Statement of
the NATIONAL PORK PRODUCERS COUNCIL

to the Committee on Agriculture, Nutrition & Forestry
United States Senate

On the Impact of Current Tax Laws on Farmers and Pork Producers

February 26, 1997

Thank you. I am Bob Ruggles, President of the National Pork Producers Council from McCook, Nebraska. The National Pork Producers Council (NPPC) and our state affiliated pork producer associations are pleased to share with the Senate Agriculture, Nutrition and Forestry Committee our thoughts on the impact of current tax laws on U.S. pork producers. NPPC represents the nation's pork producers, and draws its strength from its grassroots through 43 affiliated state associations. Our membership accounts for more than 90 percent of the commercial pork production in the United States.

The economic impact of today's pork industry on rural America is immense and growing. The value-added nature of pork production creates jobs and economic activity that reaches well beyond the farm to thousands of rural communities and urban areas. The economic multiplier effect of a value added product like pork significantly increases economic activity due to added processing, distribution and other industry inputs. The pork industry is the fifth largest agricultural sector in this country. generating approximately $11.0 billion in annual farm gate sales, while creating an estimated $64.0 billion of gross economic activity and employing over 600,000 people.

NPPC would like to commend the Senate Agriculture, Nutrition and Forestry Committee for conducting these hearings and being responsive to pork producers and the entire U.S. agriculture community on these very important agriculture tax issues.

Tax Laws Impacts on Growth, Profitability and Competitiveness

NPPC believes that meaningful and incremental tax reform is needed to stimulate the creation of new and better jobs, foster economic growth and enhance U.S. agriculture's competitiveness in the global marketplace. Reform legislation should be enacted this year that would allow pork producers to keep more of their money and thus give producers more freedom and flexibility to expand and run profitable pork production operations and provide high-value pork products to consumers both at home and abroad.

Current tax laws can have a tremendous effect on the ability of producers to conduct their farm operations in a profitable manner. Over the years we have consistently expressed opposition to any tax provisions that would put pork producers at a disadvantage with other sectors of U.S. agriculture. NPPC believes that the U.S. Tax Code should not be used to encourage tax shelter activities nor should it act as an incentive to encourage artificially high levels of investment in facilities.

Cut Capital Gains Taxes

NPPC supports capital gains being indexed for inflation and capital gains tax rates being cut in half Pork producers and farmers typically put whatever excess income they receive back into their operations. Thus, producers' life savings are frequently invested in their farming and pork production operations and land making farmers generally asset rich and cash poor. Hence, farmers often have very large capital gains when they sell that land. This is especially true for today's retirees due to high inflation rates in the 1970s.

Producers clearly have a unique and critical need for capital gains tax reduction because they often are retiring or in financial difficulty when they sell their farms. However, we need to be sure that any modifications in capital gains treatment will provide long-term benefits and not work to favor either large or small producers at the expense of the other group.

There is no questions that a broad-based reduction in capital gains taxes would benefit all Americans by stimulating the creation of new and better jobs, fostering sound economic growth, and enhancing the United States' international competitiveness. A cut in capital gains tax rates would:

Increase the rate of economic growth. Billions of dollars of locked-up capital would become available for investment in current and new businesses.

Create Jobs -- Lower-cost capital will be invested in new, better equipment which will increase productivity and improve both the number of jobs and their quality, in terms of pay.

Increase the U.S. pork industry's international competitiveness -- A level playing field for U.S. companies competing in the global marketplace means fair competition; and our country has proven its ability over and over at competing for agriculture and food markets in a fair competition environment.

Reforming Estate/Death Taxes

NPPC supports the repeal, or significant reform, of the federal estate tax in order to preserve pork production operations and family businesses. At a minimum, the estate tax exemption must be raised significantly higher than the current $600,000, and be indexed to the rate of inflation. No farming or pork production operation should have to be sold or liquidated to pay estate taxes following the death of the business owner.

Pork producers have a major interest in estate tax reform because most pork production remains a family-business operation. Estate laws have not been updated since the early 1980's. Reform is needed now to preserve family farms and to help transfer capital intensive and economically profitable pork production operations to the next generation of pork producers.

Tax-Deferred Accounts

NPPC supports legislation which would permit producers to set-aside a portion of their sales in interest bearing, tax-deferred accounts similar to IRA accounts to help producers meet operating costs during times of low farm income. Pork producers' income can vary greatly from year to year and producers often need help in meeting operating costs during times of low farm income. These funds would be used to meet production costs, fund retirement accounts and/or to keep current on outstanding loans. Such voluntary, self-funded, tax-deferred accounts must benefit all producers regardless of size.

Cut Taxes Now

In closing, I urge you in the strongest possible terms to reform federal taxes that impact farmers and livestock producers yet this year. Passage of tax reform legislation will help sustain a viable, growing and competitive U.S. agricultural industry. It makes sense for incremental tax reform this year at a time when the U.S. economy is in its best fundamental shape in many years, being marked by stable growth, low inflation, moderate interest rates and a declining federal budget deficit.

Mr. Chairman, from this Nebraska pork producer's perspective, now is the time for Congress and the Administration to enact meaningful and incremental tax reform legislation that would benefit all Americans.

Thank you, and now I'd be happy to answer any questions you or the Committee might have.