Op-ed: Tax deduction for co-ops helps level playing field

Dough Sombke President
South Dakota Farmers Union

The full impact of the Tax Cut and Jobs Act, passed into law last December, will take years to fully understand. Regulations will need to be written, issues will have to be litigated, and corrections will surely have to be passed by Congress. Though the USDA’s Economic Research Service stated that the top 1 percent of farm households will see 70 to 80 percent of the law’s benefits, family farmers and ranchers, myself included, hope that we will one day see some benefit, especially when crop prices return. With a 50-percent decline in net farm income over the past four years, there is not a whole lot of profit to tax.

South Dakota Farmers Union had significant concerns about tax reform’s implications for our federal deficit and the Farm Bill, and we still do. But one provision we are thankful for is the Deduction for Qualified Business Income of Pass-through Entities (Sec. 199a). Senator Thune helped ensure its inclusion in the final tax package. The deduction is 20 percent of qualified business income and 20 percent deduction for qualified cooperative dividends.

Sec. 199a’s inclusion and its expansion was critical in the face of historic corporate tax cuts. Not only are corporations’ tax cuts permanent, they also cut their rate by 40 percent. If cooperatives were not given Sec. 199a, farmers, ranchers and local communities would have suffered a major setback. South Dakota Association of Cooperatives estimates that 160 cooperatives in the state contribute $7-10 billion in annual output to the state’s economy. Farmers Union has a proud history of building and supporting cooperatives. We supported Senator Thune’s work on behalf of cooperatives. Without 199a our 160 co-ops would have been at risk.

Yet today, corporations who got the best deal from tax reform don’t want the competition. They are actively lobbying Congress to reverse course and eliminate 199a. They even think they are being generous by conceding a return to Sec. 199, a provision co-ops had prior to reform. But this would once again disadvantage our co-ops given the impermanence of the cooperative deduction and the permanence of the corporate cuts.

The fight represents the worst instincts of businesses today. Corporations such as ADM and Cargill earned $1.64 and $2.6 billion in operating profits respectively in 2016. They are not satisfied with one of the largest tax cuts in their history. It is not enough that they won tax reform, they also feel the need to destroy others by eliminating provisions that took a step towards a more level playing field.

Co-ops are central to our local economies. They are run by our neighbors. They provide local jobs. When a cooperative reinvests profits, it betters our local communities. Can corporations say the same? This fight is shameful. SDFU and our members urge the South Dakota Congressional Delegation to stand up against corporate interests seeking to eliminate co-op benefits. We also urge equivalence between cooperatives and corporations, save 199a and make it permanent. Now is the time to strengthen our local communities, with co-ops at their core.