So far it appears policymakers have made little progress regarding the impasse over tax increases and budget cuts referred to as the “fiscal cliff”. The two sides are still debating what will actually be discussed.
Some republicans are signaling that they can accept a plan that includes additional tax revenue through closing loopholes and limiting deductions, but maybe not if it also means higher tax rates. Some democrats are saying that reforms to entitlement programs like Social Security and Medicare should be handled separately from the fiscal cliff discussions.
Senate Majority Leader Harry Reid, D-Nev., says raising the debt ceiling must be a part of any fiscal cliff deal. Some members of both parties want to throw the Farm Bill into the discussion so they can take advantage of the spending cuts. And Senate Republican Leader Mitch McConnell, R-Ky, warns that democrats will blow up fiscal cliff talks if they move forward with plans to change rules regarding the use of filibusters. It sure doesn’t sound like they are close to any deal.
An extension of the 2008 farm bill as a “backup plan” in case Congress fails to pass new legislation is being prepared by House Agriculture Committee Chairman Frank Lucas, R-Okla. He says the alternative (defaulting back to 1949 permanent law) would mean an “antiquated system that is not responsible and not acceptable”. But passing a farm bill extension may be as difficult, if not more difficult than passing a new law! Deciding how long the extension should be and what provisions should be included will be difficult because every decision will have cost and budget implications.
House Agriculture Committee Ranking Member Collin Peterson, D-Minn., says he will oppose any effort to pass an extension. But if Congress does nothing, farm bill provisions do indeed snap back to 1949 permanent legislation by default, which includes parity prices and acreage allotments.
Farmers and ranchers will see significant changes to their taxes if there is no agreement that avoids the fiscal cliff by the end of the year. The long-term capital gains tax rates will increase. The current law has a 0% rate for those in the 10% and 15% tax brackets and a 15% rate for those in the 25% and higher tax brackets. The capital gains tax rate will rise to 20% at the beginning of 2013.
The Section 179 Expense Election will fall from $139,000 with a $560,000 purchase limit to just $25,000 and a $200,000 purchase limit. The Special Depreciation Allowance, currently equal to 50% of the depreciable basis, will disappear altogether.
In addition, tax rates will increase for essentially everyone that pays taxes. Farmers and ranchers also hope that Congress takes action to avoid the sharp increase in estate tax rates that are set to go into effect at the beginning of next year. The general feeling is that the government will surely find a way to avoid the tax increases and spending cuts that are looming – but we see a big risk that it won’t happen!
USDA updated the farm income forecast for 2012 this week. The new data show net farm income of $114 billion and net cash farm income of $132.8 billion. Both figures are slightly below the record highs recorded for 2011. Revenues were up year-over-year in all categories, but expenses were up even more. Higher feed costs (up nearly $10 billion) accounted for about 40% of the total increase in expenses. (Additional information is provided in this issue’s FOCUS report.)
Nearly 80 members of Congress, 3 governors and many others are calling on the U.S. Corps of Engineers to keep the Mississippi River open for commerce.
According to the Corps’ water management plan, the water release from the Gavins Point Dam on the Missouri River is reduced to avoid ice buildup and flooding upstream. But reducing the water flow this year may reduce the depth of the Mississippi River below the mandated 9 foot depth. (About 45% of the country’s soybean exports and about 55% of the country’s corn exports move on the Mississippi River.)