reputation on the line to
create jobs and to grow food and wealth for their loved ones and their communities. are among
America’s greatest resources. Yet, after paying taxes on income and investments throughout their
lives, the ceadly estate and gift (or death tax) is crushing them.

While death taxes collect only approximately 1.4 percent of federal receipts, they
consume over 65 cents on every dollar in enforcement and compliance costs. They force the sale


lows. According to the Food and Ag Research Policy Institute Fac-
tory right here in Columbia, farm prices are not expected to re-
bound, at least in the short term. I think Congress must address
this in a meanin; way.

You mentioned Jo Ann Emerson recently introduced a bill, which.
I too have cosponsored of. I think we have got to do much more
than that. I think we have to look at the trade barriers. I know
one of the things Senator Ashcroft got included in the Senate bill
last week was that no longer can the White House impose unilat-
eral trade sanctions that involve agricultural products or medicine.
That will now take an act of Congress. We now have sanctions
against some 60 countries where our ag products are not going into
those markets in order to achieve some sort of foreign policy objec-
tive.

Again, many of you have heard me tell this story before, but it
was probably one of the first political lessons that I learned and
that was when the grain embargo on our wheat to Russia was im-
posed in the late 70s, it almost cost us our family farm for a vari-
ety of reasons, of course, the ag crisis as it was back then, but that
single political decision had a very real-life effect on our family
farm that my parents continued to operate.

So I think that there are a variety of things that we can look at
on the trade sector as well. I know that there are some other
things regarding concentration and mergers that we continue to ad-
dress. I know crop insurance is another idea that is being discussed
and debated in Washington, as well as the emergency assistance,
but today we are here to talk about the tax code.

Now, as some of you have pointed out to me, income tax relief
doesn’t help us when we don’t have income. But I think that this
significant tax cut that is awaiting the President’s signature when
we send it to him in September—you know there has been a lot of
talk of billions and trillions of dollars, and, yes, the bill that was
passed by both the House and Senate and came through our Com-
mittee, the Ways and Means Committee first—$792 billion over 10
years.

Here is how I would like to talk about it for today’s terms, how-
ever. Over the next 10 years, we are projected to have approxi-
mately $3 trillion in surpluses. Now, the politics of surpluses are
interesting in Washi mn. We haven’t dealt with them before. The
first thing we would like to do is to pay down the national debt.
So of that $3 trillion, if you could assume that each one of these
dollar bills signifies a trillion dollars over the next 10 years, what
we have decided to do, the President says let’s take 62 percent of
the Social Security surplus. We say let’s take 100 percent, essen-
tially $2 trillion, and we want to lock it up and put it aside, pay
off the IOUs and the trust fund, not let Washington politicians
spend that Social Security surplus as has been done since 1969. Of

i remaining trillion dollars over the next 10 years, we want to
let you keep about 75 cents of it.

As Jim has talked about, we are taxed almost at a record high
level. I think the only other year that we have paid more as a per-
centage of the economy was 1945, which was the end of World War
Il. We think now is the time to let you keep more of your hard-
earned money. I am pleased that included in the tax package that



ury, Lawrence Summers, said that anybody who wanted estate tax
or death tax relief was selfish. This is the attitude we have to fight.
You know, if you work hard, but if you spend everything that you
earned and everything your farm or small business earns, that is
not selfish in the minds of people like that; but if you try to save
it to leave it to your kids, you are being selfish.

The Taxpayer Refund Relief Act includes several provisions that
will directly benefit agricultural, including repealing the death tax
by the year 2009. It creates Representative Hulshofs Farm and
Ranch Management Accounts, or FARRM Accounts. This promisi:
new tool will allow farmers and ranchers to save during the goo:
years and help see them through the bad years.

Our first panel is going to testify on FARRM Accounts. I want
to applaud Representative Hulshof for his outstanding leadership
on this important issue.

I am also delighted that the tax package allows the self-em-
ployed, including, of course, family farmers, to deduct 100 percent
of their health insurance premiums beginning January 1 of the
year 2000. Because of the disparity in the health insurance deduc-
tion—currently 60 percent for the self-employed as compared to
100 percent for large employers—the after-tax costs of health in-
surance premiums for the self employed is greater than the cost

id by Fortune 500 companies. Ending this inequity will make

ealth insurance more affordable for self-employed.
cluding the majority of farmers and ranchers.

In addition, the tax relief bill reduces capital gains taxes for indi-
viduals from 20 to 18 percent; and for those in the 15 percent
bracket, from 10 to 8 percent. It also indexes capital assets for in-
flation. These changes will benefit farmers and ranchers directly
because agriculture is a capital-intensive business requiring heavy
investment in land, buildings and equipment.

In closing, it is important to realize that with the average farmer
or rancher pushing age 60, now is the time to act on agricultural
and tax relief. On the tax side, FARRM accounts, death tax repeal,
100 percent health insurance reduction and capital gains reform

e a potent combination to help farmers and ranchers protect
their property for the next generation of farm and ranch families.

It is my pleasure now to yield to my friend and colleague Rep-
resentative Hulshof, who is a member of the Ways and Means
Committee and has been a strong advocate for tax relief for family
farmers and small business.

[Mr. Talent’s statement may be found in the appendix.]

Mr. HutsuHor. I appreciate that, Mr. Chairman, and thanks for
allowing me to participate in the small business hearing.

I want to welcome you to the Ninth Congressional District, and
specifically to my home here in Columbia, Missouri. It is great to
see so many friendly faces in the audience. I look forward to your
testimony.

If it is okay, and in the interest of brevity, I would like to submit
my opening statement formally for the record, and then just high-
light a couple of points.

I think you have adequately addressed the situation, or at least
acknowledged the situation that there is a crisis right now facin;
American agriculture. Livestock prices, crop prices are at record

Americans, in-


And then finally, you know, as I mentioned, tax credits for devel-
oping some of the plants and type of structures that we may need
to develop some of these alternative uses for agricultural products
is going to be very helpful, and that is pretty much all I would say.

Mr, ERIsMAN. I thought that both of you gentlemen along with
our Senators have done an excellent job of getting more money
brought back to Missouri. And the Federal highway bills, it helps
to improve 63 in our area, and I know we are working on 61 and
36.

I am fully in agreement that an infrastructure for Farm Bureau
has always been a major concern, that the farmers have the oppor-
tunity to get their product to market after they produce it. It is a
huge concern. As far as—I don’t know why the gentleman from the
southeast is concerned about Farm Bureau not supporting infra-
structure, and for myself, if I can go to the other side of my busi-
ness, which is pork production, we have got all of those specialized
facilities and cveryt ing too that is not good for anything else. So
if you don’t have the ability to use them, if you don’t have the mar-
ket for it, it is a loss and it is a total loss.

Chairman TALENT. Kenny, I'll recognize you.

Mr. Huisuor. Thanks, Mr. Chairman. Let me pick up on the in-
frastructure theme. And actually, David, in your testimony in page
8, you mentioned actually cutting taxes and. you mentioned diesel
fuel, something that is not getting a lot of play in this tax cut,
which has given me the opportunity to do it now.

Back in 1993, you may remember that there was a tax increase,
and part of that tax increase was a 4.3-cent excise tax on gasoline
and diesel fuel and it was called the deficit reduction tax at the
time it was implemented. The 4.3-cent excise tax on gasoline last
year with this Federal highway bill, we made sure now goes into
the highway trust fund for infrastructure. So there will be more
Federal highway dollars available.

So we took it out of deficit reduction, at least the 4.3-cent gaso-
line excise tax, and we put it into the highway trust fund. But at
the same time, especially for the rail industry and barge industry,
they were still paying the 4.3-cent diesel tax for deficit reduction.
This tax bill that will be awaiting the President’s signature in Sep-
tember, we repealed that deficit reduction tax on diesel fuel. Right
now there is no railway trust fund, and the rail industry tells us
they don’t want a trust fund, but they would like to have some ad-
ditional funding to invest in their own infrastructure. Ron, as you
know, especially over in Kansas, trying to get grain, corn to market
in Kansas because they just don’t have enough rail cars to get that
corn out, maybe this is some way to help them.

Regarding the inland waterway trust the inland waterway trust
fund, especially, as you know, living close to the river down in
Campbell, there is sufficient money in the inland waterway trust
fund right now for the matching grants and the like, that they
don’t need that 4.2-cent in their trust fund, and so the barge indus-
try has also said, just take this tax off of us, and it is in here. It
is in this $792 billion that we repeal that deficit reduction tax on
diesel fuel.

Just a couple of other quick points and then really kind of a
hard-ball question for you, Mr. Erisman. Regarding the GMO issue,


Our first witness today is David Blakemore, who is a General
Manager of B&B Cotton from Campbell, Missouri. He is testifying
on behalf of the cotton producers.

David, thank you for being here. I want to thank all of the wit-
nesses for coming. Please, give us your testimony.

STATEMENT OF DAVID BLAKEMORE, GENERAL MANAGER,
B&B COTTON CO.

Mr. BLAKEMORE. Thank you, Mr. Chairman, for arranging this
hearing and for this opportunity to share my views on small farm
tax burdens. I am David Blakemore. I am a cotton producer and
ginner from Campbell, Missouri. I am representing the Cotton Pro-
ducers of Missouri.

Before addressing these tax issues specifically, I would like to
share some observations about the acute economic plight con-
fronting our farmers and related small businesses. American agri-
culture is dealing with crisis conditions that affect ancillary busi-
ness as well.

I find it most discouraging that some policy makers believe farm-
ers are doing rather well in 1999. USDA projects farm income for
1999 to be only slightly lower than 1998.

