In Wisconsin, a new generation of farmers worry about an uncertain future

Posted on Tuesday, October 30th, 2012 at 11:22 pm

by Daniella Silva
Pavement Pieces staff

BROOKLYN, Wis.—Jeffrey McNeely always knew he would come back to the Rollin’ Green Dairy farm. He had seen his father and grandfather work with cattle his entire life and they had seen their parents do the same. The McNeely’s had been dairy farmers for more generations than he could remember.

“Your family farm is your everything,” said McNeely, 27. “It’s something that’s stuck in your heart, you’re grown up that way.”

During his college years at the University of Wisconsin-River Falls, where he received a four-year degree in agriculture, McNeely said the farm was always in the back of his mind.

“It’s a lifestyle,” he said. “You’re bred into it, it’s something that’s programmed into you.” Rollin’ Green has belonged to his grandparents since 1973.

Now the dairy manager of 170 cows on his family farm, McNeely often works 15-hour days to meet the demands of local contracts.

“It takes 200 things to go right to have it work, and it takes only one thing to screw your whole operation up,” he said.

With the Agricultural Reform, Food and Jobs Act of 2012, commonly known as the Farm Bill , stuck in Congress, young farmers like McNeely turn their eye this election year to a political issue that many see as key to maintaining their family livelihoods: taxes.

“This is where all our cattle are, where all our buildings are—there’s going to be a lot of places that will go bankrupt trying to pay capital gains taxes on their farm that they’ve already been on,” he said.

A capital gains tax is an income tax on capital assets. When an asset such as a farm is sold, the difference between the farm’s original value and the value it currently sold for is a capital gain or loss, according to the Internal Revenue Service.

The taxes take a percentage of realized, in other words sold, capital gains based on the investor’s tax bracket and the amount of time the asset belonged to the investor before being sold.

The current top capital gains tax rate for long-term investments, those held for more than a year, is 15 percent. It is set to increase to 20 percent in 2013.

President Obama and Republican nominee Mitt Romney outlined their position on the tax, and other issues within the agricultural community, in response to a questionnaire by the American Farm Bureau Federation, a grassroots agricultural organization.

President Obama supports raising the tax rate to 20 percent. Romney has called for maintaining the current rate at 15 percent, while completely eliminating capital gains taxes for those who earn less than $200,000 a year.

“Everybody thinks the rich get capital gains taxes, but farmland values have skyrocketed in the last few years and farm profitability really hasn’t,” said McNeely. “It’s hard to keep up with that when this land is worth eight times as much as when they bought it in 1970.”

According to a statement published by the American Farm Bureau, which supports eliminating capital gains taxes, “Forty percent of all agricultural producers report some capital gains, nearly double the share for all taxpayers. The average amount of capital gain reported by farmers is about 50 percent higher than the average capital gain reported by other taxpayers.”

The McNeely’s work with 2,100 acres, 1,700 of which is rented land. It is a milking operation, where steers are sold for beef, but to increase income the McNeely’s also grow and sell a wide expanse of wheat, corn and soy.

“It’s hard for us to try to buy it out from them, that’s their retirement,” he said.

Nearly 98 percent of farms in the United States are family-owned, according to the Wisconsin Farm Bureau, a branch of the American Farm Bureau. Within this, small-scale family farms, with less than $250,000 in annual sales, make up 88 percent of farms in the nation.

“In Wisconsin, we have a long tradition of family farms,” said Karen Gefvert, 30, director of governmental relations for the Wisconsin Farm Bureau.

“Farming is a capital intense business, on average about 76 percent of a farmer’s assets are made of up land and buildings,” she said. “So when you talk about an existing farmer bringing a son or daughter into the business, looking to expand, the amount of money needed to cover the cost of the capital gains tax can be significant. Sometimes that’s a major deterrent for an existing farmer to expand or transfer land.”

Other farmers say the taxes affect prospects for all incoming farmers.

“Any capital purchases that we gain, when we sell it, it goes against us,” said Bill Gaastra, 28, friend to McNeely and a fellow farmer.

“There’s a lot of older farmers in the area who are not selling their land because of capital gains tax,” he said. “That makes a huge difference for young people getting into agriculture.”

“It’s something that the agriculture industry is really going to have to tackle in the next ten years,” said Gefvert. “It’s becoming more and more of an issue and it comes back to the fact that we have such a large percentage of our farmers in the 55-70 age frame.”

Farm expansion and transition is a long-term process, one that cannot be accomplished overnight, she added.

“It’s an increasingly important discussion to start transition planning on farms,” she said. “Whether it’s to a son or daughter, or a new farmer going into the business, the capital gains tax is a hurdle for young farmers.”

“It’s an important issue this election year,” she said. “It affects not only the economic future of farming but the viability of family farms in the future.”

McNeely said, at the end of the day, tax concerns were just one more reason many young people decide to leave the farm.

“The truth of the matter is that a lot of farms barely make it past the second or third generation because of issues like that and the lack of interest to stick around,” he said. “My dad worked 80 hours a week his whole life, why would I want to do the same?”

McNeely said while the dwindling numbers of young farmers is disheartening, “people will always need to eat.”

“It is tough knowing that the average age is getting up there, and that there are not a lot of people coming into it,” he said. “I think if somebody’s interested in agriculture, it’s a promising career for people to go into.”

“It’s so rewarding, knowing that each farmer feeds 122 people,” he added.

But McNeely acknowledged the hardships farmers of all ages face.

“You don’t make the most money in the world at it, in fact, most years you’re lucky if you break even, but you’re happy to do it,” he said.