and (2) deferral of taxable income for possible 

 treatment of capital gains. These features of a tax 

 shelter may lead to a lower tax liability for the 

 investor to the extent that deductions can be claimed 

 against income that is taxed at the highest tax rates, 

 while income is delayed or reported in a way that it 

 becomes subject to lower tax rates. ^ 



Several provisions of the income tax laws make 

 farming attractive as a tax shelter. These include: 

 (1) the use of cash accounting; (2) the immediate 

 deductibility of certain capital expenditures; 

 (3) accelerated cost recovery periods for the 

 depreciation of farm assets; and (4) capital gains 

 treatment for income from farm assets that have been 

 developed through deductible costs.'" 



Combined, these tax provisions provide the elements 

 necessary for a tax shelter, because they permit the 

 sheltering of ordinary income from taxes through both 

 income deferral and conversion of ordinary income into 

 capital gains, which are taxed at lower tax rates than 

 ordinary income. 



The effect of these income tax provisions on 

 agriculture is generally negative. According to a 

 study conducted for the Joint Economic Committee of 

 Congress, these tax provisions have artificially 

 inflated farmland values, helped concentrate farmland 

 i. ownership with high-income farmers and nonfarmers, and 

 increased supplies and lowered prices for some farm 

 commodities, and possibly for all commodities in 

 general. ' 



53 