Mr. Chairman, the only reason the Americans farmers’ and
ranchers’ 1999 income is only going to be down 12 percent below
1998 is because USDA is counting 2.5 billion in emergency money
that was appropriated in 1998, but not received by our farmers
until June of 1999.

USDA's latest projections indicate that commodity receipts for
grains, oilseed crops and cotton and tobacco will be down 23 per-
cent from 1997. Given that 1998 returns did not cover farmers’ out-
of-pocket cost of production, you can well understand the desperate
plight of our farmers today.

do find it encouraging that the Senate eventually gave strong
bipartisan support to a significant emergency agricultural assist-
ance package. Doubling of AMTA payments, reinstatement of cot-
ton’s step-two program, and the increase in payment limits for
marketing loan gains would be very meaningful. It will permit
some farmers who otherwise could not have covered their obliga-
tions to survive for another year. Hopefully, the package will be re-
tained when the House and Senate conference their respective ap-
propriations bills.

T also observed that Representative Emerson, who has just intro-
duced a bill that includes these essential provisions for cotton and
other southern crops, as a member of the Agricultural Appropria-
tion Subcommittee, she will be a conferee when the House and Sen-
ate appropriations bills are reconciled after the August recess. I
commend her initiative and both of you for helping to cosponsor
this legislation and look forward to all of your continuing leader-

ship.

Looking beyond the current crop year and the help we hopefully
will get from an emergency relief package, current farm law pro-
vides farmers virtually unlimited cropping flexibility. Generally
speaking, farmers liked this aspect of current farm law when it
was under consideration by the Congress. Unfortunately, cropping
flexibility loses much of its appeal when futures prices suggest no


STATEMENT OF RICK REHMEIER, PAST PRESIDENT, MISSOURI
PORK PRODUCERS ASSOCIATION

Mr. REHMEIER. Chairman Talent, Congressman Hulshof, it is a
pleasure to be here today. We are all thankful you are all here
today listening to our concerns.

As you said, I do farm near Augusta, Missouri with my parents
and my brother’s family. We operate a pork and crop farm, and I
am a past President of the Missouri Pork Producers.

Without question, we in agriculture are enduring some of the
most trying times in history. We understand that there are a vari-
ety of reasons that have led us to these problems that we currently
face. We appreciate your interest to listen and learn and take some
action in some of these key areas.

First, pork producers have and continue to support efforts to es-
tablish the FARRM accounts program. While it is unfortunate that.
this program hasn’t been in place during the past few years, it is
extremely important that we make every effort to pass this meas-
ure, which is of utmost importance to agriculture, and we espe-
cially have seen that in the past year in pork production.

Pork producers are also long-time supporters of the effort to
eliminate or repeal the death tax, which in many cases forces fami-
lies to sell the farm in order to pay taxes rather than pass it on
to the next generation.

I can certainly understand Richard’s problem because the other
day we sat down with two attorneys and the accountant last month
for about three hours, and I am sure that meter was clicking pretty
good at that time.

Capital gains taxes, they also create an unfair burden for farm-
ers who have worked for years to build equity in their operations.
Capital gains tax implications continue to make it ficult for
farmers to sell or transfer the farming operation to younger farm-
ers without incurring prohibitive tax consequences. In essence, the
capital gains tax discourages success and it should be dramatically
improved upon, if not eliminated.

‘arming is extremely competitive, new challenges at every turn,
whether it be drought, low prices or other concerns. Agriculture is
difficult at its best.

The additional burdens of the death tax and capital gains tax
compound our businesses even more. Considering the many chal-
lenges we face, relief in these two areas is extremely important. We
urge the U.S. Congress to press with rapid and meaningful reform.

other area of significant importance relates to the farmer’s in-
ability to deduct 100 percent of health care insurance cost. While
some progress has been made in this area, farmers continue to be
at a disadvantage when compared to other businesses that enjoy
the full deductibility of health insurance.

The Missouri Pork Producers have had a long-standing policy
that supports your effort in these areas. We look forward to work-
ing with you to secure meaningful results in this area.

‘hank you for your interest and time in being here today.

[Mr. Rehmeier’s statement may be found in the appendix.]

Chairman TALENT. Thank you, Rick, and again thanks to all of
the witnesses. I know you all have actual operations to run, and
I’m appreciative that you are here, and our last witness is Rich


SMALL FARM TAX BURDENS

FIELD HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS
FIRST SESSION

COLUMBIA, MO, AUGUST 10, 1999

Serial No. 106-28

Printed for the use of the Committee on Small Business

ee

U.S. GOVERNMENT PRINTING OFFICE
60-374 WASHINGTON : 1999

For sale by the U.S. Government Printing Office
‘Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-059706-4


ESTATE TAXES WHITE PAPER- EXECUTIVE SUMMARY

This paper addresses the impact of federal estate taxes on family businesses, with @
specific focus on the agriculture and beef industries. The analysis presented here
represents a compilation of much of the recent research on how estate taxes burden family
businesses and inject non-business criteria into business decision processes. This report
also includes the analysis of data provided by nearly 1,000 family businesses on the past
and present effects of estate taxes and the owners’ expectations of the future. It also
quantifies the efforts of these families to plan for and minimize their future estate tax
liability.

In addition to examining the impact of estate taxes on family businesses, this paper also
assesses the role of family business assets in providing the revenue generated by estate
taxes. The data supporting exempting family business assets from estate taxes:

1. Estate taxes make family business owners more risk-averse and result in their adopting
a shorter-term focus for business investments.

2, Family businesses, in an attempt to generate liquidity and minimize their estate tax
liability, divert considerable amounts of money from growth and additional corporate
and income tax revenue,

3. The past, present, and expected future impact of estate taxes on jobs is substantial.

4, Most estate tax revenue does not come from family business wealth. Family business
assets make up a small fraction (one-seventh) of taxable estates.

5. Exempting family business assets from estate taxes would reduce federal tax revenue
by one-seventh of one percent, about $1.5 billion per year.

6. The issue of “paying” for tax cuts is frequently raised in the tax reform debate. In the
case of estate taxes, it is prudent to ascertain the true cost of the revenue produced by
the tax.

INTRODUCTION

Family-owned businesses represent a productive and stabilizing force in the U.S. The
"family" component often brings many assets and competitive advantages to the family
business. A major benefit family brings to the business is long-term commitment. They
focus not on the next quarter's earnings but on meeting long-term family, community and
business goals. To many of these families, the business represents the overwhelming
majority of family assets and the primary means of family employment and income.
Seventy-eight percent have more than 75% of their net worth in the business.

Often, the identity of the business becomes inseparable from that of the individuals and the
family as a whole

Family businesses are extremely important to those who own and run them, and they are
to our nation and economy. Family firms carry an enormous share of the load in
terms of employment, wages, and job creation. Of the more than 22 million businesses in
the U.S., between 90 and 95% (about 20 million) are family businesses. These include



the current farm tax relief package. We can only hope that the
President will now sign this meaningful reform, including FARRM
accounts, so that this rainy day fund will be in place for the next
time the sun don’t shine. While I have your ear, I would also like
to mention several other areas of reform in the tax code that could
make a huge difference to Missouri corn farmers. Repeal of the
death tax, reduction of capital gains taxes and immediate 100 per-
cent deductibility of health insurance for farmers and other self-
employed individuals are several proposals that I would remind
you are high on the priority list of the Missouri Corn Growers As-
sociation.

The Missouri Corn Growers Association would also propose that
Congress consider several tax incentives that would really help our
Nation’s farmers and ranchers. Our urban cousins enjoy economic
incentives and there is no reason that we shouldn’t also be eligible
for some of these advantages. We strongly urge the Committee on
Small Business to provide tax credits to encourage producers to
pursue policies that could make a difference for them.

We also ask that you please consider investment tax credits for
farm business capital purchases, including tax credits for farmers
who invest in new generation, value-added cooperatives and income
tax credits for farmers who purchase crop revenue insurance. All
of these proposals really deserve more than the brief mention.
However, based on time limitation, that is all I will give today.

The Missouri Corn Growers Association will be happy to discuss
these tax incentive proposals with you or your staff at great length
at any time. Once again, thank you for the opportunity to address
this hearing. We certainly appreciate your support of FARRM ac-
counts and other tax reforms and incentives that will relieve the
tax burdens of small farms. Thank you.

(Mr. McNeall’s statement may be found in the appendix.]

Chairman TALENT. Thank you, Ron.

The next witness is Dale Ludwig, who is the Executive Director
of the Missouri Soybean Association. Dale, please.

STATEMENT OF DALE R, LUDWIG, EXECUTIVE DIRECTOR/CEO,
MISSOURI SOYBEAN ASSOCIATION

Mr. Lupwic. Okay. I first of all want to thank you, Mr. Chair-
man, for the opportunity to speak here on behalf of soybean pro-
ducers all across this State, and, Mr. Hulshof, I appreciate you
being here as well.

The answer is, yes, there is indeed a serious, serious problem in
agriculture, and that problem is that over the last 20 years, or pick
a number, we have seen prices for agriculture, even in the good
years, pretty much stay the same and then when we move into a
period of years of outstanding production around the world, we
have been able to see the prices continue to go down while all the
input cost and everything else, the cost of living continues to in-
crease. Is there an emergency out there, and the answer is; indeed,
there is, and as a result of that it may be necessary to continue
to put additional dollars into the farm economy as we did last year.

I have prepared some written testimony that I would ask that it
be included in the official record, but to prevent being repetitive,
I think I will just make a few other comments.


ing them in 2009. These reforms will go a long way toward pro-
viding farmers with a much more reasonable tax environment.
Thanks again for your leadership and for permitting me to share
these observations about tax reform.
(Mr. Blakemore’s statement may be found in the appendix.]
Chairman TALENT. Thank you, David. I appreciate that very
much.
Our next witness is Ronald McNeall, the President of the Mis-
souri Com Growers Association. Ron, thanks for coming. Please go
ead.

