Tax Policy: Implications for Producers and the Agricultural Sector

Abstract

Taxes and tax management appear to play a significant role in the choice among various production, marketing, and financial strategies by farmers. Researchers often discover that they can better explain or predict agricultural producers' actions using after-tax rather than before-tax net income. Furthermore, policy makers clearly perceive that changes in tax rules will significantly alter savings and investment behavior as evidenced by the major changes in the U.S. tax code with passage of the Economic Recovery Tax Act of 1981. The purpose of this discussion is to evaluate the impact of tax policy on farm firm decision making, aggregate investment behavior, and supply and prices of agricultural commodities. The discussion will review empirical and numerical studies of changes in tax laws to determine the expected impact of tax policy and the Economic Recovery Tax Act of 1981 in particular on farmers and the agricultural sector.