One of the biggest benefits the Farm Credit System (FCS) has is its tax-advantaged status. The FCS is exempt from certain taxes: profits from non-real estate lending are exempt from state and local taxes, and income from real estate lending is exempt from corporate income taxes. Compared to other lenders, the FCS has massive advantages that tilt the playing field unfairly, meaning farmers and other producers can’t help but go to Farm Credit.
One Congressman is trying to level the playing field.
This week, Rep. Steve Watkins introduced H.R. 1872, the Enhancing Credit Opportunities in Rural America (ECORA) Act. If enacted, this bill would exempt interest on certain qualifying loans in rural areas from taxable income. It will put other lenders closer to an equal footing with Farm Credit.
This is a large step in the right direction. Farm Credit dominates in the agricultural real estate lending market, and its tax-exempt status is of immense benefit. It is just one of many reasons that the FCS has become a huge, sprawling entity, with total assets approaching $349 billion.
In 2018, the Farm Credit System reaped $5.45 billion in income. It paid only $126 million in income taxes. That’s a tax rate of approximately 2.3 percent. Only a year before, it demonstrated that it is not prioritizing lending to the vulnerable young, beginning and small farmers, ranchers and producers that it was meant to support.
Something is wrong with this picture. Why is the government providing Farm Credit with special tax privileges when it has demonstrated that it will not, or can not, serve the farmers and producers it was meant to serve?
Lawmakers and other policymakers should seriously question whether Farm Credit deserves its special tax status. If Farm Credit continues to fail to adequately support young, beginning and small farmers, then lawmakers must provide other means for those farmers to access sound credit. And to provide that sound credit, other lenders need to be on an equal footing with Farm Credit. The ECORA Act is a step in the right direction for making sure that the bedrock of American agriculture – young, beginning and small farmers – have access to the credit they deserve.