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April 11, 2000, Tuesday

SECTION: PREPARED TESTIMONY

LENGTH: 913 words

HEADLINE: PREPARED TESTIMONY OF STEVE KOUPLEN PRESIDENT OKLAHOMA FARM BUREAU THE AMERICAN FARM BUREAU FEDERATION

BEFORE THE HOUSE COMMITTEE ON WAYS AND MEANS

SUBJECT - CONGRESSIONAL SUMMIT ON FUNDAMENTAL TAX REFORM

BODY:
Mr. Chairman and members of the committee, good morning. My name is Steve Kouplen, and I am president of the Oklahoma Farm Bureau. I have a Hereford cow-calf operation on 2,000 acres in Okmulgee County, Oklahoma. I am appearing here today on behalf of the American Farm Bureau Federation (AFBF) and the Oklahoma Farm Bureau. AFBF represents more than 4.9 million member families in all 50 states and Puerto Rico and produce nearly every type of farm commodity grown in America.

Farm Bureau members are ready for fundamental tax reform. They have become increasingly frustrated with the current tax system and disheartened that every attempt to change the system to benefit farmers and ranchers makes the system even more complex. Simple ideas, such as income averaging for farm and ranch incomes that vary greatly year to year, become almost incomprehensibly complex when changes are passed by Congress and regulations issued by the Internal Revenue Service (IRS). The national sales tax plan sponsored by Reps. John Linder (R-GA) and Collin Peterson (DMN), H.R. 2525, is a bold attempt at fundamental reform. By eliminating the federal individual and corporate income taxes, capital gains tax, estate tax and payroll taxes for Social Security and Medicare, they would address the hundreds of concerns that Farm Bureau members have with the current tax system. These changes would have far-ranging impacts on day-to-day farm and ranch management and the transfer of farms and ranches from one generation to the next.

The current tax system forces farmers and ranchers to consider the tax consequences of each input purchase, commodity sale, capital asset purchase or capital asset sale. Tax planning has become a normal part of everyday decision making. Farmers and ranchers should be making decisions based on the economics of the situation, not the tax consequences of the situation.

After a lifetime of hard work and paying taxes, farmers and ranchers are faced with double taxation, with the capital gains tax at retirement and the estate tax at death. If they sell equipment? livestock and other assets at retirement, they find the federal government as a silent partner ready to take a share as capital gains taxes. These taxes often discourage retirees from reallocating assets to a more appropriate mix for their retirement years. Younger producers lose the opportunity to purchase assets that they can use more economically than the current owners.

Planning for the transfer of assets at death has become a time consuming and costly activity. Many family farms are multi-generation family farms. Transferring farms and ranches from one generation to the next without a huge tax load is critical to the financial success of these farms. Asset transfer decisions that were delayed because of the capital gains tax are further complicated by the estate tax. Many farms are lost when death taxes force farmers and ranchers to sell part or all of their business to secure enough cash to pay death taxes.

These problems would all be swept away by the tax reforms as proposed by H.R.2525.

If H.R. 2525 is enacted, attention should be given to two potential problems that are of concern to farmers and ranchers. First, a national sales tax will need to be meshed with existing state and county sales taxes. State Farm Bureaus have worked for decades in their respective states to develop a state sales tax system that treats farmers and ranchers fairly. They want to avoid having to start over again on basic sales tax issues with state governments.

Second, only about 5 percent of the farmers and ranchers sell directly to consumers. These should be the only ones that have to keep records and remit sales tax money to the proper collection agency. Farmers and ranchers buy billions of dollars of inputs for production purposes that are also purchased by consumers for final use. This includes a wide range of items from pickup tracks to lumber for building repairs to hand tools. They do not want to get caught in the compliance burden that may be necessary to ensure that all retail sales taxes are properly collected.

Farm Bureau Policy

Farm Bureau supports replacing the current federal income tax system. The new tax code should encourage, not penalize, success and encourage savings, investment and entrepreneurship. It should be transparent, simple and require a minimum of personal information.

We support a replacement tax system if it meets these guidelines:

(1) Fair to agricultural producers;

(2) Implemented simultaneously with the elimination of all payroll taxes, self-employment taxes, the alternative minimum tax, the capital gains tax, death taxes and personal and corporate income taxes;

(3) Revenue neutral;

(4) Repeals the 16th amendment; and

(5) Any flat tax proposal or other reform proposal not based on gross revenue received.

We support requiring a two-thirds majority for imposition of new or additional taxes, or for the increase of tax rates. A consumption tax must not tax business-to-business transactions or services unless sold for final consumption.

At an American Farm Bureau Federation Board of Directors meeting in March of this year the board took specific action to support the Fair Tax Act of 1999 and any other tax reform proposals consistent with Farm Bureau policy.

We look forward to working with you to promote fundamental tax reform that will be good for farmers and ranchers and for all citizens.

END

LOAD-DATE: April 12, 2000

Document 24 of 46.


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