03.22.2018 0

Congress created the Grain Glitch, Congress should fix it

By Natalia Castro

The time has come for Congress to fix a problem they created. With the passage of the Tax Cuts and Jobs Act, Republicans in Congress offered generous tax cuts to millions of Americans, but they also created an unfair “grain glitch” that undermines the foundations of competitive capitalism. As Congress focuses on spending measures this week and in the weeks to come, they must fix this glitch in the tax law.

The “grain glitch,” or Section 199A of the tax reform law, is a tax incentive granted to farmers who sell agricultural products to co-ops rather than independent, private buyers. When selling to co-ops, farmers can now deduct up to 20 percent of their total sales made; however, when selling to privately held or investor-owned companies, the farmers can now only deduct 20 percent of their income.

This gives farmers the potential to eliminate far more of their entire income tax liability when selling to co-ops, providing a clear incentive to move their business in that direction and destroying the natural competition in the market.

Senate Agriculture Committee member John Thune (R-S.D.) included the glitch to offset the removal of deductions on domestic grain production, but even Thune has since reversed his decision.

Ryan Wrasse, spokesman for Senator Thune, wrote in an email to Ag News’ Farm Forum, “Ultimately, Sen. Thune believes that producers should make decisions about where and how to sell their products without the tax code unfairly tipping the scales in favor of marketing to one type of business entity or another.”

If Senator Thune is serious about fixing his error, he must use the Senate’s upcoming spending debate as a platform for removing the grain glitch.

Congress is heading toward another government shutdown on Friday if a spending bill is not passed. Up to this point, Congress has been passing short-term spending bills to fund the government for weeks at a time, but now Congressional Republicans are pushing for an omnibus bill worth over $1.3 trillion.

The Small Business and Entrepreneurship Council on March 5, 2018, explains, “One vehicle to fix the glitch is the pending budget bill, where the action will occur soon and which makes sense given the urgency of the matter.  It would be a shame if Democrats use the issue as ‘leverage’ or to let it hang in order to inflict political damage on Republicans. Livelihoods and a critical sector of the economy may be upended as a result of the error.”

By using the spending bill as a chance to fix the grain glitch, Congressional Republicans can prevent their mistake from inflicting further damage on the country’s economy.

Karin Kerrigan of the Morning Consult on March 19, 2018, explained, “There’s additional risk if those outside the agricultural sector begin to seize on cooperatives as a potential tax shelter. In this worst-case scenario, widespread use of a deduction on gross income becomes the Ice-Nine of tax reform’s standing as a sensible reform initiative… We all make mistakes, although, honestly, most of us don’t upend American industries with a typo. Congress needs to fix this problem before anyone else is harmed by this error.”

Congress passed a historic tax reform package, but it was not perfect. They must now seize upon opportunities like the spending bill to fix their mistake. The grain glitch allows the government to pick winners and losers in the market, which should never be the government’s role, so now it is up to Congress to remove that authority.

Natalia Castro is a contributing editor at Americans for Limited Government.

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