SCHUMER: FEDERAL RESTRICTIONS ARE PREVENTING SCHUYLER 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 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 Farmers To Quickly Recover Costs From Purchasing Expensive Farm Equipment; Family Farmers Will Save Money
Schumer: Feds Should Plant New Tax Incentives For Schuyler County Family Farmers
Standing at Seneca Valley Dairy Farm in Burdett, NY, U.S. Senator Charles E. Schumer today said the current federal tax code is preventing farmers from investing in new farm equipment. 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 Schuyler County 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 Schuyler County and the Southern Tier Region need updated tax incentives 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 Schuyler 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 farmers 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, Schumer is pushing legislation that would restore and make permanent an incentive that would allow farmers, like Seneca Valley Dairy Farm, to quickly recover costs from purchasing expensive equipment. Schumer cosponsored legislation, the Agriculture 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.
Owned and operated by the Gates family, Seneca Valley Dairy Farm covers approximately 2,500 acres in Schuyler County. Started by Ed Gates with 22 cows in 1967, three generations now pitch in raise 1,200 milking cows and grow crops including corn, alfalfa, and hay. According to the farm’s owners, the farm currently needs a self-propelled mower for hay. On a farm as large as theirs, this equipment has experienced a lot of wear and tear. According to the owners, the mower has needed many repairs and is on its last leg. While the farm’s owners realize they need to replace it soon, as they are beginning to have issues with the piece of equipment, the high price of $280,000 for a new one is daunting for a family-owned farm. Having to replace such a piece of machinery right now would leave the Seneca Valley Dairy Farm with less cash on hand for further investments. 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.
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 Ed, John, and Lansing Gates, owners of Seneca Valley Dairy Farm; Joe Jadhon, District Sales Manager at Monroe Tractor; Nicole Rawleigh, Schuyler County Farm Bureau President; Ashur Terwilliger, Chemung County Farm Bureau President; and Lindsay Wickham, New York Farm Bureau Area Field Supervisor.
“As a large yet family-owned farm, we are always purchasing equipment to make our operation run well. Our self-propelled mower is on its last legs, just plain worn out, and a new one would cost $280,000. Senator Schumer’s legislation will free-up cash for farmers like us, making it easier to purchase equipment and plan for the future,” said Ed Gates, Co-owner of Seneca Valley Dairy Farm.
“New York Farm Bureau thanks Senator Schumer for his on-going support of New York Farms. This legislation will not only help our farmers upgrade and replace aging equipment sooner, it will also increase their bottom line at the end of the year with added depreciation. With all the annual challenges facing our farmers, including weather, commodity prices, and input costs, every little edge helps,” said Lindsay Wickham, Area Field Supervisor for the New York Farm Bureau.
“Agriculture is a unique business in the sense that farmers rarely have the ability to set the price of their goods, unlike most small businesses. Modern technology that comes in new equipment gives farmers the ability to run with efficiencies in fuel, time, and yield. Equipment has the ability to make up for a deficit of low commodity prices, giving the farmer the ability to gain every ton or bushel of crop out of an acre, or to produce a crop that can make a cow produce that much more milk. However, the investment of this equipment is costly and can make purchases difficult. Changing the depreciation schedule from a 7 to 5 year term helps the farmer and also helps local equipment businesses that are family owned like Monroe Tractor, who employs over 200 New Yorkers. Agribusiness is the backbone economy of New York State and it needs to be recognized and treated as such,” said Joe Jadhon, District Sales Manager of Monroe Tractor.