By Tony Eberhard, IDFA Vice President of Legislative Affairs
Welcome to “Hill of Beans,” a periodic update by Tony Eberhard about the association’s work in the U.S. House of Representatives and the U.S. Senate to advance dairy industry priorities. After working on the Hill for various members of Congress and senators since 2001, Eberhard gives IDFA readers a former Hill staffer’s take on what is going on and how it affects our priorities.
“There is a lot of work being done in the House and Senate that never makes the headlines but affects members’ bottom lines, and I’m hoping these updates will prove useful to you and your organization,” Eberhard said. “I’m titling these updates ‘Hill of Beans’ because to many in national media this information might not amount to much, but to our industry’s agenda in Congress, it is critical.” Read the update below.
It isn’t uncommon for major pieces of legislation to be followed by what are called “technical corrections” that are subsequently passed as part of another piece of legislation or in their own technical corrections bill. It should be no surprise that the 400-plus pages of the Tax Cuts and Jobs Act (H.R. 1), which last year revamped the tax code on a scale not seen since 1986, would require a few technical corrections. One of the first of these adjustments to be identified is a provision that affects the dairy industry: Section 199A.
Section 199A is a new provision in H.R. 1 that was meant to help cooperatives that would not benefit from the lowering of the corporate tax rate from 35 percent to 21 percent and would no longer receive the former Section 199 domestic production activities deduction. The new Section 199A allows farmers who sell their products to non-cooperatives to deduct 20 percent of their net qualified business income, while farmers who sell to cooperatives can deduct 20 percent of their gross income. The difference in this provision between “net” and “gross” income is significant enough to distort agricultural markets, including the dairy marketplace.
There is widespread consensus that an equitable solution to this problem must be found. Agreement on the need to find a fix not only exists among those in the agriculture industry, but on Capitol Hill as well. In the tax-writing committees, House Ways and Means Chairman Kevin Brady (R-Texas) and Senate Finance Committee Chairman Orrin Hatch (R-Utah) are actively working to fix Section 199A, and other members of Congress who are trying to find a solution are those who were instrumental to creating Section 199A in the first place. No legislator wants to see a bill create unintended consequences.
When the Section 199A provision appeared in the final version of H.R. 1, it surprised almost everyone. For IDFA’s part, we didn’t participate in the tax debate last year as our membership represents nearly every tax structure under the sun, which would have made achieving an effective position on tax reform challenging to say the least. Now, IDFA is engaging in this issue as we have a tax issue that is directly affecting the dairy marketplace. On behalf of both cooperative and non-cooperative members, we are seeking a solution that creates a level playing field while restoring the benefits of the original Section 199 to coops, and we are reaching out to the Hill to support a fix to Section 199A that achieves that objective.
Fortunately, there is not only broad consensus on the Hill for a Section 199A fix, but there is also a potential legislative vehicle. The current authorization for government funding runs out on March 23, and Congress is working to pass an omnibus appropriations bill before that deadline to fund the government for the remainder of fiscal year 2018. IDFA’s gaze is focused squarely on this omnibus as the next best vehicle for a Section 199A fix.