SCHUMER: FEDERAL RESTRICTIONS ARE PREVENTING MOHAWK VALLEY FAMILY FARMERS FROM INVESTING IN NEW EQUIPMENT; SCHUMER BILL WOULD HELP SMALL FARMERS PURCHASE NEW EQUIPMENT TO INCREASE EFFICIENCY, SAVE MONEY & HELP KEEP THEM IN EXISTENCE
Current Federal Restriction Greatly Constrict Small Farmers’ Ability To Purchase Expensive Farm Equipment; Farmers Are Forced To Use Old & Inefficient Equipment Until It Breaks Down, Stagnating Growth, Constricting Already-Tight Profit Margins and Sometimes Delaying Harvest
Schumer Bill Would Create New Incentives For Small Farmers To Quickly Recover Costs From Purchasing Expensive Farm Equipment; Family Farmers Will Save Money
Schumer: Feds Should Plant New Tax Incentives For The Mohawk Valley
Standing at Richvalley Farms in Mohawk, U.S. Senator Charles E. Schumer today said the current federal tax code is preventing farmers from investing in new farm equipment sooner. The modern equipment available for farmers today, while expensive, is fitted with the latest safety features to help prevent injury and loss of life, as well as technology that increases efficiency and employs emission controls that help reduce air pollution and fertilizer runoff. Schumer said if small farmers had better incentives to purchase new farming equipment, those in Mohawk Valley and around New York State would be more inclined to make these costly investments. Therefore, Schumer urged his colleagues in the Senate to support the bi-partisan tax plan that would help family farmers and ranchers finance new equipment, putting money back in their wallets, so they can invest in their business and strengthen the local economy. This bill, the Agriculture Equipment and Machinery Depreciation Act, is supported by the American Farm Bureau and the National Farmers Union.
“Farmers throughout Herkimer County and the Mohawk Valley Region need updated tax incentivizes that allow them to purchase the critical equipment needed to help their farms operate and grow. Allowing them to take advantage of depreciation tax deductions in a shorter timeframe would be good for business. Having more cash on hand, and sooner, would be a boon for farmers across Herkimer County and the entire regional economy,” said Schumer.
Schumer explained that farmers purchase new equipment for many reasons, including newer, safer technology becoming available, advances in engineering lowering the maintenance costs of new machinery and increased fuel efficiency and emissions controls that help reduce pollution. However, Schumer said, small, often family-owned farms must wait until their equipment has exceeded its usable life because replacing it can be incredibly costly.
The general wear and tear of the machinery used on farms results in the depreciation of the value of this machinery, until it is eventually obsolete. This depreciation on equipment is a cost incurred by farmers over time that the tax code helps buffer through a depreciation deduction. This deduction allows farmers to recover the cost of the depreciation of an asset (farm equipment) over time through lower taxes. The length of time this deduction is taken is known as the recovery period.
However, despite this buffer under the current federal tax code, Schumer said farmers are less likely to invest in new farm equipment because the recovery period for the deduction does not align with the useful life of equipment or the averaging financing schedule of machinery. According to surveys from the USDA’s Farm Service Agency, farmers and ranchers finance farm equipment and machinery for five years on average. However, farmers currently have to take their depreciation deductions over a 7-year recovery period.
This is why, Schumer said, aligning the recovery period with the financing schedule at five years would help farmer finance new equipment purchases and invest in their farms. The depreciation deductions farmers receive over many years is more valuable if farmers can receive them in a shorter time frame, as there is less inflation over a shorter period of time and having more cash on hand enables farmers to reinvest that money and expand earnings.
For example, if a farmer purchases a tractor for $100,000 with a salvage value of $30,000 after its useful life, its depreciation cost is $70,000. Currently, the farmer is only able to receive a deduction for this $70,000 depreciation cost over seven years, resulting in a $10,000 per year deduction for seven years. Schumer’s bill would allow farmers to receive the depreciation deduction over five years, allowing farmers to deduct $14,000 per year for five years. This $14,000 deduction can be used to pay off a farmer’s loans on the tractor, or can be used for additional investments in the farm. Either way, Schumer notes, having more cash on hand, and sooner, is a boon for farmers across Upstate NY.