STATEMENT OF RONALD MecNEALL, PRESIDENT, MISSOURI
CORN GROWERS ASSOCIATION

Mr. McNEALL. Chairman Talent, Representative Hulshof, and
others, I thank you for the opportunity to testify today before the
House Committee on Small Business regarding small farm tax bur-
dens, and I must say I do appreciate your opening comments. I feel
they were very much appreciated and it may be a little bit like me
preaching to the choir, Bat that being as it may——

Chairman TALENT. Yes, but we want to hear the choir preach
back now. Go ahead.

Mr. MCNEALL. As President of the Missouri Corn Growers Asso-
ciation, I appreciate the chance to share with you the concerns of
the Missouri corn farmers regarding the excessive tax burdens
placed on them. Although we have many concerns regarding small

farm tax burdens, I have been asked today to focus my remarks on
an innovative proposal introduced in Congress by Representative
Hulshof. So I will a0 so.

Farm and Ranch Risk accounts, or FARRM accounts, represents
an exciting new tool that we could use to manage the cyclical na-
ture of our business, farming. As you are well aware, we do not
enjoy the security of a regular paycheck in the production of agri-
culture. Instead, we are at the mercy of the weather and many
other production risks. These risks means that some years may be
really good and some years could be really bad, but that is a whole
other story. Regardless, farmers want and need additional tools to
help us manage the ups and downs of our farm income.

‘he return of income averaging for production agriculture was a
great tool to help us manage the tax burdens. Now it is time to
gin to address the more fundamental problems of the cycles in
farm income. FARRM accounts would greatly help us in this re-
gard. The ability to set aside 20 percent of my income in a good
year could be a great way to help maintain some stability through
the down years. I could only wish that this Program had been in
place through the ’90s so we could have had this rainy day fund
for this fear.

The FARRM account concept is an excellent idea. I only wish
that the proposal did not cap the percentage at 20 percent. As you
well know in a year like this one, income on my farm and the
farms of my corn farmer neighbors could be off by well more than
20 percent. Possibly this suggestion could be used to improve the
tool in the future.

The Missouri Corn Growers Association was pleased to hear that
Congressman Hulshofs FARRM account proposal was included in



In recent days, the US Senate has responded to the farm crisis by approving a $7.4 billion
assistance package. Farm Bureau supports this measure, yet believes additional funds may
be necessary once the extent of the drought Joss is quantified. We are hopeful that
conferees on the appropriations bill, and your colleagues in the House of Representatives
will support a timely assistance package. And I would ask for your continued help in
convincing the Secretary of Agriculture to utilize the funds already appropriated for hog
producers.

This financial assistance is only one component of the overall policy needed to strengthen
our farm economy. Farm Bureau continues to work for additional tax relief, export
promotion and regulatory reform, This is proving to be difficult, despite the promises
made in the 1996 farm bill. One thing was made very clear during our regional meetings;
farmers like the flexibility of the current farm bill and are not advocating a return to the
failed supply management schemes of the past. Despite the rhetoric, the current farm
crisis should not be blamed on the 1996 farm bill.

‘The remainder of my remarks will focus on the need for additional tax relief, Our
organization was pleased with the progress made with the passage of the last tax package,
but we vowed to work even harder for more relief, The $792 billion package passed by
Congress contains several provisions that will indeed help our farmers and ranchers. For
this reason, we will be working hard over the next few weeks to secure the President's
support.

We are extremely pleased the final package includes Congressman Hulehof’s Farm and
Ranch Risk Management Accounts (FARRM). We have worked with Congressman
Hulshof and his staff for more than 2 years on this provision that allows farmers to set
aside up to 20 percent of their income in a good year for use in a poor year. Last June, I
joined many other representatives of the Missouri agricultural community at a press
conference expressing our support of this measure.

Given the risk involved in production agriculture this provision is a sound risk
management tool for many producers. In fact, the current economic crisis illustrates the
need for the FARRM accounts. On my farm, 1995, 1996 and 1997 were years in which E
would have put money into a FARRM account. In the absence of FARRM accounts, my
family and I worked with our financial advisors to minimize our tax burden. Ultimately,
we decided to allocate some money to capital expenditures such as new buildings. Had
FARRM accounts been available we would likely have put money aside, thereby reducing
our tax liabilities in those years. That money would be available to us today when we
could really use it and when our overall tax lisbility is likely to be greatly reduced.

Farm Bureay also supports » complete repeal of the death tax, significant reductions in
capital gains taxes and the acceleration of the 100% health insurance deduction for the
self employed.


Opening Statement of U.S. Representative Kenny Hulshof (R-
MO)

U.S, House Committee on Small Business
Columbia, Missouri
August 10, 1999

I would like to thank Chairman Jim Talent for holding this field hearing of the
Small Business Committee in Columbia. Your willingness to come here to listen to the
concems of Missouri's farmers and ranchers is certainly appreciated.

Put simply, there is a crisis in agriculture. Prices for pork, cattle, corn and
soybeans are at record lows. According to FAPRI’s respected agriculture economists,
farm prices are not expected to rebound for some time to come. For Congress to address
this issue in a meaningful way that helps Missouri's farmers and ranchers. itis clear that a
comprehensive agriculture strategy is necessary. The United States must work to tear
down foreign trade barriers that limit access to vital forcign markets. We should enact
sanctions reform so that our farmers and ranchers are not used as pawns in international
disputes. Congress should enact price reporting legistation that looks closely at
concentration in the packing industry to prevent monopolistic practices in agribusiness,
‘Our farmers need crop insurance reform and emergency assistance to help cope with an
‘ongoing crisis that has seen commodity prices fall to Depression era levels.

But today, we are here to focus on another important part of this comprehensive
agricuiture strategy - tax relief. For all Americans. the tax code is inefficient, discourages
savings and investment and harms economic growth. Like all Missourians, farmers and
ranchers need relief from their crushing tax burden, At a time when the federal
governmem is projected to post record surpluses, there is no reason that we cannot
address important domestic concerns like Social Security and Medicare. pay down the
debt and allow our farmers and rancher to keep more of what they earn

Last week, that is exactly what the House voted to do, The House-approved
Taxpayer Refund and Relief Act of 1999 would provide $792 billion in tax relief while
reducing the federal debt by 82 billion over the next ten years and ending the raid on the
Social Security Trust Fund, This is a big win for our nation’s taxpayers and a big win for
Missouri's farmers and ranchers.

The tax relief package contains important provisions that will directly benefit
agriculture. Earlier this year, | introduced and Chairman Talent cosponsored the Farm and
Ranch Risk Management (FARRM) Act. This bill will allow our nation’s farmers and
rancher to establish a “rainy day” fund to manage the risks that are unique to agriculture.
Our panelists will be discussing this idea in more detail. But for now. I take great pleasure
in announcing that FARRM Accounts are included in tax package approved by Congress.


firms where the family influences the strategic direction of the firm and there is at least
some desire to keep the business in the family. While many of these family firms are small,
this number also represents nearly 200 of the Fortune 500.

Family businesses contribute dramatically to the U.S. economy:

© Family businesses generate one-half (49%) of U.S. gross domestic product.

Family businesses employ 6 of every 10 U.S. workers (59%) - around 77 million
people.

© Family businesses created nearly 8 of every 10 new jobs (78%) from 1977 to 1990.

ESTATE TAXES AND JOBS
ERROR! BOOKMARK NOT DEFINED.

While precise economic costs remain open to debate, the data consistently indicate that
estate taxes cost jobs:

¢ Collectively, the 967 family businesses included in this study lost more than 700 jobs
when estate taxes last came due.

© They employ 9,000 fewer people than they would if estate taxes were climinated -- this
represents 5.4% job growth that has been prevented by estate taxes

© These business owners also expect that more than 20,000 jobs will be lost when estate
taxes next come due.

As in the case of planning costs, nearly seventy percent of responding firms (n= 670) did
not report an estimate of expected future job losses. Many of these respondents are the
same individuals who also did not report an estimate of their future estate tax liability. This
raises the possibility that the estimate of 20,000 future job losses might greatly understate
the degree of job losses which these 967 firms will experience when estate taxes come

due.

FAMILY BUSINESS AND THE AGRICULTURE INDUSTRY

The agriculture industry represents the largest segment of the U.S. economy more than
$177 billion of $6.7 trillion total U.S. GDP in 1993.

The agriculture segment is made up primarily of family businesses. According to 1992
USS. census data, only 3.6% of U.S. farms are owned by corporations, and most are family
corporations with fewer than 10 stockholders ~- only 0.4 percent are non-family
corporations.

The cattle industry, comprised of more than 1 million individual farms and ranches,
represents the largest component of U.S. agriculture. Sales of cattle and calves totaled
more than $39 billion in 1993, exceeding 22 percent of all farm marketings. The beef


of thousands of farms, ranches and businesses throughout our country, and destroy jobs and
economic potential. But dollars alone don’t tell the whole story.

Family farmers own and work their land on average nearly 30 years. Inflation makes them
land rich and cash poor. They make their living growing food and fiber, not speculating in land
and equipment, The death tax, therefore, is the single most devastating tax on virtue. It destroys
the American dream by penalizing hard work, sacrifice, perseverance, and faith in our farmers and
ranchers with a hefly 55 percent death tax levy. It tells every American that no matter how hard
you work or how wisely you manage your affairs, in the end the IRS is going to step in and take it
away. As a result, 70 percent of family businesses never make it past the first generation, and
nearly 90 percent never make it past the second gencration. This is simply unfair.

