Dr. Jody CampicheOklahoma State University

January 8, 2013

Farm Bill Update

Income tax rates increase from 35% to 39.6% for single individuals making > $400,000/yr ($450,000 for joint filers)

Capital gain and qualified dividend rates will increase from 15% to 20% for single individuals making more than $400,000 a year ($450,000 for joint filers)

Permanent higher alternative minimum tax (AMT) exemption Allow more taxpayers to escape paying AMT

Phase-out of personal exemptions and limitation on itemized deductions was reinstated for single individuals with adjusted gross income > $250,000 ($300,000 for joint filers)

Various credits and deductions extended (state/local sales tax deduction; educators’ classroom expense deduction; child tax credit; American Opportunity Tax Credit; adoption credit; and nonbusiness energy property credit)

For estate, gift, and generation-skipping transfer taxes, $5 million exemption extended permanently and will be indexed for inflation (top estate, gift, and GST rate permanently increased from 35% to 40%)

American Taxpayer Relief Act (H.R. 8)

Payroll Taxes:  Everyone will see less money in their paycheck in 2013

Does not include an extension of the 2 percent payroll tax cut of the Social Security (FICA) employee tax on the first $113,700 of wages

Employee-paid portion of the Social Security FICA tax increased on all wage earners from 4.2 percent to 6.2 percent beginning Jan. 1, 2013

The portion of the tax paid by employers remains at 6.2 percent of employee wages, for a total Social Security FICA tax of 12.4 percent

American Taxpayer Relief Act (H.R. 8)

1 year extension of farm bill to Sept. 30, 2013

Extension of hundreds of authorizations for U.S. Department of Agriculture (USDA) programs

2 month postponement of the “sequestration” (across-the-board) budget cuts enacted as part of the Budget Control Act of 2011

Farm Bill Extension

Many are upset by the partial extension

Farm safety net has been extended to another crop year and permanent farm law will not go into effect

Producers will continue to be eligible for direct payments, counter-cyclical payments, ACRE payments, and marketing loans for the 2013 crop year

Without this extension, these programs would not be in place for the 2013 crop year and producers would have much less certainty about the status of the farm safety net

Milk provisions in the 2008 farm bill were also continued and the extension preserves baseline funding

Farm Bill Extension

Actual details of 2013 commodity payments being worked out by USDA FSA

Questions on how to handle the 2013 ACRE programCan producers sign up for ACRE or are producers

already in ACRE forced to stay in the program?

Farm Bill Extension

Many programs and policies of the U.S. Department of Agriculture (USDA) were authorized under the Food, Conservation and Energy Act of 2008 (“2008 Farm Bill”) through September 30, 2012

Many programs with mandatory funding between FY 2008 and FY 2012 were reauthorized, but without any such mandatory funding

Gives the power to the appropriations committees

Long-standing history between what the appropriations committees appropriate and what the ag committees want appropriated

Also, during a sequester process, there’s less cover for programs that don’t have the “mandatory” label, although very little is protected from the sequester axe

Farm Bill Extension –What is not Included?

Authority or funding provided under the 2008 Farm Bill for USDA to operate a number of these programs expired on October 1, 2012 Includes 4 major programs managed by NIFA

(1) Organic Ag Research & Extension Initiative (2) Specialty Crops Research Initiative (3) Beginning Farmer & Rancher Development (4) Biomass R&D

Farm Bill Extension –What is not Included?

Program 2008 Farm Bill

Mandatory Funding

2013 Extension

Appropriations

Organic Ag Research & Extension Initiative

20 25

Specialty Crops Research Initiative 15 100

Beginning Farmer & Rancher Development

19 30

Biomass Research & Development 40 40

Because the authority for these programs has expired, NIFA cannot move forward on the release of new RFAs for these programs

NIFA can continue to manage existing grant awards that were made in FY 2012 and previous years

Two mandatory-funded programs, Community Food Projects and Risk Management Education, receive funding that is subject to the Office of Management and Budget operating guidance and legislative provisions of the FY 2013 Continuing Resolution

These programs are not impacted by the expiration of the 2008 Farm Bill

With the exception of the 4 programs with mandatory funding in the table, all reauthorizations sought by the land-grant community acting through the APLU Board on Agriculture Assembly’s Committee on Legislation and Policy (CLP) have been extended for one-year

H.R. 8 increases certain payments to dairy producers by $110 million in 2013 and reduces spending on nutrition education by the same amount

Farm Bill Extension – What is not Included?

House and Senate Ag committees agreed to a 1 year extension of the farm bill that included additional dairy provisions and mandatory funding for Supplemental Agricultural Disaster Assistance Livestock Forage program, Livestock Indemnity Program, Tree

Assistance Program, and the Emergency Livestock Assistance Program

Senate removed mandatory funding for the disaster programs and new dairy provisions

Includes an authorization of appropriations for the disaster programs which means that the funding could be discussed in the appropriations cycle

Funding for the disaster programs could also be included as part of other disaster discussions (such as the Hurricane Sandy Relief Bill) or could be part of the 5 year farm bill

Farm Bill Extension – What is not Included?

