Estimated Effects of the Tax Cuts and Jobs Act on Farms and Farm Households

90 percent of the total value of U.S. agricultural production; thus, the biggest effects of the TCJA on farmers are from changes to the Federal individual income tax code. We estimate that had the TCJA been in effect in 2016, family farm households would have faced an average effective tax rate of 13 .9 percent that year versus 17 .2 percent after factoring in several tax credits (Child Tax Credit, Earned Income Tax Credit, and Child and Dependent Care Tax Credit) but excluding self-employment taxes. The reduction in average effective income tax rates resulting from the TCJA would have varied across family farm sizes, with midsized and large farms experiencing greater reductions (see figure). About 91 percent of f amily farms are small (less than $350,000 gross cash farm income, or GCFI, before expenses). We estimate that the average small family farm household would have experienced a decrease of 3.0 percentage points in its effective income tax rate had the TCJA been in effect in 2016, while the average midsized (GCFI between $350,000 and $999,999) and large (GCFI between $1 million and $4,999,999) family farm households would have experienced decreases of 5.8 and 3.4 percentage points, respectively. Very large farms (GCFI greater than $5 million) would have experienced a 2.6-percentage point reduction.