Benjamin Franklin, one of our Founding Fathers, said there were two certainties in life:
death and taxes. But I don't believe even Dr, Franklin, with his prescience, could have told us
that both would occur at the same time. You likely have heard it said that no American should
have to visit the undertaker and the tax collector on the same day. Similarly. no farmer or rancher
should have to cut up half or more of his farmland or equity to pay the death tax. or to save the
family farm or ranch during hard times. It’s plain to me too that Missouri's farmers and ranchers
deserve creative risk management tools to manage the unpredictable, cyclical nature of their
businesses throughout their lives.

‘The Taxpayer Refund and Relief Act includes several provisions that will directly benefit
agriculture ~ including repealing the death tax by the year 2009. It creates Rep. Hulshof's Farm
and Ranch Risk Management (FARRM) Accounts. This promising new tool will allow farmers
and ranchers to save during the good years to help see them through the bad years While our
first panel will testify more on FARRM Accounts, 1 want to applaud Rep. Hulshof for his
‘outstanding leadership on this important issue.

1 am delighted also that the tax package allows the self-employed to deduct 100% of their
health insurance premiums beginning January 1, 2000, Because of the disparity in the health
insurance deduction (currently 60 percent for the self-employed as compared to 100 percent for
large employers), the after-tax cost of health insurance premiums for the self-employed is greater
than the cost paid by Fortune 500 companies. Ending this inequity will make health insurance
more affordable for selfemployed Americans — including the majority of farmers and ranchers.

In addition, the tax relief bill reduces capital gains taxes for individuals ftom 20 to 18
percent. and for those in the 15 percent bracket, fram 10 to 8 percent. It also indewes capital
assets for intlation. These changes will benefit farmers and ranchers directly because agriculture is
a capital intensive business requiring heavy investment in land, buildings and equipment.

In closing, it’s important to realize that with the average farmer or rancher pushing age
60, now is the time to act on agriculture and tax relief. On the tax side, FARRM Accounts, death
tax repeal, 100% health insurance deduction, and capital gains reform. is a potent combination to
help farmers and ranchers protect their property for the next generation of farm and ranch
families.


passed the House and Senate was the Farm and Ranch Risk Man-
agement Accounts. I hope to hear from a real-life point of view how
this would be helpful.

We talk about the theoretical reasons why a risk management
tool would be of benefit to farmers. Now granted, in the short term,
it is not going to be of much help. We are looking at a management
tool for farmers and ranchers to prepare for the inevitable down
years by putting excess income aside into a FARRM account that
would get to be taken as a tax deduction in the years placed in the
FARRM account. It would remain in that FARRM account for no
longer than 5 years, and when it is taken out of the FARRM ac-
count, it would be taxed as ordinary income. So it is not tax avoid-
ance. It is tax deferral.

I was asked a good question by one of the representatives of the
media, what about income averaging, and, yes, in 1997 Congress
passed income averaging as a way to help farmers put aside excess
income over the preceding 3 years to have more of a stable income
flow so that you aren’t in the 39.6 percent tax bracket one year and
plunging down to the 15 percent tax bracket the next. We want to

ve that steady income stream if it is possible. Yet, income aver-
aging does nothing for farmers and ranchers to prepare for the in-
evitable lean years.

I dare say, and maybe some of our panelists would hazard a hy-
pothetical for us, if FARRM accounts had been in effect, such as
when we had a good year perhaps in 1997 or a better than average
year in 1997, perhaps family farms would not be facing the dire
straits they are facing right now had they had this risk manage-
ment tool at their disposal.

You touched on, Mr. Chairman, some of the other important
things like the Federal death tax and 100 percent deduction for the
self-employed for health insurance, all of which I think are useful
items. So again, I thank you for giving me the opportunity to tag
along, to be an ex officio member of the Small Business Committee,
and I look forward to hearing from our witnesses as well.

[Mr. Hulshof’s statement may be found in the appendix.]

Chairman TALENT. Thank you, and you have contributed, I
think, the single most cogent comment about the death tax that I
have heard, that we should have no taxation without respiration.

Mr. HULSHOF. As they say, Mr. Chairman, you get a certificate
at birth, you get a license at marriage, and, yes, you get a tax bill
at death.

Chairman TALENT. Well, the way we do these things, we have
two panels of witnesses today. If the first panel will come forward,
and I will introduce people and then you all can give us your testi-
mony. So if David and Ron and Dale and Richard will come for-
ward.

Now, I know that Ken joins me in thanking the Cattlemen’s As-
sociation for hosting this. John Cauthorn is going to be testifying
on the second panel, but I want to thank the Association right off

e bat.

All right. We want to have plenty of time for questions, and I
will go ahead and take in order from my left to your right.


Mr. HULSHoF. As a final comment—Mr. Chairman, I appreciate
your indulgence—I appreciate your constructive comments about
the 20 percent cap and the limitation being too low, I appreciate
that comment.

The way that we have kind of kept this fairly tight when we
crafted this provision, you represent, really, traditional agriculture.
I see we have got nontraditional, though, whether it is your Christ-
mas tree farmer, you qualify. My cosponsor, Karen Thurman from
Florida on the Ways and Means Committee, has a lot of nontradi-
tional as far as nurseries, vegetables, citrus and the like, and,
again, for individual farmers, not corporations, but for individual
farmers this provision now is poised to become law if the President
will sign it. So I appreciate, and, Mr. Chairman, I would yield back.

Chairman TALENT. All right. Well, I want to thank the panel,
and I think you about said it all, but we have another panel and
we will be talking about the situation with pork producers, and I
am. sure that Rick Rehmeier will have additional comments on
Thank you all for your time, and if our second panel would come
and take their places.

John Cauthorn from Mexico, Missouri is the President-Elect for
the Missouri Cattlemen’s Association in Columbia, Missouri. Please
give us your testimony.

STATEMENT OF JOHN CAUTHORN, PRESIDENT-ELECT,
MISSOURI CATTLEMEN’S ASSOCIATION

Mr. CauUTHORN. Thank you, gentlemen. Thank you, Mr. Talent,
Mr. Hulshof, and thank you for your openness and to your accessi-
bility to the public. You know, sometimes we have legislators and
politicians that aren't that accessible. We sure appreciate your con-
cern for us. I am a diversified livestock and grain farmer in
Audrain County, Missouri. I would just like to say that the Mis-
souri Cattlemen’s Association is proud to be able to provide this fa-
cility for you folks today and we welcome you here today. This
building was a long time in coming, but from the standpoint of the
ag community, we think that a good place to meet and a—I can’t
think of the word, but, you know, we need to be proud of who we
are and where we come from.

We believe that the issues being addressed here today are an im-

rtant part of the solution to iculture’s current and future di-
lemmas related to profitability. Government certainly has a place
in our industry. We believe that the place for that government is
in opening the doors that allow us to control our own destiny, and
we as Missouri cattlemen have been able to avoid most of the com-
plications of government assistance. Our number one desire from
government is to allow us to do the job that we know that we can

do.

As you folks. know and we alluded to earlier, the cattle industry
has asked for very little actual government aid except in the case
of disasters from the Federal government, and we seem to fight
about that quite frequently.

We believe that our success will help the grain producers and
merchandisers and animal health professionals, livestock markets,
and all of those that we depend upon for our livelihood. Changes


Testimony of Ronald McNeall

President, Missouri Corn Growers Association
before the

House Committee on Small Business

August 10, 1999

Chairman Talent, Representative Hulshof and others, 1 thank you for the
opportunity to testify today before the House Committee on Small Business
regarding small farm tax burdens. As President of the Missouri Corn Growers
Association, I appreciate the chance to share with you the concerns of Missouri
corn farmers regarding the excessive tax burdens placed on them. Although we
have many concerns regarding small farm tax burdens, | have been asked today to
focus my remarks on an innovative proposal introduced in Congress by
Representative Hulshof, so I will do so.

Farm and Ranch Risk Management Accounts, or FARRM Accounts, represent an
exciting new too} that we could use to manage the cyclical nature of our business,
farming. As you are well aware, we do not enjoy the security of a regular
paycheck in production agriculture, instead we are at the mercy of the weather and
many other production risks. These risks mean that some years may be really
good, and some years may be really bad. Unfortunately, this year looks to be one
that could be really bad, but that’s a whole other story. Regardless, farmers want
and need additional tools to help us manage the ups and downs of our farm
income.

The return of income averaging for production agriculture was a great tool to help
us manage the tax burden, now it is time to begin to address the more fundamental
problem of the cycles in farm income. FARRM accounts would greatly help us in
this regard. The ability to set aside twenty percent of my income in a good year
could be a great way to help maintain some stability through the down years. I
could only wish that this program had been in place throughout the 1990s so we
would have these “rainy day” funds to use this year.

The FARRM account concept is an excellent idea. 1 only wish that the proposal
did not cap the percentage at twenty percent. As you well know, in a year like this
one, income on my farm and the farms of my corn farmer neighbors could be off
by well more than twenty percent. Possibly this suggestion could be used to
improve the tool in the future.

The Missouri Corn Growers was pleased to hear that Congressman Hulshof’s
FARRM account proposal was included in the current tax relief package. We can
only hope that the President will now sign this meaningful reform including
FARRM accounts, so that this “rainy day” fund will be in place the next time the
“sun don’t shine.”


While I have your ear, 1 would also like to mention several other areas of reform in
the tax code that could make a huge difference for Missouri corn farmers. Repeal
of the death tax, reduction of capital gains taxes, and immediate 100 percent
deductibility of health insurance for farmers and other self-employed individuals,
are several proposals that I would remind you are high on the priority list of
Missouri Corn Growers.