Now that the new Congress has convened, there are two likely options to finish the FY 2013 appropriations process

(1) Pass individual appropriations bills either singly or in one or more “omnibus” bills

(2) Enact a second continuing resolution that runs through Sept. 30, 2013

Under congressional rules, all bills expire at the end of each Congress, so both the House and Senate must start over again Farm Bill process may be expedited as a result of the substantial

progress each chamber made in 2012

 

What Happens Now?

Mississippi Senator Thad Cochran replaces Kansas Senator Pat Roberts as the ranking member on the Senate Agriculture Committee Some view the move as advancing Southern interests in the

next farm billCould be more support for commodity payments for

southern commodities

Sen. Richard Shelby (R-AL) becomes Vice-Chair of Senate Appropriations

In the House, Robert Aderholt (R-AL) becomes the new Chairman ofthe House Ag Appropriations panel

On the Democratic side of the Senate, Sen. Herb Kohl's (D-WI) retired and the chair slot of Senate Ag Appropriations Subc. has opened up (Possible candidates include Sen. Diane Feinstein (D-CA), Mark Pryor (D-AR), Sherrod Brown (D-OH), or TomHarkin (D-IA)

Changes in Congress

Ag Committee (25 R; 19 D)

R: Lucas (OK) Chairman •      Southern Region – 9 Members – 1 Female •      North Central – 7 Members – 1 Female •      Southwest (OK/TX) – 3 Members – Could be included as South •      West – 3 Members •      Northeast – 3 Members

D: Peterson (MN) Minority Leader •      North Central Region – 6 Members – 2 Female •      West – 6 Members – 1 Female •      Northeast – 3 Members – 1 Female •      South – 2 Members •      Southwest (TX) – 2 Members •      Spanish Surname Members – 3 all D •      Female – 6 Members – 2 R – 4 D

Source: James Novak

113th Congress

Rep. Bob Goodlatte (VA) Rep. Steve King (IA) Rep. Randy Neugebauer

(TX) Rep. Mike Rogers (AL) Rep. K. Michael Conaway

(TX) Rep. Glenn Thocmpson (PA) Rep. Bob Gibbs (OH) Rep. Austin Scott (GA) Rep. Scott Tipton (CO) Rep. Steve Southerland

(FL) Rep. Rick Crawford (AR) Rep. Martha Roby (AL)

Changes in Congress – Lucas Ag committee Republicans

Rep. Scott DesJarlais (TN)

Rep. Chris Gibson (NY) Rep. Vicky Hartzler (MO) Rep. Reid Ribble (WI) Rep. Kristi Noem (SD) Rep. Dan Benishek (MI) Rep. Jeff Denham (CA) Rep. Doug LaMalfa (CA) Rep. Richard Hudson

(NC) Rep. Rodney Davis (IL) Rep. Chris Collins (NY) Rep. Ted Yoho (FL)

Collin Peterson (MN) Mike McIntyre (NC) David Scott (GA) Jim Costa (CA) Tim Walz (MN) Kurt Schrader (OR) Marcia Fudge (OH) Jim McGovern (MA Suzan DelBene (WA) Gloria Negrete

McLeod (CA)

Changes in Congress – Peterson Ag committee Democrats

Filemon Vela (TX) Michelle Lujan

Grisham (NM) Ann Kuster (NH) Rick Nolan (MN) Pete Gallego (TX)         William Eynart (IL)      

  Juan Vargas (CA) Cheri Bustos (IL) Sean Patrick Maloney

(NY)

Politics of Farm Program Payments

Source: Larry Sanders

2012 Farm Bill: Proposed Cuts

CBO Scores: Senate vs. House

2012 Farm Bill Safety Net

Risk management (i.e. crop insurance) is a key component of both the House & Senate farm bills

Both bills offer choices among commodity and insurance programs Recognize diversity among

crops/regions

Farm Bill Safety Net

Crop Insurance

Supplemental Coverage Option (SCO) – An area-wide crop insurance product that can be purchased in addition to individual buy-up coverage. Designed to cover a portion of the crop insurance deductible

Coverage by practice – Beginning with the 2014 crop year, producers who grow a crop on both dry land and irrigated land may elect a different coverage level for each production practice

70% Yield Plug – For all crop years within a producers 10-year APH the yield plug is increased to 70% of the applicable transition yield

Crop Insurance

Enterprise Units – Makes the premium subsidy for enterprise units permanent

Information Sharing – Requires FSA to provide an authorized agent or an approved insurance provider (AIP) information that may assist in insuring the producer

Authority to Correct Errors – Authorizes AIPs and agents to correct unintentional errors to ensure accuracy of all insurance information

Cotton – Cotton producers are ineligible for Title 1 programs but may purchase an enhanced area-wide crop insurance product (STAX) with a $0.6861/lb reference price

Role of Commodity Programs

Elimination of Direct Payments (1) most bankable (2) most trade-compliant (3) direction much of the rest of the world is heading

