Farm Capital Gains—A Supplement to Farm Income?

Net farm income has shown a generally downward trend since the postwar highs of 1947 and 1948. Even with allowance for nonfarm sources of income and for declining numbers of farms, average farm family income has lagged behind the steadily rising levels of nonfarm family incomes. But the farmer has had an additional return of sorts in the increased capital value of his assets—farm land and buildings and, to a lesser extent, working capital. Such increments in capital value are not included in regular estimates of gross and net farm income because the latter are designed specifically to measure returns from farming operations only. Capital gains and losses are purposely omitted from the estimates of income from farming. Capital gains and losses are referred to here in their general economic sense of changes in capital values associated with price changes, not in any specific tax sense. There is a difference of opinion among economists as to the desirability of lumping capital gains and losses with ordinary income. But some agricultural economists would argue that farm capital gains have been a clearly recognizable supplement to farm incomes in recent years, and most would probably concede that capital gains or losses have some bearing on the economic welfare of farm operators and their families, especially owner operators. Reasonably satisfactory information is available for an assessment of the approximate magnitude and general significance of farm capital gains and losses. Without necessary commitment to either side of the argument, therefore, it is the purpose of this study: First, to raise the basic question concerning farm capital gains and losses; second, to discuss some of its implications in terms of various possible answers; and third, to develop estimates of the average amounts involved annually in the last 20 years.