The Missouri Corn Growers Association would also propose that Congress
consider several tax incentives that would really help our nation’s farmers and
ranchers. Our urban cousins enjoy numerous economic incentives and there is no
reason that we shouldn’t also be eligible for some of these advantages. We
strongly urge the Committee on Small Business to provide tax credits to
encourage producers to pursue policies that could make a difference for
themselves,

We ask that you please consider investment tax credits for farm-business capital
purchases, income tax credits for farmers who invest in new generation, value-
added cooperatives, and income tax credits for farmers who purchase crop revenue
insurance. All of these proposals really deserve more than the brief mention,
however based on time limitations that is all 1 will give today. The Missouri Corn
Growers Association would be happy to discuss these tax incentive proposals with
you or your staff at greater length at another time.

Once again, thank you for the opportunity to address this hearing. We certainly
appreciate your support of FARRM accounts and other tax reform and incentives
that will relieve the tax burdens of small farms. Thank you.


Missouri Pork Producers have a long standing policy that supports your efforts in each of these arcas
and we look forward to working with you to secure meaningful results.

‘Again, thank you for your interest and taking time to hear from those of us who deal with these issues in
‘our farm business situation.

Respectfully submitted:

Rick Rehmeier


ing the father wasn’t there at the breakfast table and it cost
those—and this was several years ago—it cost that family $70,000
to go to work that day, and it meant nothing except that dad
wasn’t at the table. So what that man, like I said, worked for all
his life passed on to the government and the kids wound up with
the burden, and we are doing all of the work anyway. So it doesn’t
make sense to do that, and, like I said, it is driving those young
people off the farm.

You can’t bring them—you can’t hold them to something like
that. I have got the same problem with a son. I mean, he looks at
this and he said, why. I see you pay the help more than you pay
me. I said, I got to yp them. I can’t afford it. All he has to do
is invest in a lunch box and he can go to work for more money and
be off all weekend instead of milking Saturday and Sunday.

Mr. HULSHOF. Well, a couple of you have alluded to this and un-
fortunately what the full picture and we talk about—in fact, I got
the revenue table that you, as you know, we are so consumed with
numbers as far as the quote, “loss of revenue to the government,”
which I have a problem with that very concept of loss of revenue
to the government because the government’s loss is the American
people’s gain, but what isn’t included is the amount of resources
that some of you have mentioned, you had to consult your tax law-
yer or your accountant to put together an estate plan in order to
avoid this tax.

There is a local family that owns one of the lumberyards here in
Columbia, and the two sons have told me that each year—dad is
sort of out of the business—but each year they buy term life insur-
ance, the sole point of which is that the proceeds of a life insurance
policy will go to pay the estate tax. And so how many dollars, thou-
sands of dollars, I would assume, that that family has to put into
purchasing term insurance just so that the estate tax bill can be
paid. .

Mr. REHMEIER. Kenny, we are going to be spending $12,000 a
year doing that, and that is money that could be put back into the
operation, just so that we can inherit the farm. A real life perspec-
tive that when we hear the allegations of tax breaks for the
wealthy or when we hear that we are committing the ultimate act
of selfishness, as our new Treasury Secretary has indicated. It
helps us when we tell these human-life, kitchen-table stories as a
reason that we should move forward, and I appreciate your allow-
ing me to participate, Mr. Chairman.

thairman TALENT. Thank you. I think that the death tax is,
from a standpoint of trying to encourage the right thing and dis-
courage the wrong thing, the stupidest of all of the stupid taxes of
the Federal Government, and it is the least defensible. I can’t think
of an honest way to defend that tax from any perspective. But
apart from all of that, as bad as it is at a practical level, first for
entrepreneurship for small business people, for family farmers, for
their families, for their communities, it is just wrong. It is wrong
when you work your whole life, you pay the taxes up front, so you
have paid taxes on every dollar that is in that estate, and then the
government comes in and takes half of a person’s life effort. It is
just wrong. I don’t care how much it is. It is just wrong, and it real-
ly ought to be changed. It is that great equity behind this or a


SMALL FARM TAX BURDENS

TUESDAY, AUGUST 10, 1999

House OF REPRESENTATIVES,
COMMITTEE ON SMALL BUSINESS,
Washington, DC.

The Committee met, pursuant to call, at 10:10 a.m., in Missouri
Cattlemen’s Beef Association, Lower Level Conference Room, 2306
Bluff Creek Drive, Columbia, Missouri, Hon. Jim Talent (chairman.
of the committee) presiding.

Chairman TALENT. I will go ahead and convene the hearing. This
is a hearing of the House Committee on Small Business. Let me
preface my opening statement by saying that, while I keep these
things informal in Washington, I will keep them even more so here.
I did want to have an actual hearing because I want to put this
on the record, and I want to take it back to Washington.

The efforts of people like those who are going to be testifying
today and many of you in the audience is beginning to penetrate
in Washington and is raising the level of awareness about the prob-
lems facing the agricultural community; but when I say “raising
the level of awareness,” I don’t mean to say that it has been suffi-
ciently raised yet.

I was asked the other day with regard to the emergency relief
bill that passed the Senate—and I hope a similar bill passes the
House in September—whether there really was an emergency in
agriculture today. That is the kind of question where if you have
to ask that kind of question, probably no answer is going to help
you. So what I want to do is to get a record here from people who
are dealing on the ground with the problems of agriculture.

We are going to focus today on the problems caused by tax poli-
cies, policies which, if we can change them, are going to empower
family farmers and the agri-business community to profit better in
good times and deal better with bad times. But I am sure we will
discuss, also, in the course of the testimony, the immediate crisis.

I want to thank my friend and Representative Hulshof and each
of the witnesses who are going to testify today for welcoming the
Committee to Columbia for this hearing. Your willingness to testify
today makes it possible for us to listen to your concerns and make
them known to Congress in developing a strong agricultural agen-

da.

I would like to announce that on August the 24th, the Small
Business Committee also will hold a meeting with farmers and
ranchers in Kansas City to discuss agricultural and regulatory pol-
icy. The crisis in agriculture is staggering. The Committee needs to


feed mills, equipment providers and suppliers and all those others in the community also
profit from their profitability.

The Kennesaw study referenced in our written material shows that the "Death Tax" is a
definite drain on our already ailing local communities. Those studies show that if the
“Death Tax" was eliminated that thousands of additional dollars would be available in each
of our local communities, and the federal budget would benefit by millions. Those studies
also would lead us to believe the only real losers in the elimination of the "Death Tax"
would be those attorneys and probate specialist who consume some $0.68 out of every
dollar collected.

More immediate concems involve the current capitol gains tax. We applaud the recent
improvements in capitol gains rates and support the current packages in congress that
reduce those rates even further. The true answer to capitol gains is to eliminate it. The
capitol gains tax and its result on farming and ranching operations across Missouri and this
country is to force us 10 make investments and retain investments in ways that aren't
always in our best interest.

Investments in breeding livestock and the production of scedstock for your own operation
have become a nightmare. The result is a shrinking Missouri seedstock industry and less
than optimal business decisions on the part of the producers that support that industry.
Again, we believe the lowering and eventual elimination of the capitol gains tax will allow
those dollars to freely move in our communities, generating jobs, economic development
and improved stability in the farm economy at every turn. My purchases of seedstock,
equipment. inputs and supplies and my investments must be based on sound business
principals, capitol gains does not help me accomplish that goal

Agriculture is a business. MCA believes that congress should address our needs and our
industry just like a business. We hope that continued efforts to give agriculture the same
benefits as traditional business are successful Our health insurance and other business
related expenses are just important as any other small business. We don't believe our sole-
proprietor oriented structure. should preclude us from the same deductibility levels that a
more traditional small business may operate under.

Programs such as Representative Hulshof's proposal to provide farmers with FARRM
Accounts seems to be a tremendous step in the right direction. The FARRM Account
would again allow us to manage our income levels in the most eflicient manner. All of us
in agriculture know that we will have both highs and lows in the market Supply and
demand will always be a harsh truth for us to expect This tool and others like it that allow
us to manage our affairs, with our long-term goal of continuing our family farming
operation is a great door for you to open for us.

1 would close by again stating our appreciation for you offering this opportunity to speak.
‘We know that you have supported our desires in the past and we hope that we can
continue to work together in the future.


During our recent meetings, we heard from producers who can no longer afford their
health insurance premiums and others whose spouse is working off-farm for access to
affordable health insurance. The economic crisis is putting a great deal of stress on farm
families, stress that can lead to health problems. In one case, a family had to drop their
health insurance as they could no longer afford the premiuin. Subsequently, the wife had a
heart atteck and they are now ficing large medical bills.

Our staff continues to get calls from members who are frustrated by the complexity of
estate tax regulations—a tax that is simply not defendable. My wife and I recently
updated our estate plan, attempting to do everything possible to keep the farm in the
family. This update came with a cost of $1250. It seems the only ones who gain from this
tax are the government, accountants and attorneys.

And we have talked with several Farm Bureau members who are hoping for changes in the
capital gains tax that will allow them to sell farmland without the large tax burden that
now exists.

Mr. Chainnan, Congressman Hulshof, you are on the right track, Tax issues are indeed
important and changes must be made that allow us—Missouri farmers and ranchers—to
keep more of our money. On behalf of Missouri Farm Bureau, thank you for your
leadership on these issues.


heard of any problems as a result of food safety from those, and
the answer is no.

So long term the benefits to consumers with health issues, the
benefits with alternative uses for crops like soybeans and corn and
others are worth the fight that we are going to have to work
through the whole GMO issue today. The longer term, it is where
we need to go and part of what we need to do. If we stay in the
commodity bean market long term, it is going to be tough to put
additional dollars into farmers’ pockets, and that is exactly what
we are trying to do when we move to identity preserve production
of soybeans.

So I think we need to move forward on a couple of these issues
and certainly we need to make sure that we feed the people that
feed the world and that is the farmers. Thank you for the oppor-
tunity to talk to you today.

