The Distributional Impact of 1981 and 1982 Federal Income Tax Legislation: Which Farmers Benefit?

Simulation was used to analyze the distribution of benefits from the 1981and 1982federal income tax legislation for farm types that exhibit various tax characteristics. The results indicate that distributional effects are largely attributable to the reduced progressivity of the tax rate schedule. The largest farms benefited relative to the smaller farms of all farm types. Intensive livestock farms and producers of perennial crops experience additional benefits relative to other farm types primarily because of the large reduction in useful life for tax purposes of specialized livestock facilities, orchards, and vineyards. Almost all farmers could benefit from the Economic Recovery Tax Act of 1981 (ERTA), but not all farmers could benefit equally. Dif-ferences in benefits depended on the farm en-terprise mix, and the type and quantity of as-sets used in production, For example, the im-pact of accelerated depreciation on farm in-come and growth was likely to differ between an intensive hog operation with large amounts of depreciable property and a cattle ranch with relatively little depreciable property, Other differences depended on the farmer’s total in-come. Tax rates were cut in all tax brackets, but the reduction in tax liabilities was greatest for the higher income taxpayers. The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982, modified some ERTA pro-visions, but did not alter the basic thrust of the legislation. This study quantifies the distribution of ben-efits from the 1981 and 1982 income tax re-form among farmers by farm size and major enterprise. The benefits of the tax reform came primarily through reduced tax liabilities, which create higher after-tax income and per-mit greater farm business growth. The dis-tribution of tax reform benefits is important for reasons of fairness and because previous re-search has shown that one force driving stmc-tural change in U.S. agriculture is the incom