$200K and You're Out
The Mulch has gotten pretty thin since Wednesday.
It has been a hectic few days for us in the wake of Ag Secretary Johanns' announcement of the administration's farm bill proposal, mostly talking to the media and conferring with our colleagues who are pushing for reform, Hill staff, farm organizations and others for their reactions.
But we might as well start adding Mulch on the topic with which--significantly, I think--Sec. Johanns kicked off his entire briefing: a proposal to consider means testing as part of a new approach to "strengthen payment and eligibility limits."
Why was it significant? Because the administration clearly wants to talk about fairness and farm assistance in ways that non-aggies in Congress, and 97.7 percent of American taxpayers, can relate to. To say nothing of the vast majority of farmers and ranchers who inhabit an income world far, far south of $200K.
USDA proposes to...
Decrease the Adjusted Gross Income (AGI) eligibility cap for all farm commodity program payments from the current $2.5 million to $200,000 annually. Continue current law AGI requirements and payment limits on all conservation title payments.Moreover, USDA proposes to:
Repeal the current provision in law that waives the AGI cap if 75 percent or more of the AGI is derived from farming, ranching, or forestry activities. Thus, if a producer has an annual adjusted gross income of $200,000 or more, regardless of the source of the income, the producer would not be eligible for commodity program payments.
Here's part of the rationale USDA cited in making the case for this reform (you can download the full proposal and background materials here):
Payment limits and the Adjusted Gross Income cap have affected few producers. Only nine percent of all farms collect 54 percent of all government commodity payments. The complexity of the law allows virtually unlimited payments to the nation’s largest and most wealthy farms. During Farm Bill Forums, producers spoke often about these wealthier farms inflating cash rental rates and outbidding their neighbors for farm real estate. The nation’s tax policy coupled with these unlimited government payments have contributed to the surge in high land values and high rental rates. As a result, it is more difficult for beginning farmers to get started and for small- and medium-sized farmers to compete.
Much more from USDA's background document for this proposal in the jump. But for now, it's worth noting that when the IRS says Adjusted Gross Income, here is what it means:
AGI is defined as your taxable income from all sources including wages, salaries, tips, taxable interest, ordinary dividends, taxable refunds, credits, or offsets of state and local income taxes, alimony received, business income or loss, capital gains or losses, other gains or losses, taxable IRA distributions, taxable pensions and annuities, rental real estate, royalties, farm income or losses, unemployment compensation, taxable social security benefits, and other income minus specific deductions including educator expenses, the IRA deduction, student loan interest deduction, tuition and fees deduction, Archer MSA deduction, moving expenses, one-half of self-employment tax, self-employed health insurance deduction, self-employed SEP, SIMPLE, and qualified plans, penalty on early withdrawal of savings, and alimony paid by you. Do not deduct your standard or itemized deductions.
More from USDA on its payment limitation proposal:
Farm program payments account for a sizeable share of farm income for producers of program crops. Generally, the effect of payment limits has been limited because producers have been able to use various legal and regulatory provisions to avoid being restricted by these limits. The Commission on the Application of Payment Limitations for Agriculture authorized in the 2002 farm bill found the “limits on marketing loan benefits are not effective, only a small percentage of program crop producers reach the current limits on direct and counter-cyclical payments, and many of the largest farms have either restructured or are likely to do so to lessen the extent to which the limits reduce payments.”With only limited constraints on payments, a substantial portion of payments go to large, high income producers. In 2005, commercial farms (defined as a farm with sales of $250,000 or more, where the principal occupation of the operator is farming) accounted for nine percent of all farms but received 54 percent of all government payments, averaging $54,100 per farm. These farms had average household incomes of $200,000. Farms where the principal occupation of the operator was farming and with sales up to $250,000 (intermediate farms) accounted for 23 percent of farms and received 27 percent of all payments, averaging $8,700 per farm. These farms had average household incomes of $68,000. The U.S. average household income was
$63,344 in 2005. These data indicate most payments go to farm households that have large incomes compared with other farms and with U.S. average household income. Moreover, these large payments are likely to provide a means and incentive for the “big to get bigger” and outbid their neighbors in purchasing and renting farmland.
The problem was highlighted in the comments offered during many Farm Bill Forums. Kristina from Virginia said, “Farm bill policies are supposed to preserve family farms, but they disproportionately channel money to big agribusiness.” Steve from Georgia said, “These people drawing these multiple payments are in competition against us... They... keep getting bigger every year. The number of farmers drops every year. There's going to be fewer and fewer farmers, and there won't be such a thing as a family farm.”
Comments
Not only is the gov. guaranteeing the largest payments to the largest farmers, they are also guaranteeing the greatest income to those with the greatest probability of the greatest income with FCIC. Is there any better example of financial discrimination than this? Congress has done a great job of targeting the Walmarts in agriculture with the greatest guaranteed incomes. It is about time to limit the size of these financial security blankets to a reasonable equal amount. There is no reason one farmer is deserving of a greater guaranteed income than the next!
Posted by: Thorson | March 2, 2007 10:13 PM