[Mr. Ludwig’s statement may be found in the appendix.]

Chairman TALENT. Well said.

Our last panelist on the first panel is Richard Erisman, who is
a Farm Bureau board member from District 3 in Centralia, and
he’s testifying on behalf of the Farm Bureau. Richard.

STATEMENT OF RICHARD ERISMAN, BOARD MEMBER,
MISSOURI FARM BUREAU

M. ERISMAN. Mr. Chairman, Congressman Hulshof. Kenny, you
know that it is kind of dangerous sometimes for me to be off the
cuff and last in these kind of positions. Mr. Hulshof, I am just wait-
ing for your next joke.

Chairman TALENT. I encourage you to wing it, Richard.

Mr. ERIsMaN. I think that the best thing for me to do is to kind
of paraphrase through my remarks because that way you will get
the best of the thing.

We farm in Centralia and we have been doing this for years. We
are full-time farmers. I am a State board member. My wife helps
farm, but she’s an RN. She’s an RN so we can have health insur-
ance. At Boone Hospital. I know that that has been an issue for
taxes, too, is farmers’ health insurance and a need for higher de-
ductibility and less cost. And one of the ways that we have adapted
to getting around some of that stuff is to have her work off farm,
but it would be a lot easier if we could just do it from the farm.

You both know that there are a lot of problems that farmers are
facing. The commodity prices are low, we have had a drought. In
my own situation, we got hit by a tornado this spring. Just what
we needed with hog prices the way they are. Maybe the Lord was
trying to tell us something, that we didn’t need to be producing
those hogs. Unfortunately, he didn’t take enough of those Build Ss,
so we had to rebuild so we could kind of keep going because the
banker does expect to be paid this fall somehow or the other. And
we are not unique.

Missouri Farm Bureau recently conducted six regional meetings
in which 800 of our members talked about the farm prices. And we
learned that it is affecting everybody. We heard from young people
and old people, people that would like to get out, people that reall
don’t know what to do, people like my son who are going to grad-


Page 2
MDA Testimony
August 10, 1999

“The daicy business is aif . finds dif : ther

ities. We need to do all we can to entice the next generation to stay on the farm,
‘Tax burdens such as these only add to the challenge of who is going to milk the cows io the next
millennium? Small family farm businesses or corporate America?

The proposed 100% deduction on health insurance premiums for self-employed persons on
January 1, 2001 is another move in the right direction which we applaud. This has long been a
sore spot for most farmers and ranchers. It is one of those issues most often talked about and the
question is always--why not a 100% deduction?

MDA also supponss enhanced capital gains treatment on family farm assets and therefore agrees
with the proposed reduction of capital gains from 20% to 15%, and 10% to 7.5% for individuals
in the $15,000 ordinary income bracket

In summation, MDA feels the FARRM accounts would be another very worthwhile risk
management tool and the proposed tax relief measures are warranted and needed by Missouri's
dairy farmers if we are to remain in business as independent operators and supply Misso
consumers with their milic and dairy products.

‘Thank you Mr. Chairman for the time to express our interest on these issues.

SHORT BIO: William “Rich” Palmer, Old Monroe—The Lincoln County farmer began
his dairy operation in 1967 upon completion of his military service. His operation includes 160
cows, 946 acres including 325 acres of corn, 125 acres of soybeans, 100 acres of alfeife, and a
600 acre hunting preserve.

Rich’s service to agriculture includes the following: Mid-America Dairymen (Mid-Am) young,
‘cooperator in 1972, Mid-Am district chair 1973, Easter Division Mid-Am board since 1974,
‘Mid-Am Corporate board 1986-1997, Midland St. Louis Division Board since 1981, charter
‘memiber of Missouri Daisy Association and president since 1989, St. Louls Dairy Council since
1981 including two-year term on the executive commitiee, National Beef Board since 1993,
Governor's Advisory Council on Agriculture since 1989, Western Quality Foods Sinton Dairy
board since 1990, Lincoln County Extension Counci 1968-72 inchiding two years as president,
Lincoln County Farm Bureau board 1972-78 including six years as vice president and two years
as president, and Lincoln County Youth Fair Board from 1970-81 serving 2s vice president in
1970 and chair in 1971. Rich is also in the Missouri Dairy Hall of Honors.

[o)



inevitable, that we have to adapt to change. The other one was a
sociologist, and he said that the system was put in place by people
and it can be changed by people, that change is not inevitable. And
I think that, yes, we are in a hard market driven economy, but we
are also a social people. And I think we can make some changes
in government that will cause agriculture to stay the same grand—
no, grand is not the right word, but the same viable industry that
it has been for the last 50 years.

And I guess I would close by saying something I just read this
morning. It was attributed to Will Rogers, that he said 70 years
ago as we were just entering the era of government intervention in
agriculture. He said that farmers are learning that the relief they
get from the sky beats what they get from the government. But by
the same token, when there is no relief from the sky, we are going
to have to have something from the government, and I think that
is where we are today. We have had nothing from the sky since
July in this area—since the first of July. The corn is burned up,
the beans still have plenty of opportunity. ’d address your com-
ments.

{Mr. Erisman’s statement may be found in the appendix.}

Chairman TALENT. Thank you, Richard. You have summed it up
very well. Last Saturday I joined Congressman Hulshof at his
Ninth District picnic and it rained and nobody complained. Rich,
I am going to ask a couple of questions, and then I am going to
yield to my friend and you all have covered the ground very well.

Of all of the testimony that we got here, and it is excellent testi-
mony, your comment about the fact that, look, if a young person
or one of Phar kids came to you and asked you, should I get in-
volved in family farming, you know, you would have to say no, not
with the outlook the way it is. That sums it up, I think, as well
as it can be summed.

My own opinion, and I am not asking you to comment on this,
is that the innovation, the ability, the persistence of the average
family farmers today is such that probably most of them will prob.
ably struggle through. I mean, as long as this generation lasts, we
are going to have some kind of a family farm basis in this country.
The problem is if the most innovative and productive kids in the
next generation look at this and look at their other opportunities
that they can go into and say, geez, I'd love to, I just can’t. You
want to comment on that?

Mr. ERISMAN. It seems that the brightest and the sharpest of the
people that need to be out there making the production decisions
and doing the management are doing something else because the
income is a lot more secure. If we don’t have those bright folks out
there, pretty soon all you have got is a bunch of laborers in agri-
culture, and those folks are not going to necessarily be the folks
that you want or have the ability or desire or the need to do the
things it takes to keep the rural community alive.

Chairman TALENT. If you are looking at a sector where the max-
imum you are going to get is a few percent return over the years,
it is hard to draw the best people into it. Now the flip side of it
is—and I would like everybody to comment on this if you want to—
I also agree with what you were saying, that if we would do the
things that we can do, and I think are pretty obvious to do, we can


CONTENTS

Hearing held on August 10, 1999
WITNESSES

Blakemore, David, B&B Cotton Company ..
‘McNeall, Ronald, President, Missouri Corn Growers Association
Ludwig, Dale, Executive Director, CEO, Missouri Soybean Association
Erisman, Richard, Board Member, Missouri Farm Bureau

Cauthorn, John, President Elect, Missouri Cattlemen's Association
Rehmeier, Rick, Past President, Missouri Pork Producers Association
Palmer, Rich, President, Missouri Dairy Association ..

APPENDIX

Opening statements:
‘Talent, Hon. James M
Hulshof, Hon. Kenny

statements:

Blakemore, David .
McNeall, Ronald
Ludwig, Dale ..

Erisman, Rich
Cauthorn, John
Rehmeier, Rick
Palmer, Rich



The tax package just passed cuts the capital gains tax from 20% to
18% and permits indexing, beginning in 2000, for individuals, though not for
corporations. The bill also accelerates the time for 100% deductibility of
health insurance premiums paid by self-employed persons, includes
provisions for investment tax credits and phases down inheritance taxes -

ultimately repealing them in 2009 .

These reforms will go a long way toward providing farmers with a
much more reasonable tax environment. Thanks again for your leadership

and for permitting me to share these observations about tax reform.


Palmer, who is the President of the Dairy Association from Old
Monroe.

STATEMENT OF RICH PALMER, PRESIDENT, MISSOURI DAIRY
ASSOCIATION

Mr. PALMER. Good morning, Chairman Talent, Mr. Hulshof. We,
too, appreciate the opportunity to come and be a part of this discus-
sion.

As has been stated earlier, we are in this together. Agriculture
is be beginning to pull together as is evident by this group that is

I don’t have a written testimony, and I don’t think that is the
way this ought to be approached. Each of us here have stated, and
it has been stated several times that we are very much in agree-
ment with your all’s approach to the Farm and Risk Management
Account. The 20 percent amount that was stated earlier, we think
it ought to be larger than that. It probably ought to be considered
in a time thing, too, since the weather factor usually has about a
10-year rotation rather than a 5-year rotation.

We are also very concerned about the estate or death tax. As we
look at Missouri’s agriculture and the dairy operations, our average
dairy farmer is about 55 years old, and most of the sons and
daughters who are behind those operations are already off the farm
because there is no way that both families can make a living on
it.

We see expansion in all kinds of agriculture in the way of con-
solidation, and I think that is the fear that a lot of us have, is that
as we continue to consolidate, we look at possibilities of carpet
farming. And at that point, the price of food is not going to be 9
or 10 percent, it is going to be whatever it takes to produce it, plus
whatever the stockholder needs, plus whatever the profit margin
needs to be in that operation. So we won't see those kind of prices.

So we look at the small farm as an entity and as a business and
if we are going to maintain that, then we need those advantages
that come with the tax relief we are discussing here as well as
other things.

