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Congressman Adrian Smith

Representing the 3rd District of Nebraska


Advocating for Nebraska’s Agriculture

March 30, 2018

Everyone agrees agriculture is important to Nebraska and vital to the U.S. economy. This is why the tax code – and any efforts to reform it – should treat businesses and individuals engaged in farming and ranching to the same benefits as other business sectors across the country. For this reason, when we were working to draft tax reform in the Ways and Means Committee I fought for provisions important to agriculture such as keeping full property tax deductibility for agricultural land as a business expense.

I continued my efforts to ensure other agricultural concerns were addressed as the bill moved through committee markup, floor consideration, and the conference between the House and Senate.  During the markup process, I worked to remove a provision which would have applied self-employment taxes on rental income, including agricultural land, and I led efforts to address concerns about limitations on interest deductibility which would have been especially challenging for cattle feeders. I was pleased when these issues were remedied in the final version of the bill.

I also worked through the legislative process to include language addressing the concerns of agriculture cooperative patrons. These producers would have seen tax increases, despite lower overall tax rates, because of the elimination of a provision known as Section 199, which provided an additional deduction for manufacturers and producers. 

While most industries using Section 199 were happy to trade its elimination for a much lower overall tax rate, the way the deduction had historically been used by cooperatives meant patrons would have seen a four to twelve percent tax increase.  As a result, I supported various efforts to include language addressing the concerns of cooperatives and producers in the final version as it moved toward passage.

However, as is commonly the case with any large-scale legislation – having been drafted by humans and subject to human error – it quickly became apparent a measure intended to level the playing field for cooperatives would put private and investor-owned commodity buyers at a disadvantage. In short, the provision would have incentivized farmers to sell their crops to cooperatives rather than private buyers, distorting the marketplace.

Known as the “grain glitch,” the provision needed an immediate legislative correction. Since early January I have been working with my colleagues in the House and the Senate, Ways and Means Committee Chairman Kevin Brady, and House leadership, to develop narrowly-targeted legislation to restore fair competition in agriculture markets. Replicating the Section 199 treatment of cooperatives under the previous tax code, combined with lower rates and simplified compliance, would ensure as many producers as possible see tax cuts, which was the intent of tax reform. 

The “grain glitch” fix enjoyed wide, bipartisan support. Agreement, however, does not always translate to full and immediate action. What should have been an easy provision to pass was stalled by procedural rules in the Senate. Ultimately, it became clear the only way to bypass the Senate logjam was to add the fix to the Consolidated Appropriations Act of 2018, which was negotiated to pass both chambers and be signed by the President.

While the legislative process can be messy at times, I am very happy to have these issues resolved. I appreciate the willingness of cooperatives, non-cooperative buyers, and end users to come to the table, as well as the efforts of Ways and Means Committee Chairman Kevin Brady to work with me to ensure this was enacted as soon as possible. The success and competitiveness of Nebraska’s agricultural sector will always be among my highest priorities.