The Data is Conclusive: Farm Bill Reform is Phony Reform

Release Date:

05/02/2008

Contact(s):

Chuck Hassebrook, chuckh@cfra.org Phone: (402) 687-2103 ext. 1018 Dan Owens, dano@cfra.org Phone: (402) 687-2103 ext. 1017

The Conference Committee agreement includes two ostensible reforms. It attributes farm payments received through entities to the payment limitation of the ultimate beneficiary. And it adjusts the means test, which denies payments to certain high income recipients. However, the impact of those provisions is outweighed by the 25% increase in the direct payment limit from $80,000 to $100,000 for married couples.

We conducted a detailed analysis of 2005 recipients of large direct payments in Georgia, Iowa, Kentucky, Minnesota, Montana, North Dakota and Oklahoma. We found only one farm that would suffer a payment reduction as a result of direct attribution of farm payments. But 73 large farms would receive bigger subsidies as result of the increase in the direct payment limit under the conference committee agreement.

Here's why. Under current law, mega farms get double the $40,000 direct payment limit by using either the three entity or spouse rule. They cannot use both. They can only double. The conference agreement eliminates the three entity rule as a means of doubling by attributing all payments to the ultimate recipient. But it leaves the spouse rule intact and raises the nominal limit on direct payments from $40,000 to $50,000.

The net effect is to reduce the limit on direct payments from $80,000 to $50,000 for widows and bachelors, but increase it for married mega farmers from $80,000 to $100,000. Call it the Norwegian bachelor farmer payment limitation.

Adjusted Gross Income Limits - Much Ado About Little

Senator Chuck Grassley's analysis of U.S. Internal Revenue Service data revealed that from 36 to 41 percent of those who would lose farm payments under the House, Senate and Administration means test proposals were landlords. They will continue to enjoy the benefits of full farm payments by switching to cash rent arrangements. Their tenants will collect the federal payments and pass them on in the form of top dollar cash rents.

As for denying payments to high income farmers, Secretary Schafer got it right when he said recently that "If there is a farm in America that can't meet a $500,000 hard cap, they need a new accountant."

The so called $500,000 hard cap advocated by Schafer would in reality be a $1 million means test for couples. The number in the conference agreement is unclear but will likely be higher. Large farms that approach the income limit will get around it by purchasing land and expanding - increasing interest, depreciation and input deductions.

For more information visit: www.cfra.org.

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The Center for Rural Affairs is a private nonprofit specializing in strengthening small businesses, rural communities, and family farms and ranches.

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