We talk about the infrastructure that is at risk. The infrastruc-
ture in the dairy industry is extremely at risk, and we understand
those things. The dairy industry of Missouri alone has lost nine
plants in the last 4 or 5 years. We are looking at a shrinking proc-
essing industry as is other agriculture. The veterinarians and all
of ee other people who rely on us for their income, are in jeop-
ar

The health tax—I mean, the health insurance is—we need that
part to be on a level playing field. We have fought the fight long
enough. We need those advantages, also.

Capital gains has always been an extremely tough part of agri-
culture because of what it does to our equity as we try to move on
to the next generation.

Dairy farming in this State has shrunk by 25 percent in the last
5 years. We are losing dairy farmers at a 10 percent rate per year
the last 2 years. So we are very aware of what is happening to the
industry, and these tax reforms certainly will have an impact and


COMMITTEE ON SMALL BUSINESS
JAMES M. TALENT, Missouri, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

DONALD A. MANZULLO, Ilinois
ROSCOE G. BARTLETT, Maryland
FRANK A. LoBIONDO, New Jersey
SUE W. KELLY, New York
STEVEN J. CHABOT, Ohio

PHIL ENGLISH, Pennsylvania
DAVID M. McINTOSH, Indiana
RICK HILL, Montana

JOSEPH R. PITTS, Pennsylvania
JOHN E. SWEENEY, New York
PATRICK J. TOOMEY, Pennsylvania
JIM DEMINT, South Carolina
EDWARD PEASE, Indiana

JOHN THUNE, South Dakota
MARY BONO, California

NYDIA M. VELAZQUEZ, New York

JUANITA MILLENDER-McDONALD,
California

DANNY K. DAVIS, Ilinois

CAROLYN McCARTHY, New York

BILL PASCRELL, New Jersey

RUBEN HINOJOSA, Texas

DONNA M. CHRISTIAN-CHRISTENSEN,
Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

DENNIS MOORE, Kansas

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

MARK UDALL, Colorado

SHELLEY BERKLEY, Nevada

HARRY KATRICHIS, Chief Counsel
MICHAEL DAY, Minority Staff Director


industry provides 186,000 full-time jobs on farms and ranches and supports an additional
1.37 million jobs throughout the economy. adding $153 billion to the U.S. economy. It
also represents the largest commodity sector in 18 states, second-largest in 9 states, and
third-largest in 6 states

Forty-two percent of U.S. cattle businesses with more than 100 head have been in the
same family for more than $0 years. Twenty-one percent have been in the same family for
more than 75 years.

Only 1.9 percent of beef farms and ranches are owned by corporations, and most are
family corporations with fewer than 10 stockholders -- only 0.2% are non-family
corporations. Most cattle ranchers (98%) own small, single-family businesses with less
than 500 head

The Impact of Estate Taxes on Agriculture and Beef

Agriculture sales exceeded $177 billion in 1993. Sales of cattle and calves amounted to
$39.9 billion in 1993 -- almost 23% of all agriculture marketings.

Combined sales for the 39 family agri-businesses surveyed totaled $740 million -- less than
one-half of one percent (.0042) of the total agriculture market The table below represents
the estimated impact of estate taxes and planning costs on agriculture and beef producers
based on the assumption that other firms in the industry operate in the same manner as the
firms in this sample.

ESTIMATED PAST ESTATE PLANNING COSTS FOR THE AGRICULTURE AND BEEF INDUSTRIES

Agriculture Industry Beef Industry*

‘Total past expenses for estate $159.6 million $35.5 million
planning advisors

Total past expenses for estate $505.9 million $112.4 million
tax life insurance

Total past costs associated $665.5 million $147.9 million

with estate planning

ESTIMATED IMPACT OF ESTATE TAXES ON AGRICULTURE AND BEEF JOBS

Agriculture Industry Beef Industry*
Jobs lost when estate taxes ‘18,200 jobs 4,000 jobs
tast came due

Fewer jobs now because of 53.900 jobs 12,000 jobs
estate taxes

Anticipated job losses 70,100 jobs 15.600 jobs
when estate taxes next

come due

Total fmpact on 142.200 jobs 31.600 jobs


Remarks of David Blakemore

For:
Columbia, Missouri Field Hearing
House Small Business Committee
August 10, 1999

Mr. Chairman, I thank you for arranging this hearing and for the
opportunity to share my views on small farm tax burdens. My name is
David Blakemore. ! am a cotton producer and ginner from Carnpbell,

Missouri.

Before addressing tax issues specifically, [ want to share some
observations about the acute economic plight confronting farmers and
related small businesses. American agriculture is dealing with crisis

conditions that affect ancillary businesses as well.

Need for Emergency Assistance

I find it most discouraging that some policymakers believe farmers are
doing rather well in 1999. USDA projects farm income for 1999 to be only
slightly lower than 1998. Mr. Chairman, the only reason America’s farmers
and ranchers 1999 income is only going to be down 12% below 1998 is
because USDA is counting $2.5 billion in emergency money that was
appropriated in 1998 but not received until June of 1999. USDA’s latest
projections indicate that commodity receipts (i.e., receipts for grains, oilseed
crops, cotton and tobacco) will be down down 23% from 1997. Given that

1998 returns did not cover farmers out of pocket cost of production you can


Statement of Richard Evisman st the U.S. Hense cf Representative’s
Coumittee om Small Buemess Field-Heariag on Smail Fare Tex Burdens,
August 10, 1999

‘Mr, Chairman, Congresscnar: Hulshe¢, thank vor for calling this mocring's hearing
to discass the growing tax Durden en US farmecs and ranchers. This is a very impartent,
and due io ibe disastrous conditions dicing the agricultural economy, very tomedy bearing.
Teoenmend yo: both Ser your cantizaed leadershop end support of ogrcahuse and ceed
cocmmunites.

My name is Richard Erisman and cay fiemily has been Swobred in production
agricolize for several penetacioes. My fiomily ond I farm acer Centralia where we operate
a diversified row crop and kog operntion. ] Sant fill-tizne and serve as 3 state boacd
csember ofthe Missouri Farm Bureau. My wife helps with the farming und also warks as
a ncsse in Colombia, Our three children also wock on the firm and my oldest sca wal.
gradcate from tbe Uciversiry of Missousi sor, and Lopes to contime farcsng.

“You are both well sware of the many problems Fismners are carresdly Zecing,
Coremodity prices are extremely lor and Tow we are fering serious drought conditioms.
Couzted with cominted consobdetine withic the agribusiness sectoc, weake export demaxe
and a groo.ng regulatory burden, the sitaatior kas created & financial. crisis far may farm
operations. Unfartunane'y, the booming LS econceny 3s actually & bust for agriculture.

Our farm is no exception. We suffered sevese losses Inst fall shen hog prices fill
29-8 cents per poand, approximately 20 percent afshe cost of production. In Apt, 2
tomnada ripped throunk our fer, damaging several buiktings and causing severs. thousece
oles :n demages. And now, cer cor ax soybear vields will no Joust be seduced as a
vesult of the d-ougks cond tions.

Ctairman, our farm is nol unique. Méssousi Farm Bureau recentiy completed
aseries resicnal meetings. with more taan 359 members in atiendance We learned
thes the cucrent crisis is affecting producers reguriess of what they are producing, what
cegioc. their operstion is lozated, taci- age o7 the size of their tar. ‘we heard stores of
younger peoducets stugging to head oc and older producers looking 10 get aur. We
‘Seard fatbers and mothers say they cennot in good conscience advise their children to stay
on ihe ferey farm. We heed one producer azy thet be was the youngest firmer in his
eowustig 19 years ago and stilt is todey.

Sometting is wrong. We cannct expect ces elected aficials wn Jefferiox: City ar
‘Waahingion, BC io eliminate all of the risk thes is aubecent in agrinliee As Senners, we
shouldn”t rely on financial assistence Brom the state os federal peverunscrt. But, likewise,
we should not be burdened wuth canecessary regclatior or excersive tention,


freat sense of justice that I think kept pushing this bill that you
ve championed so well.

The only other thing I want to say, and you can comment on it
if you want, and I thought about it with regard to some of your tes-
timony and also the first panel, people ask is there a crisis in agri-
culture, do we really need to do these things. I think as a nation
we have to decide whether we want a generation from now for
there to be a substantial family farm segment in America or not.
That is the decision we have to make.

If we decide we do, I think I am optimistic that we can have a
flourishing 1 mean, I am optimistic, if you do these things and
empower folks like you and hold, I hope for your kids, that we will
have a strong family farm segment. If we don’t, though, and I ap-
preciate your comments on this, I think we have to face the reality
that a generation from now we are going to be corporate-farm
dominated. You all as much have said it. You might as well just
say it. So we have to decide that Congress—is it worth preserving
the family farm as an institution in the United States? I think it
is, both for the sake of the food supply, but something beyond that,
also. 1 mean, I think America loses something if we don’t have fam-
ily farmers anymore.

You may want to make a comment. This is what I hear over and
over again, and I don’t know if people are just willing to say it
right up front. We are not going to be able to assemble a panel like
you all 30 years from now if we don’t do something. Is that a fair
statement?

Mr. REHMEIER. I think something will have to be done. I think
we need you all to go back there and champion for it. And if we
don’t have, like I said, my son, their sons coming up, you won’t
have anybody sitting here 25 years from now that you can talk to
except corporate boards, and that is my opinion.

Chairman TALENT. Well, thank you for your testimony. Let’s now
leave the record open for five days, which is common with the Com-
mittee, in case any members of the Committee who weren’t here
today or Mr. Hulshof wants to submit any other questions or com-
ments, and with that, I will adjourn this hearing of this Small
Business Committee, and, again, with my gratitude to the wit-
hesses.

{Whereupon, the committee was adjourned.]


