FEDERAL TAX POLICIES AND RURAL HOUSEHOLDS: IMPACT AND POTENTIAL REFORM

FEDERAL TAX POLICIES AND RURAL HOUSEHOLDS: IMPACT AND POTENTIAL REFORM

LIBRARY OF CONGRESS CATALOGING-IN-PUBLICATION DATA

CONTENTS

PREFACE

Chapter 1: FEDERAL TAX POLICIES AND LOW-INCOME RURAL HOUSEHOLDS

ABSTRACT

SUMMARY

What Is the Issue?

What Did the Study Find?

How Was the Study Conducted?

INTRODUCTION

INCREASED USE OF TAX CODE FOR SOCIAL POLICY GOALS

SIGNIFICANT FEDERAL TAX POLICY DEVELOPMENTS

Earned Income Tax Credit

Child Tax Credit

Child and Dependent Care Credit

Education Credits

Saver’s Credit

RURAL AMERICA RECEIVES A RELATIVELY LARGER SHARE OF BENEFITS

TAX CREDIT PROGRAMS HAVE GROWN IN IMPORTANCE RELATIVE TO TRADITIONAL INCOME SUPPORT PROGRAMS

TAX CREDIT “PARTICIPATION” EXCEEDS THAT OF TRADITIONAL INCOME SUPPORT PROGRAMS

TAX CREDITS FACE TARGETING AND DELIVERY CHALLENGES

REFUNDABLE TAX CREDITS HAVE CONTRIBUTED TO REDUCED POVERTY RATES

RECENT POLICY CHANGES PROVIDE EXPANDED BENEFITS

CONCLUSION

GLOSSARY

REFERENCES

End Notes

Chapter 2: THE POTENTIAL IMPACT OF TAX REFORM ON FARM BUSINESSES AND RURAL HOUSEHOLDS

ABSTRACT

SUMMARY

What Is the Issue?

What Did the Study Find?

How Was the Study Conducted?

INTRODUCTION

OBJECTIVES OF FUNDAMENTAL TAX REFORM

Simplifying the Tax System

Improving Efficiency

Equity Concerns

REFORM PROPOSALS

TAXATION OF FARM INCOME UNDER PROPOSED REFORM

Most Federal Income Tax for Farm Households Is Paid on Off- Farm Income

Farmers Realize a Greater Share of Their Income from Capital Gains Than the Average Taxpayer

Limits on Accelerated Capital Cost Recovery Could Affect Farmers’ Capital Purchase Decisions

Income Averaging

Domestic Production Activities Deduction

Self-Employed Health Insurance Deduction

TAXATION OF RURAL HOUSEHOLDS UNDER PROPOSED REFORM

Rural Homeowners Are Less Likely to Benefit from the Mortgage Interest Deduction

Low-Income Rural Families Rely Heavily on Refundable Tax Credits

CONCLUSION

REFERENCES

End Notes

INDEX