Politicians like Bernie Sanders promise that they will “save family farming” and “strengthen family-based agriculture."
The result: lots of special tax exemptions for farmers. Livestock owners don't have to pay any taxes on income that they then spend on their business. They can write off property taxes. For breeding animals, they can pay capital gains tax (15%) instead of income tax, which may be 30%.
Most people don't want to run, say, a cattle farm. But there is an animal that qualifies for all the tax breaks -- but acts more like a pet. It's called the alpaca.
[caption id="attachment_4953" align="alignnone" width="443" caption="Alpacas at "Alma Park Alpacas""][/caption]
Alpaca breeding has boomed since people found out about the tax benefits. On my special -- Politicians' Top 10 Promises Gone Wrong -- that will run in Hannity’s timeslot this Friday night, alpaca farmers tell me:
Theresa Reyes-Stassel: "we got into it for the tax reasons"
Rose Mogerman: "I was looking for a tax shelter… I might have had two [alpacas without the tax breaks.] I wouldn't have had 100."
Dennis Piper of Pine Brook Alpacas also told us:
I had tractors and stuff that I always played with, but I could never write it off. After purchasing the alpacas all my toys, all of a sudden, became tax write-offs."
One website even advertises: “Have Uncle Sam Help You Buy Your Alpacas.”
It’s not just a few breeders who are in it for the tax benefits. The Alpaca Owners and Breeders Association surveyed its members: on a scale of 1 to 10, what motivated you to buy? More than half rated tax benefits a 10. That’s even more than said they were motivated to buy because they “fell in love with [alpacas].”
Partly thanks to the tax benefits, the number of alpacas in the United States has soared from 150 in the 1980's to over 150,000. Some sell at bubble-sounding prices: half-ownership of one male alpaca sold for $750,000 in 2006.
I bet Alpaca-breeding profits vanish soon, as another bubble created by tax breaks pops. Fortunately, it won’t be as bad as the housing bubble. But it might hurt more people than the free golf cart bubble.
Economists at the University of California, Davis warn:
"Current prices for alpaca stock are not supportable by market fundamentals … the industry represents the latest in the rich history of speculative bubbles in agriculture…"
In my Politicians' Promise Gone Wrong special Friday, prosperity from tax credits is broken promise number 6. We prosper most when entrepreneurs devote their energy to things that people are willing to buy with their OWN money. When people produce things just because Uncle Sam pushed them to — whether it's golf carts or alpacas — more time and energy goes to Washington, to tax preparation, and to adjusting to distortions in the market created by the tax breaks.
That makes us all worse off.