First of all, I want to thank you for what you have done on gen-
eral tax reform. I think it is time for some people in Missouri and
all across this country to stand up and say you are doing the right
thing. I feel it surprising that you would be criticized for wanting
to send money back to the people who actually earned it and the
people that are sending it to Washington in the first place. When
you talk about selfish, I think of the people in Washington who
Want to keep all of the funds. So I applaud you for your efforts
there.

Chairman TALENT. Thank you for that, Dale. My comment on the
radio this morning, many of the people who are criticizing this are
quite sincere, but if you actually sit back and listen to the criti-
cisms, they come from all over the place. We shouldn’t cut taxes be-
cause the economy might be too good, we shouldn’t cut taxes be-
cause the economy might be bad, we shouldn’t cut taxes because
we want to reduce the debt, we shouldn’t cut taxes because we
want to spend the money. I mean, you reach the conclusion after
a while, these people just don’t want to cut taxes, and with that
I just fundamentally disagree.

I exercised the Chairman’s prerogative to interrupt you.

Mr. Lupwic. That is fine. Feel free at any time.

The Farm and Ranch Risk Management is a wonderful idea and,
as has been said a couple of times, it is unfortunate that it wasn’t
in place over the last 5 or even 10 years, but we only have to go
back to 1997 when soybeans were in the mid-eight dollar range.
They are half that today. In 97 we would have been able to put
some money into this account, and I also agree 20 percent probably
isn’t enough.

The other thing that I would want to support, certainly, Ron of
the corn growers is tax credits is one of the right ways to go to en-
courage people to get involved in new generation co-ops. That is
part of the long-term strategy in my opinion that we are going to
have to take to come out SPints severe situation that we are in.

Chairman TALENT. I absolutely agree. Capturing the value and
diversifying for the family farmer is absolutely a key. I should have
said in response to your comments, Ron, this gentleman sitting to
my left almost single-handedly saved the ethanol tax credit 2 years
ago, was it?

And he won’t say it himself, but the flak he took inside the Con-
gress for standing up for his constituents—maybe he has said it,
I don’t know. He really did.

Mr. Lupwic. I see a (FARRM) Farm and Ranch Risk Manage-
ment as being a piece of the puzzle to kind of the long-range ap-
proach to improving conditions in agriculture, but there is a whole
number of other things that need to be implemented, and I will
quickly kind of go through a couple of those.

An infusion of cash into agriculture like we did last year prob-
ably will be necessary again. The second thing, we are currently
working on trying to move some soybeans around the world in a
humanitarian type effort. The advantage to moving these beans
into some countries that actually need food are twofold. Number
one, if we can bring the price up, we actually reduce the amount
of dollars we would pay in deficiency payments. So actually the cost


employment (past, present,
future)

FAMILY BUSINESS ASSETS AND ESTATE TAX REVENUE

Family business assets are a small fraction of taxable estates. While family business
assets are very vulnerable to estate taxes, most of the assets subjected to estate taxes are
not part of a family business. The majority of estate tax revenue is paid by a relatively
small number of individuals (estates). Those with estates in excess of $5 million make up
less than six percent of taxable estate tax returns, they pay nearly half (48%) of all estate
taxes - and most of this does not represent family business assets. Even among those with
estates larger than $5 million, less than one-fourth (23%) of the wealth in their estates
consists of family business assets, based on the assumptions used in the table above. It is
important to note that this amount does not account for assets moved out of owners’
estates to avoid estate taxes. It also does not include assets transferred to the next
generation prior to death on which estate taxes have already been paid. Thus, the added
flexibility for family business owners which would occur if estate taxes were eliminated
would likely be greater than that indicated by these data.

OBsTACLES TO LONG-TERM FAMILY BUSINESS SUCCESS

Family business wealth is different from other wealth.
Family business ownership greatly complicates the estate planning process, significantly
limiting the potential for estate planning effectiveness,

Owners with increasing portions of their estates represented by the family business

experience several difficulties:

© They are less able to minimize estate taxes.

© They spend more for estate planning advice.

© They are less optimistic about future business survival.

© They are less optimistic about future business growth.

© They are more likely to liquidate at least part of their business when estate taxes come
due,

> They are more likely to eliminate jobs when estate taxes come due.

While all businesses face obstacles 10 survival and long-term success, family businesses
face numerous challenges not encountered by other firms, The “family” component which
can be a tremendous benefit to a family business can also lead to its undoing. Many have
attempted to speculate about which characteristics and behaviors make the difference in
the roughly 3 in 10 family businesses that survive through the second generation. The
truth is that family businesses fail for many reasons. The difficulties which surround
succession of management and ownership can be greatly aggravated in family firms. These
occur at the precise time when the family is most vulnerable -- when an owner or leader
has died and the family is grieving, businesses often struggle with this void in leadership.


One problem with planning for estate taxes is the ever changing value of the business.
‘When beginning the process of estate planning, it is almost always impossible to accurately
predict the future value of the business. This leads to too little planning, which puts the
business at risk, or over-planning, which drains capital from the business as families set
aside funds to pay future estate taxes. Inappropriate estate planning can also result in
ownership transfer decisions which hinder the working relationships of next-generation
family members.

OTHER RESEARCH

‘The findings of the Kennesaw study are consistent with those of others who have studied
the drain estate taxes impose on the economy. Foster and Fieenor (1996) concluded that
in order to match the disincentive effects of estate taxes, income taxes would have to be
raised to roughly 70%. Saposnik, Tompkins and Tutterow (1996) developed a model of
investment decisions in closely-held firms, illustrating how estate taxes may act as a
disincentive to owners investing in illiquid, value-increasing investments. Bernheim (1987)
concluded that the indirect effect of estate taxes on federal personal income tax receipts
results in a neutral or even negative impact on federal tax revenue. Soldano (1996)
concluded that estate tax revenue is not worth the costs of government enforcement
efforts, reporting that government and taxpayers spend approximately $0.65 on
enforcement and compliance activities for each dollar of estate and gift tax collected.
‘Wagner (1996) calculated the number of jobs that would have been created from 1971 to
1991 had estate and gift taxes been eliminated in 1971. He estimated that 262,000 more
jobs would have been created than actually were. He also estimated that the supply of
capital would have been $398.6 billion higher, and GDP would have increased by $46.3
billion more than actually occurred. Aronoff (1995) estimated the effect of a business
owner investing $100,000 in the business as opposed to spending that amount on estate
tax life insurance premiums. He estimated that this $100,000 investment would in that
same year produce:
1. $500,000 more in taxable sales per year.
2. 5 new jobs paying $25,000 each at a 12% tax rate yielding $15,000 more in annual
personal income tax revenue;
3. $8.750 in additional annual corporate tax revenue, assuming a 5% profit margin and a
35% corporate tax rate;
4. Over 20 years, $4.75 million in additional revenues to the federal government,

For additional information contact:

_ Jay Trait Dale Moore
Missouri Cattlemen's Association National Cattlemen's Becf Association
2306 Bluff Creck Drive, Suite 100 1301 Pennsylvania Ave.. NW, Suite 300
Columbis, MO 65203 Washington DC 20004-1701
(p) 573-499-9162 (p) 202-347-0228,

(f) 573-499-9167, (£) 202-638-0607


uate from college in December, would love to farm, but is there
going to be a place?

The FARRM account would probably help because we would have
had more money available to get through these bad times to make
an opportunity for young people to get in.

At the meeting that Farm Bureau held, one producer said that
he was the youngest farmer in his township 10 years ago and he
still is. What’s that saying for all of north Missouri?

I had the opportunity to personally talk to Secretary Glickman
in December, and I think that Congress has got to make a con-
firmed and conscious decision to maintain agriculture and if they
don’t, you are going to see continued change and continued con-
glomeration.

One of the livestock farmers that I deal with says we are having
the Wal-Martization of agriculture because it is just getting bigger
and bigger and bigger and the products that we have to sell are
cheaper and cheaper. Pretty soon we are all just going to be work-
ing for somebody who has no tie to the land, he has no tie to the
rural community, there is nobody to support the schools, you don’t
have a tax base there. And I think that the FARRM account and
some of the things that you guys are trying to do are helping to
address those situations that are going to keep the people on the
land in north Missouri.

If you go to Columbia and Mexico where you've got population
centers, you've got lots of opportunities for income but if you get
much farther north, it is agriculture, and when agriculture is hurt-
ing, those communities are hurting.

Something is dreadfully wrong. The elected officials, you guys,
can’t—we shouldn’t have to look to you all for financial assistance
year after year, but somehow or another we have got to get the reg-
ulations and the taxation burdens reduced, too.

The FARRM account, how could we ask for more? The Farm Bu-
reau is going to support death tax reductions. The comments here
say that we just spent $1,250 for an estate tax plan, and that is
exactly right. And when I was getting ready to do this, it seemed
only right to say that the only people that benefit from that $1,250
were accountants and the attorneys. And I asked the person that
was helping me write this if I should.

Chairman TALENT. I want to know where you got a lawyer to do
it for $1,250.

Mr. ERISMAN. The first guy wanted $1,800. Maybe we don’t have
a good estate plan. Who knows?

But the whole key is, are we going to be able to stay on the
ground, on the land and are we going to be able to pass it on to
the next generation? And the FARRM account will help do that.
The elimination of the death tax will definitely help do that.

I think that you guys, Congressman Hulshof and Congressman
Talent, are definitely on the right track. Farm Bureau is going to
support what you are doing. You are doing what we have asked

ou to do. I have this great desire to say thanks, I guess, to let you
iow that what you are doing is what we want done.

Some of the things that we learned when we were doing these
series of meetings, we had two people from the University of Mis-
souri. One of them was an economist, and he said that changes are