Saturday, December 15, 2012

We know predictions are worthless...  

But then you aren't paying for  mine anyway.  So here's one. I think we're going over the cliff. I'm not alone.
1. The Politics Have Become Worse, Not Better. The House GOP is digging in its heals even further in spite of the fact that the polls all show public opinion -- including among Republicans -- being firmly against it. Meanwhile, the White House, no doubt strongly encouraged by the president's high job approval rating and the polls showing that it's position on taxes is very popular, apparently -- and understandably -- sees no reason to compromise.
2. The GOP Has Little To Lose At This Point By Letting The Cliff Happen. With their polling numbers already in the tank, it's hard to see what Republicans will gain politically by voting to increase taxes in incomes above $250,000 a year other than the lasting enmity of the most anti-tax members of their base and Grover Norquist.
3. Boehner Really Can't Cut A Deal With The White House Before January 3. My  prediction that this would happen was scoffed at by some when I made it months ago, but it's now become a mainstream story. The fiscal cliff hits January 1 and  Boehner's formal election as speaker is January 3. Any deal with the White House and especially a deal that includes the tax increases the White House wants, could cause Boehner to lose enough votes at least on the first ballot on January 3 to prevent him from being speaker. Even if he subsequently wins on a later ballot, he will be seriously weakened. Note: The fact that Boehner has been openly asked this week if he's concerned about being reelected is a sign that the possibility has become more real than anyone but me previously was willing to consider.
4. It's Still Not Clear That A Boehner-Obama Deal Would Be Agreed To Before January 1. Very simple: The political work needed to get the votes in the Democratic and Republican caucuses in the House and Senate hasn't yet occurred and that makes the vote count very dicey. A tax cut that's acceptable to Boehner may not be to his caucus, and larger-than-expected changes in Medicare and Medicaid that's acceptable to the White House may not be acceptable to Senate Democrats. In addition, it's not clear how many of the lame duck members of Congress will even show up to vote a week before their term is over [More]
I'll leave it as an open question in which I'm not deeply invested, but I do think I'll imagine how it could affect the farm.

This post will be about changes to depreciation and machinery sales.

It dawned on me Aaron has never even had to depreciate any of his machinery - he's been able to write it off annually under the bonus-extra-accelerated-bonanza tax breaks we've gotten very used to the last few years.

What happens when we go back to 7+ year drip-by-drip depreciation? Some speculation:
  1. Capital purchases don't just slow - they dang near stop.  Farmers will hold their breath for a long time expecting some retroactive fix to this quantum change. No spending will occur during that time. Secondly, we've been pretty active adding new paint. We really can go for considerable time before anything wears out. Add to that the fact that the newer stuff doesn't wear out as fast. We've been buying new features, not replacing worn iron.
  2. Leasing could come back big-time. If you really have to get new stuff, it might maximize your write-off.
  3. Some pretty serious machinery upgrades will be deemed maintenance rather than depreciated. Heck, we do this already, but if machinery dealers can repackage new technology in a way accountants can wink at it, they could sell more.
  4. Tiling, drainage work will come to a halt. Going back to long-term depreciation schedules instead of instant write-offs will end the drainage binge. Imagine how you would feel if two years from now they do increase the expensing amount again and you've locked a big project in for 15 years. Better to wait and see for a couple of years or the next election. Net impact: the longer the depreciation term, the deeper the cutback. Besides new tile won't help much during next year's drought (heh).
  5. There will be some serious lobbying on this issue because it isn't that expensive - about $33B per year, and is not exclusively for farmers. In fact, I think this is more likely than restoring farm program cuts.
  6. There will be some whopping tax bills in rural America for 2013. Many of us have zero depreciation left. New paint won't help much either. My guess is we've already moved all the income we can to the following year so it won't be pretty 1 March 2014.
As I said, just some idle thoughts for a mind that should be doing our Christmas letter and two FJ articles.

Plenty of time for those...

1 comment:

Dean said...

We will go over the fiscal cliff because the mid term elections coincided with redistricting and these are reliably "safe" republican districts now. House republicans fear only challenges from the right within their own caucus, so they have no incentive to "compromise". Government is disfunctional at this juncture, and will be for the forseeable future.