SWCS
March 25, 2017

Sharing the Cost

Sharing the Cost: Creating a Working Land Conservation Trust Fund Through a Tax on Agricultural Inputs?
Soil and Water Conservation Society, 2003

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Contents
Executive Summary
Introduction
Why a Working Land Conservation Trust Fund?
Taxing Inputs: Potential Revenue
Taxing Inputs: Incidence and Economic Effects
Taxing Inputs: Design and Administration
Conclusion
References
Appendix I: Agricultural Industry Groups
Appendix II: Description of the Input-Output (I-O) Model


Executive Summary

This report explores the desirability and feasibility of creating a federal working land conservation trust fund through revenue generated by a tax on agricultural inputs. Three concerns led us to undertake this exploration:

 

  • How do we create a sustainable, secure source of funding for conservation on agricultural land in the United States given the troubling future most experts predict for the U.S. federal budget?
  • How do we focus enough conservation assistance to working farms and ranches to meet agriculture’s environmental agenda and thereby ensure agriculture’s commercial viability?
  • How do we effectively empower producers themselves to take the lead in directing collaborative conservation activities on their operations, with their neighbors, and in their communities.

 

We examined existing U.S. federal and state conservation-based trust funds as models for a working land conservation trust fund. We also explored the Australian Landcare movement as an alternative model for producer-driven conservation on their operations. We used these examples and our own analyses to develop a working model of a working land conservation trust fund for the United States.

 

We concluded that a working land conservation trust fund could make a significant contribution to our nation’s capacity to address agriculture’s environmental agenda through collaborative, incentive-based, producer-driven approaches. Such a trust fund could fill important gaps in our current capabilities if it included the following components:

 

  • Return tax revenue to same localities from which it came and in the same proportions in which it was generated.
  • Match trust fund revenues with general taxpayer revenues – perhaps through a matching grant program that recognizes the public benefits that will accrue from such an initiative.
  • Allocate trust and matching funds to producer groups—analogous to Australian Landcare groups—to support collaborative work on their operations and in their communities to improve environmental quality and ensure the commercial viability and sustainability of agriculture.
  • Empower producer groups to determine how to use grant funds based on their own project plan. For example, producers could use funds to secure technical help for their members, hire a coordinator or other staff to support their project, or provide financial assistance to work group members to adopt, install, or maintain conservation and pollution prevention systems on their operations.
  • Producer groups would be responsible for ensuring accountability to themselves and the public for use of the grant funds.

 

We also explored the feasibility of taxing agricultural inputs to generate revenue for the trust fund. We did not evaluate the tax based on its effect on reducing use of agrochemicals or other changes in producer behavior. Our goal was to get an indication of whether a relatively small tax on inputs could generate substantial revenues with relatively small economic effects.

 

We used a detailed input/output (I/O) economic model of the U.S. agriculture sector to estimate the amount of revenue that could be generated through a tax on agricultural inputs and to simulate the economic effects of such a tax. We analyzed six options beginning with a narrow tax base—fertilizers and chemicals used in agricultural production only. We then analyzed the effect of broadening the tax base in two directions, first, by adding purchases of seeds and new machinery to the tax base and, second, by applying the tax to all users of the taxed commodity.

 

We found that a relatively small tax on agricultural inputs could generate enough revenue to fund an effective working land conservation trust fund. The 5 percent tax we analyzed has the potential to generate between $1 billion and $2.7 billion annually over the next several years, depending upon the tax base employed and the industries subject to the tax. Grants flowing from such a trust fund could more than double the funding for working land conservation made available under the 2002 farm bill.

 

The economic effects of such a tax appear to be small—at the industry scale. Effective tax rates do not exceed 1 percent for any of the industries analyzed in our I/O model. For most industries, effective tax rates are well below 0.5 percent. We did not, however, estimate the economic effects of such a tax at the farm or ranch scale. Those effects could be larger and would surely be much more variable. Understanding those effects would be a critical next step in evaluating the feasibility and desirability of creating a working land conservation trust fund.

 

This report is exploratory. Our findings are, for the most part, preliminary. Our hope is that this report will lead to more discussion and more focused evaluation and analyses of the advantages and disadvantages of a federal working land conservation trust fund. Our analysis suggests to us, however, that more detailed and serious work is merited that could lead to the creation of a working land conservation trust fund. The uncertainties of federal conservation funding given current projections for the federal budget, coupled with the urgency of making progress on agriculture’s environmental agenda, suggest that such work should be undertaken with some urgency. 

Suggested Citation
Soil and Water Conservation Society. 2003. Sharing the Cost: Creating a Working Land Conservation Trust Fund Through a Tax on Agricultural Inputs? Ankeny, IA: Soil and Water Conservation Society.

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