Fix the “Grain Glitch”

By at 5 March, 2018, 10:21 am

A drafting error in the tax bill must be fixed, and pronto!

By Karen Kerrigan

Technical corrections to tax bills are common, so it is not surprising that several issues have emerged regarding the recently enacted Tax Cuts and Jobs Act. A careless oversight dubbed the “Grain Glitch” needs to be addressed quickly before the unintended consequences spiral out of control.

Essentially, the drafting error in Section 199A provides a big incentive for farmers to sell to cooperatives rather than independent buyers or operators. As noted in a Wall Street Journal editorial, which is urging a fix, “the farm co-op loophole exploits an exception that created a large deduction for businesses organized as ‘pass-throughs.’”  Now, many agriculture merchants are “racing” to reorganize as co-ops because of the glitch.

The error – along with the when, what and if Congress will address it – has caused immense uncertainty in the agriculture industry. A letter signed by 86 members of the U.S. House is urging Senate Majority Leader McConnell and House Speaker Paul Ryan to focus on the issue immediately. As the Members wrote in their letter:

“We’re concerned this provision unfairly distorts the marketplace with the potential to reduce competition, directly harm small and independent businesses, and increase consolidation in the agriculture industry.”

These House members are asking for an immediate restoration of the competitive marketplace for agricultural producers and to “replicate the tax benefits accorded to cooperatives and their farmer-patrons under Section 199 prior to the enactment of Section 199A.”

The picking of winners and losers thru the tax code was supposed to be vastly curtailed under the Tax Cuts and Jobs Act. SBE Council agrees that the error must be revised pronto to equalize tax treatment for selling to co-ops, private and independent businesses. The effects of the error could ripple across industries, thereby hurting the effectiveness of the tax package and the positive reception it has received among the public.

One vehicle to fix the glitch is the pending budget bill, where action will occur soon and which makes sense given the urgency of the matter.  It would be a shame if Democrats use the issue as “leverage” or to let it hang in order to inflict political damage on Republicans. Livelihoods and a critical sector of the economy may be upended as a result of the error. Our elected officials need to be grownups on this one and fix the “grain glitch” right away.

Related resources and background information:

The “Grain Glitch” Needs to Be Fixed, The Tax Foundation

When Typos Kill: Tax Reform’s “Grain Glitch” Has Upended an Industry, Red State

Karen Kerrigan is president & CEO of the Small Business & Entrepreneurship Council.   

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