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Farm Bill Proposal Caps Subsidies

by Jerry Hagstrom
Capital Press, February 2, 2007

Bush plan would cut off farmers earning more than $200,000

WASHINGTON, D.C. - Agriculture Secretary Mike Johanns announced a Bush administration farm bill proposal Jan. 31 that would reduce farm subsidies by banning payments to any farmer earning $200,000 in adjusted gross income, but overall it proposes fewer changes in the structure of farm programs than anticipated.

The bill would also eliminate the prohibition against planting fruits and vegetables on land that receives subsidies, but it would provide an additional $5 billion over 10 years for specialty crops such as fruits, vegetables and nuts.

Johanns said at a news conference that the majority of farmers told him they liked the structure of the 2002 Farm Bill but wanted certain problems solved - such as the lack of assistance when they did not get a crop.

"These proposals represent a reform-minded and fiscally responsible approach to making farm policy more equitable, predictable and protected from challenge in trade cases," Johanns said.

The proposal, presented in a 181-page book and posted on the Internet, would cost $17 billion less over the next five years than the 2002 Farm Bill has cost in its life, including disaster payments. But it would cost $5 billion more than the current projected spending over the next 10 years, officials said.

The current farm bill has cost $98 billion in farm programs, and Congress added $7 billion in disaster payments, but the government's projection for future spending has gone down because commodity prices are high and price-related farm payments are projected to be low.

A USDA official said the elimination of all commodity subsidies to farmers with $200,000 from all income sources is expected to affect 80,000 farmers and save $1.5 billion.

Since farm production is highly concentrated on the biggest farms, that restriction could reduce incomes and buying power for some of the nation's most productive farmers, but USDA officials could not immediately predict the impact eliminating those subsidies would have on production.

Johanns said anyone earning $200,000 is among the 2.3 percent richest Americans and that he would have a hard time justifying to urban taxpayers subsidies to such high earners.

The proposal would also end farm payments on land acquired through the Internal Revenue Service's "1031" land exchange rule.

Such swaps exempt from federal capital gains taxes properties used for businesses and farming.

The proposal does not eliminate marketing loans on crops, as some reformers have advocated, but would reduce marketing loan rates to the levels passed in the House version of the 2002 Farm Bill. Those loan levels were raised in the 2002 Senate bill and became law.

Under the Bush proposal, the loan rate for corn would be $1.89 per bushel, for soybeans $4.92 per bushel, for wheat $2.58 per bushel and for cotton .5192 cents per pound.

The bill would increase by 7 percent farmers' direct payments, which are not affected by production. Direct payments are preferable to those who say higher marketing loan payments when prices are low discourage farmers from following markets.

The proposal would also change the countercyclical payment program so it would be based on farmers' revenue from a crop rather than on price. Johanns said the change would allow farmers to receive payments when a crop fails rather than only when prices go down.

The administration also proposes to eliminate the prohibition on planting fruits and vegetables on land that gets crop subsidies and increases by $5 billion over 10 years various programs for fruit and vegetable producers, who have expressed fears that increased acreage will lower their prices.

The proposal also continues the dairy support program and the milk income loss contract program, but with reduced payment levels. It continues the sugar program, but would eliminate a provision that gives the agriculture secretary power to reduce sugar production to avoid forfeitures.

The proposal also increases funding for various conservation programs by $7.8 billion over 10 years and continues the land-idling Conservation Reserve Program at its current level. It also includes $1.6 billion in new funding for renewable energy research, development and production, targeted for cellulosic ethanol. The USDA would also make available $2.1 billion in guaranteed loans for cellulosic projects.

Johanns left immediately after his announcement for a national tour that included a stop in Modesto, Calif., to talk about the benefits of the proposal for specialty crops.

Jerry Hagstrom, Washington, D.C., Correspondent
Farm Bill Proposal Caps Subsidies
Capital Press, February 2, 2007

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