Does GOP Know Tax Bill Encourages Agricultural Socialism

In their desperation to pass something before Trump’s first year ended, Republicans put together a horrendous tax bill with little or no expert testimony or public hearings. In addition, in order to just muster the 51 votes to pass under reconciliation, there were actually handwritten changes to the bill being voted on. No member had any idea about all the provisions in the bill and most members only had a vague idea about even the bullet point highlights of the bill. The Republican House Ways and Means chairman, Kevin Brady, who was one of the main architects of the bill, could not even identify all the new tax brackets created by the bill before he voted on it.

So, with a bill written in such haste and with so little examination of its potential unintended consequences, there were bound to be some serious problems. There are already some indications that some of the legislation actually violates WTO trading rules. For a bill that was promoted as bringing foreign jobs back home to Americans, the structure of the corporate minimum tax on offshore earnings will perversely actually encourage American manufactures to move overseas.

Now, since Republicans openly admit that they wrote the bill to specifically please their corporate and wealthy benefactors, some of these consequences may be the exact opposite of “unintended”. But I was a little surprised to see that, at least in one area, this tax bill actually promotes socialism.

Agricultural cooperatives are member-oriented corporations, as opposed to investor-oriented ones. They are state chartered and the risks and benefits of the cooperative are shared among the members in proportion to their participation and/or contribution. They are specifically not designed to make a profit but to proved the maximum benefit to the members economically and efficiently. Think of them as the agricultural version of credit unions, essentially their banking equivalent. In the US, the top agricultural cooperatives are CHS, Dairy Farmers of America, and Land O’ Lakes.

One of the provisions in the tax bill is a new deduction that allows farmers to deduct 20% of their sales if those sales are made to cooperatives. If, on the other hand, if farmers sell to investor-owned firms such as ADM or Cargill, the deduction changes to 20% of their income, as opposed to sales. This will effectively allow farmers who sell to cooperatives to pay no tax at all. Needless to say, this will provide an incredible incentive for farmers to move into cooperatives and puts the independent publicly and privately owned agribusinesses at a severe disadvantage. One probable outcome is that the big agribusinesses will actually be forced to buy from the cooperatives as opposed to buying from the farmers directly, putting a real squeeze on those businesses. That could also increase the end price that consumers will see.

In a massive understatement, Republican Senator John Thune said he was looking for a “reasonable solution” to “potential unintended effects.” As one tax accountant noted, “It’s kind of hard to imagine they intended to make farming tax-free”, but that’s what Republicans have done if you are a member of a nominally socialist agricultural cooperative. If only the GOP could have made a similar mistake with credit unions.