Promises of lower taxes took up the headlines about a tax reform framework unveiled by several members of Congress and President Donald Trump last week. But beneath the headlines, one component of the framework has Land O’Lakes, Inc. deeply concerned: The repeal of the Domestic Production Activities Deduction (Section 199) tax deduction.

As we noted recently, this pass-through is vital for the financial stability of Land O’Lakes’ dairy and ag members. The deduction allows business owners – and farmers – to not pay income tax on a portion of their taxable income. The deduction started in 2005, and was intended to incentivize domestic investment and job creation. This year, our dairy members received $90 million (approximately 72 cents per hundredweight), and ag members received $23 million. Nationwide, the deduction returns an estimated $2 billion each year to farmers and their rural communities. Now this deduction that our members rely on is at risk. And members must vocally oppose its repeal. Moreover, the majority of ag co-ops pass this deduction through to members, which makes it an issue the entire ag industry must fight.

Under the tax framework, Section 199 would disappear, greatly impacting farm income. Supporters of the plan to repeal the deduction say that larger business tax cuts will more than make up for the loss of Section 199. But Land O’Lakes members know that’s not true for farmer cooperatives and their members.

Lower corporate tax rates will help traditional companies. But most farmers aren’t organized to pay taxes under the corporate tax code. So, the corporate rate deduction won’t benefit them. This means that the elimination of Section 199 is an effective tax hike on independent producers across the country.

Another argument being promoted by supporters of the tax plan is that it will lower pass-through tax rates (profits of a business passed through to the business owners). However, co-op tax experts have studied this issue, and they say, in almost all cases, this lower pass-through rate will not offset the loss of the Section 199 deduction. For members, a lower pass-through rate simply will not replace the deduction.

Lawmakers are moving fast to pass tax reform, which means members must act now. The voice of members will be a critical part of the effort to preserve Section 199. Land O’Lakes encourages all members to get in touch with their representatives and senators.