OPENING STATEMENT OF

CHAIRMAN RICHARD LUGAR
SENATE COMMITTEE ON AGRICULTURE, NUTRITION AND FORESTRY

HEARING ON IMPACTS OF CAPITAL GAINS TAXES ON FARMERS

FEBRUARY 26, 1997

Again today, the committee meets to discuss the effects of federal tax policy on United States agriculture. This morning, we turn our attention to the capital gains tax. It is quite appropriate that we do so, since one-third of farm sole proprietorships reported capital gains in 1993. That is three times the rate for all taxpayers.

Capital gains taxes are problematic for farmers and ranchers because their operations involve relatively large amounts of land or equipment or facilities -- or combinations of the three. Since farmland is usually held for long periods of time, a sizable percentage of the increase in its value is often due to inflation. But the tax code does not allow the effects of general price increases in the economy to be subtracted from the true appreciation of the productive value of specific capital assets.

Producers are frequently discouraged from selling farmland because of the capital gains taxes they would have to pay. As a result, the amount of land available for purchase by younger farmers and ranchers is artificially restricted. And like the estate tax we discussed at yesterday's hearing, the capital gains tax is a form of double taxation that is basically unfair.

As we will hear from some of our witnesses this morning, the capital gains tax also restricts economic growth, and may cause management decisions that are not wise from an agronomic or environmental standpoint.

There appears to be substantial interest in reform of the capital gains and estate taxes in the 105th Congress. Of almost 100 bills that have been referred to the Finance Committee this year, seven deal with the capital gains tax and six involve estate tax relief. I have introduced three of the estate tax bills. It is especially encouraging to see bipartisan support for many of these initiatives.

I am also pleased to note that the Administration has shown interest in the capital gains area. Although his proposal is much more modest than I would prefer, the President's support for capital gains reform is a welcome sign.

We have a number of distinguished witnesses ready to testify today, including Secretary Kemp, who will lead off for us in a moment. We look forward to hearing from you all. First, I would yield to the able ranking member, Senator Harkin.