Crop insurance is very important but it does not perform well under multiple years of price declines If prices drops (similar to late 1990s), how do we

avoid ad hoc disaster assistance House wants to provide multi-year price

protection in the commodity title to complement crop insurance

House vs. Senate Commodity, Crop Insurance, and Livestock Programs

Component Senate House

Direct Payments No No

CCP Payments No No

ACRE No No

SURE No No

County Revenue Protection Yes Yes

Farm Revenue Protection Yes No

Price Protection No Yes

STAX Yes Yes

SCO Yes Yes

Marketing Loans Yes Yes

Livestock Disaster Programs Yes Yes

Direct Payments Paid on historical base acreage – not tied to current

prices or production Average $15/acre payment for wheat

CCP Paid on historical base acreage and current prices Target price program No CCP payments on wheat

ACRE Based on a state and farm level trigger Payment based on state benchmark yield (not individual

or county)

2008 Commodity Programs - Reminder

2009/10 Average U.S. Direct Payments

Corn Grain Sorghum

Wheat Upland Cotton

Rice Peanuts Soybeans$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$ p

er

base

acre

CCP Payments for Cotton

2002/0

3

2003/0

4

2004/0

5

2005/0

6

2006/0

7

2007/0

8

2008/0

9

2009/1

0

2010/1

1

2011/1

2

0

10

20

30

40

50

60

70

80$ p

er

Base

Acre

Senate Commodity/Insurance Programs Agriculture Risk Coverage (ARC) – similar to ACRE

Individual Coverage (paid on 65% of eligible planted acres)

or County Coverage (paid on 80% of eligible planted acres

Supplemental Coverage Option (SCO) Area-wide policy to cover a portion of the crop insurance deductible Producers pay 30% of the premium

2 options 1) Enroll in ARC, get SCO coverage up to 79% (79% -

insurance plan coverage level) 2) No ARC, get SCO coverage up to 90%

Triggered if county losses exceed 10% of normal levels Not available for producers enrolled in STAX

STAX for cotton

House Commodity/Insurance Programs

Price Loss Coverage (PLC) Similar to CCP program Payment triggered if effective price (max mid-season

price or LR) < references price

or Revenue Loss Coverage (RLC)

Similar to Senate ARC program

Supplemental Coverage Option (SCO) Only available to producers enrolled in PLC – coverage up to 90% Not available to producers enrolled in RLC Triggered if county losses exceed 10% of normal levels Not available for producers enrolled in STAX

STAX for cotton

House vs. Senate Commodity Programs

ComponentSenate House

Farm ARC County ARC RLC PLC

Guarantee Farm revenue County revenue

County revenue National price

Benchmark

5-yr Olympic avg yield x 5-yr Olympic avg national price*

5-yr Olympic avg yield x 5-yr Olympic avg national price*

5-yr Olympic avg yield x 5-yr Olympic avg national price**

Fixed reference prices**

Payment trigger

Revenue<89% of benchmark

Revenue<89% of benchmark

Revenue<85% of benchmark

National price< reference price

Payment coverage

79 - 89% of benchmark

79 - 89% of benchmark

75 - 85% of benchmark

Reference price – loan rate

Payment rate65% of planted acres (45% of prevent-plant)

80% of planted acres (45% of prevent-plant)

85% of planted acres (30% of prevent-plant)

CCP yield x 85% of planted acres (30% of prevent-plant)

Loan rate Same as 2008: Corn = $1.95, Soybeans = $5.00, Wheat = $2.94 *Min. benchmark reference price for peanuts ($530/ton) and rice ($13.00/cwt)

**Min. benchmark reference price for wheat ($5.50), corn ($3.70), soy ($8.40), sorg hum (3.95), rice ($14), peanuts ($535 )

House vs. Senate SCO Coverage

SCO CoverageSenate House

Enrolled in ARC

Not Enrolled in ARC RLC PLC

Available? Yes Yes No Yes

Deductible 21% (100%-79%)

10% (100%-90%) N.A. 10%

(100%-90%)

Subsidy Rate 70% 70% N.A. 70%

Senate & House ARC & RLC vs. SCO

• Both may compete against individual farm crop insurance

• Producers may decide to lower the coverage level of their individual crop insurance and buy SCO or STAX coverage

• ARC and RLC:• No premiums• 65-85% coverage on acreage• Payment limits

Stacked Income Protection Plan Separate insurance program for upland cotton

Shallow-loss, area-wide revenue insurance Voluntary program - farmers can supplement existing revenue

insurance with an area-wide insurance product subsidized at 80%

“Stacked” feature Provides shallow-loss coverage that would sit on top of the producer’s

individual crop insurance deep-loss product

Uses an area-wide revenue product or group risk income protection (GRIP) program Losses determined at the county level rather than the farm level Area-wide policies such as GRIP are generally cheaper than farm-level

policies since the risk of loss is pooled at a more aggregate level

STAX

House vs. Senate STAX (Cotton Only)

STAX Coverage Senate House

Coverage Band

10-30% of expected county revenue

10-30% of expected county

revenue

Minimum Price N.A. $0.6861 / lb

Subsidy Rate 80% 80%

Payment Rate Multiplier 80-120% 80-120%

STAX

Questions?

Jody Campiche528 Ag Hall

405-744-9811jody.campiche@okstate.edu

http://agecon.okstate.edu/agpolicy/index.asp?type=newsletters