The Curious Case of the Negative Tax: Agriculture Subsidies, Profit Losses, and Government Assistance Programs

INTRODUCTION

One of the most frequent questions we get at IMPLAN is “Why am I seeing negative taxes in my impact?”  Good news, there are reasons that this happens. This article breaks down how to find those negative figures and why they are there. 

AGRICULTURE SECTORS

The agriculture Sectors in IMPLAN see significant amounts of government subsidies.  Agriculture subsidies are payments by the federal government to farmers “for the purpose of stabilizing food prices, ensuring plentiful food production, guaranteeing farmers' basic incomes, and generally strengthening the agricultural segment of the national economy” (Encyclopedia.com).

Taxes on Production & Imports Net of Subsidies (TOPI) is one of the four components of Value Added. All payments to government, other than payroll/personal taxes and year-end corporate income taxes, are paid through TOPI. TOPI varies a lot year to year because of how agriculture products Commodity prices vary, weather, and global market shifts.  

In general, negative TOPI is due to the given Industry receiving subsidies from the government. As TOPI is typically tax payments to the government, it follows that a negative TOPI value suggests a receipt of money from the government. Because TOPI is net of subsidies, it can be negative for a given Industry in a given year, if that industry received more subsidies from the government than it paid out in these specific taxes in that year.  

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The TOPI by IMPLAN Sector can be examined on the Regions screen by navigating to Region Details > Study Area Data > Industry Detail. In Illinois, for example, we see that Sector 2 - Grain farming had a TOPI of negative $1,238,371,549.86 in 2019.

IMPLAN uses data from the Bureau of Economic Analysis (BEA) by state. Under Annual Gross Domestic Product By State, you can find tables for TOPI, TOPI Net of Subsidies, and subsidies. Beginning in in Data Year 2015, IMPLAN incorporated USDA ERS Agriculture Resource Management Survey (ARMS) data to estimate components of value added by commodity at the national and state levels. ARMS reports government payments, i.e., subsidies, real estate and other property taxes (a large component of gross TOPI for farm sectors), interest (a component of OPI), and depreciation (another component of OPI). For details on the methodology, visit our article on Farm Data Procedures.

Staying in the Prairie State, let’s say we want to see the impact of $10M in Wheat Production, Sector 2 - Grain Farming. On our Results screen, we filter for the Direct Effect to see negative TOPI at the Federal and State levels, 

 

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Note that the split across the different TOPI line items is regionally specific. However, there are no Industry-specific breakouts of TOPI: the negatives in one part (i.e. subsidies) gets shared out to all parts of TOPI (i.e. sales tax, property tax, etc.).  

OTHER SECTORS

Agriculture Sectors are not the only places that we can see negative taxes. Additionally, TOPI is not the only component of Output from which negative taxes stem from. Usually, businesses make money and therefore we see positive profits. However, this isn’t always the case. As Other Property Income (OPI) is mostly made up of corporate profits, this is also were we will see corporate losses.

Modeling a $10M stock broker firm in Illinois (Sector 440 - Securities and commodity contracts intermediation and brokerage), illustrates this example. Again, filtering for our Direct Effect on the Tax Results tab, we see negative results in Enterprises(Corporations) payment to Corporate Profits Tax, which is stemming from a payment from OPI.

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In detail, these losses to an Industry would be reflected by negative Other Property Income (OPI) or by negative Proprietor Income (PI) if the loss is to a self-employed owner. OPI and PI by Sector can also be viewed in Region Details > Study Area Data > Industry Detail.

Heading to the Value Added tab on the Results screen, we can drill down into the details on EC, PI, TOPI, and OPI. Sorting by the totals for PI, we see that the $10M investment in the stock broker firm has an associated negative PI of $224,271.95. This demonstrates that overall in Illinois in 2019, proprietors in this Sector lost money.mceclip11.png

Scrolling further down the Value Added details page, we can sort the OPI table to see that the $10M stock brokerage has an associated negative $937,720.51 in OPI.  mceclip13.png

 

HOUSEHOLDS

The other place you will see negative taxes is actually in households. Running $10M through for a fast food restaurant (Sector 510 - Limited-service restaurants) illustrates this point.  

At the State level, Households earning less than $15k/year see negative $35.72 in personal income tax from the $10M impact. This means that households in this bracket are seeing a refund from the government or are receiving more in benefits (like food or housing) than they pay in taxes.

At the Federal level, three income groups see negative values for personal income tax. This again represents tax refunds that these households see or that the amount of benefits they receive outweighs the amount of taxes they pay.  

The portion of personal taxes paid by Households for each dollar they earn are income group and Region specific, but not sector specific. Similarly the portion of payroll taxes paid out of Employee Compensation and Proprietor Income for each dollar earned are specific only to the Region, not the industry. 

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RELATED ARTICLES

Farm Data Procedures

Generation and Interpretation of IMPLAN's Tax Impact Report

Written September 19, 2019 

Updated March 31, 2021