Early Uprisers – Farmers and Real Estate Industry Oppose 1031 Changes

Early Uprisers – Farmers and Real Estate Industry Oppose 1031 Changes

I don’t care how mellifluously John Denver sings it – life on the farm is nothing like laid back.

At least not these days.

Farmers are curiously placed in life: millionaires tending green fields, scant green in their jeans. The collective worth of land, barns and tractors can start at six figures and stretch over the horizon. I looked it up for you: a mid-size John Deere, the economy model, starts at $300,000, with accessories extra – they can double or triple the price.

Barns to keep chickens cool, safe and comfortable, cost millions. There’s animal feed, crop seed, pesticides, germicides, pure water. Cropland averages $4,100 per acre, the USDA tells me. A good-sized farm can be worth north of $30 million.

Lookin’ pretty rich in them britches, hayseeds. Yet Fortuna, inequitable goddess, is often unkind to the tillers of soil. Wicked weather, nibbling insects, gruesome parasites, funky fungi, the changing tastes of spoiled consumers, the obscure wax and wane of foreign markets – to say nothing of politics at home – can blight a promising harvest faster than a farm boy can doff his ‘gimme’ cap, mop his brow and wave to Ma.

We know President Joe Biden aims to tax the wealthy. Ma and Pa Kettle, that’s you – or so it might seem.

Joe proposes taxing any profits from 1031 like-kind exchanges that exceed $500,000. That might seem reasonable to a small-scale real estate punter, but for farmers, the president’s bar looks a mite low. There’s more: Biden wants to eliminate the step-up in basis and raise the capital gains tax from today’s 20% top rate to 39.6%.

These proposals are problems for farmers. First, farm families often want the operation to stay in the family. If Biden’s plans all become law, this could get tricky. Second, when farmers sell something, the deal usually happens in one year, and given the value of land and other assets, they often pay the top capital gains rate. Farmers favor the 1031 exchange, useful when everything you own is expensive and success in the market requires frequent upgrades to gear and improvements to land.

This isn’t all Joe Biden’s fault; it was President Trump, the businessman’s friend, who got the ball rolling. His Tax Cuts and Jobs Act pared down the 1031 to where it only covered real estate exchanges. Farm buildings and machinery were no longer protected from capital gains taxes at sale. For the farmers, pro-business Trump proved a pain in their plow seats.

Candidate Joe Biden scented blood. Trump made the mistake – one he’d never concede – of bragging how he’d legally evaded taxes via the 1031. Killing the rule became one of Joe’s campaign planks, and now he wants its death enshrined in solid legality. Content to measure my politicos by actions more than words, I was never an unrelenting Trump hater. Really, though, for some people’s sake, he should’ve kept his big yap shut.

How the corn stalks fall on this one will depend on politicking. Already the farm advocates are up in arms. The American Farm Bureau Federation – political operatives, take note of the name – opposes all forms of capital gains tax. If we’re stuck with them, AFBF wants producing agricultural land and asset transfers between blood family excluded from these levies. That’s a combative stance these days.

No surprise, though: burned by two presidents, the hayseeds resist being tossed in the bailer. A political alliance has formed, and in March it sent letters to Treasury Secretary Janet Yellen, along with members of the Senate Finance Committee and the House Ways and Means, arguing that the 1031 should be preserved.

The alliance includes AFBF, along with the American Hotel & Lodging Association, the National Association of Realtors, the Mortgage Bankers Association and others. The real estate industry thinks the 1031 is misunderstood, fears its elimination will freeze the gears on the overall economy. Whatever you think about the issue, this a broad-based alliance of heavy hitters that can shake the pillars of Washington.

I love a good donnybrook, and once I witnessed one. It went down in 1978, when I was 19, summering in DC after freshman year, managing a youth hostel for a local church. I wasn’t sufficiently responsible to manage a sock drawer, but hey, we all make mistakes. In short, they trusted me. I report with relief that no one died.

One sultry summer day, the farmers rode in and the locals welcomed them kindly. Old MacDonald’s extended clan came with a posse of tractors, jammed up the Mall without permit, blocked the bridges at rush hour. They got in our faces, wiped off our smiles.

They were mad – going broke, taxed too high, prices too low – where was Uncle Sam? Ensconced in cool offices on Capitol Hill, paying too much attention to those alluring young pages, while the farmlands that feed us and half of the world were burning. They’d show us.

The dozen or two I met at the hostel were nice, as you’d imagine. They were so mad, though – insisting we all thought ‘food comes from stores wrapped in plastic’. They were so convinced they were unappreciated, they never bothered to figure us out. In DC, that’s bad medicine.

The shouldn’t have blocked those bridges; nothing in DC inflicts pain like commuting, and they willfully made it worse. Mega-positive news coverage turned hostile at flash-flood speed. The Capitol gatekeepers, secretaries, admins, office directors – the real power brokers – turned cold.

No, the congressman is not in. If you want an appointment, schedule well in advance. Stonewalled. The Park Service reported those tractors had caused $1 million in damage to the taxpayers’ sprinkler system. Is this how you show respect to the American people? Tails between green jeans, the farmers slunk back to their pastures and fields.

It wasn’t a wasted trip. They paid the Park Service bill pronto; farmers came down from Maryland to repair the Mall’s grass. They organized, hired professional lobbyists, came back the next year, disciplined and ready.

We forgave them their sins; Americans love their farmers. I remember the news footage: roving bands clad in jeans, church shirt and tie, ball caps on heads, marching from appointment to appointment in the Capitol. They were sharp and polite – hicks on the surface, inside professionals who understand soil science, technology, chemistry, commodity markets… they spoke plain and direct, and got what they wanted.
Washingtonians love folk who can game the system, and are eager to help them. Them farmers can handle Congress, make their bucks talk, get out the vote. I tell you, city slickers – it’s a sight to behold. Get ready for the show, maybe coming this summer.

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