As a result, he is pushing legislation that would restore and make permanent an incentive that would allow small farmers, like Richvalley Farm in Mohawk, to quickly recover costs from purchasing expensive equipment. Schumer cosponsored legislation, theAgriculture Equipment and Machinery Depreciation Act introduced by Senator Klobuchar (D-MN), which would amend section 168 of the Internal Revenue Code to make it easier for farmers to pay for farm equipment. This legislation would improve the depreciation deduction by moving the 7 year timeline up to 5 years in order to match the depreciation of farming equipment and financing schedules used to pay for such equipment to give farmers more money up front for their purchases.
Schumer said Richvalley Farm covers over 700 acres in Herkimer County, including 340 acres of corn, 400 acres of hay, and 190 cows. According to the farm’s owners, the farm currently needs a new mixer for cattle feed. On a farm as large as theirs, this equipment has experienced a lot of wear and tear. While the farm’s owners would prefer to replace it, the high price of $40,000 to replace a mixer is daunting for a small, family-owned farm. According to the farm’s owners, the mixer is 8 years old and the typical lifespan of a mixer is roughly eight to 10 years. While the owners have said they could repair it, the mixer will not last more than a year following the repair, underscoring the need to replace it entirely. Having to replace such a piece of machinery right now would leave Richvalley Farm with less cash on hand for further investments, and the farm’s owners say it is just not feasible cost-wise right now. Instead of making repairs to the mixer or purchasing a new one, Richvalley will need to keep running the current mixer until it has reached its usable life and must be replaced entirely. The farm’s owners noted that having more cash on hand would help them invest in their farm and make purchasing the new piece of equipment easier.
In addition to purchasing a new mixer – which has been prioritized for replacement by Richvalley Farm due to the fact that it is needed to feed the cows twice a day – farm owners have said a new tractor is desperately needed. Currently, the newest tractor on the farm is 13 years old. The estimated cost of replacing a tractor is approximately $190,000. Schumer said this is a massive cost to shoulder despite the desperate need for both pieces of equipment. Schumer said these kinds of situations could be made easier if the federal government were to align the depreciation deduction recovery period with the financing schedule of equipment at five years. This would allow farms like Richvalley’s in Herkimer County, as well as across the Mohawk Valley Region, to have more cash on hand and therefore finance new equipment purchases and investments in their farms. Farm owners said that having the 5-year permanent depreciation would free up finances and allow them to purchase a new combine for harvesting.
Schumer noted that Herkimer County is home to approximately 65,000 residents and agriculture is one of the area’s top industries. According to the U.S. Department of Agriculture, in 2012, there were 687 farms and 140,270 farmed acres in Herkimer County. This accounted for approximately 16 percent of the total land area. Roughly 46 percent of the County’s farms involve dairy cattle and milk production. Schumer said dairy farms in particular require a lot of heavy equipment, meaning this bill would seek to benefit them when it comes to purchasing new equipment and reinvesting in their farms that help fuel the local economy.
Schumer said a change must be made to incentivize farmers to purchase new equipment by restructuring the tax code to allow greater certainty for farmers looking to make investments. That’s why Schumer said this legislation would provide farmers with more financial certainty as they prepare to make expensive equipment purchases and give them more cash on hand as they prepare to purchase equipment. Finally, it would bring greater business opportunities to places that sell farm equipment and machinery throughout Upstate NY.
Schumer was joined by Tom Richvalsky, manager of Richvalley Farm and Todd Heyn, Field Advisor for NY Farm Bureau.
“Investing in new equipment is essential for any farmers’ operations: here at Richvalley Farm, we are thinking about purchasing a new mixer for our cows that would cost about $30,000. But high costs and uncertainty can put those investments on hold” said Robert Richvalsky Owner of Richvalley Farm. “Senator Schumer’s legislation will give farmers like myself the certainty needed and also free-up some cash to invest back into our businesses.”
“Senator Schumer’s proposal is a common sense approach to tax reform that will spur investment on farms across New York.” said Dean Norton, New York Farm Bureau President. “Reducing the depreciation period for farm equipment will allow for reinvestments in the farm, paying off debt or purchasing more efficient machinery. In turn, this would support the entire farm economy.”