Interest and Taxes in Relation to Farm Income

Abstract

AGRICULTURE is a heavily capitalized industry with a low sales turnover and a high ratio of fixed charges to gross receipts, including under fixed charges, contractual interest and direct taxes. With rising land values and increasing commercialization of agricultural production, too, indebtedness and interest charges rise rapidly; and the increase in taxation during the past generation under our system of general property taxes has borne at least as heavily on farmers as on other classes of the population. In view of these facts the payments on interest and tax account appear as a very important factor in the farmer's economic position. The heavy capitalization and low turnover of agriculture mean a relatively narrow margin of gross income over fixed charges; and any variation in the amount either of income or charges influences in very marked degree the amount left to the farmer to pay operating costs and living expenses. The burden of fixed charges on agricultural income presents two phases: first, the secular trend-i.e., the long time tendency of the proportion of income absorbed by the charges to rise or fall; and second, the effect of periods of inflation and speculation, such as that from 1916 to 1920, upon the fixed charge ratio. The long time trend of the fixed charge ratio is of great significance in determining the permanent status and development of agriculture. In this connection farm mortgage indebtedness must be taken as typical of the group, as the only data available over any considerable period are those of the Census Bureau relating to farm mortgages. The rather fragmentary evi ence on this point indicates clearly that the burden of mortgage interest charges tended to decline rather than increase over the thirty year period from 1890 to 1920.