Do Most U.S. Farms Really Lose Money? Taxation and Farm Income Underreporting. (November 2019)

• Record Type: Journal Article
• Authors: Key, Nigel
• Is Part Of: Journal of agricultural and applied economics. Volume 51:Number 4(2019)
• Page Start: 646
• Page End: 663
• Publication Date: 2019-11
• Subjects: Farm household well-being, -- farm income, -- farm labor, -- income underreporting, -- off-farm income, -- tax evasion; Q12, -- H26, -- J31, -- J43; Agriculture -- economics; Agriculture -- Economic aspects -- Periodicals; Agriculture -- Economic aspects -- Southern States -- Periodicals; Agriculture -- Economic aspects -- United States -- Periodicals; Agriculture -- Aspect économique -- Périodiques; Agriculture -- Aspect économique -- États-Unis -- Périodiques; Agrarökonomik; Agrarmarkt; USA; Welt; Agriculture -- Economic aspects; United States; Periodicals; 338.10975
• DOI: 10.1017/aae.2019.26
• Languages: English
• ISSNs: 1074-0708

Abstract

Abstract: This article explores whether income underreporting for tax purposes can explain why the majority of U.S. farmers earn low or negative net farm income. Using 10 years of U.S. Department of Agriculture farm-level data, the extent of underreporting is estimated by exploiting the fact that farm households face an incentive to underreport farm income that varies with their reported off-farm income. Results indicate that 39% of total farm income is underreported. For large farms, the results imply a substantial discrepancy between reported and earned farm income. For small-scale operations, underreporting reduces but does not eliminate the gap between farm and off-farm wages.