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Farm Bill: Another Short-Term Extension?- Tax Issues

Reuters writer Charles Abbott reported yesterday that, “Congress needs another short-term extension of U.S. agricultural programs, the fifth since expiration of the 2002 law, so it can wrap up a new $600 billion farm law, the House Agriculture Committee chairman said on Wednesday.

“President George W. Bush says lawmakers should admit defeat on the farm bill after weeks of deadlock. Instead, Bush says, they should extend the 2002 farm law for one year. That would hand the overhaul of U.S. farm and food programs to the next president and a new session of Congress.”

Mr. Abbott noted that, “‘Most of my members would rather get a farm bill than get a one-year extension,’ said Senate Republican Leader Mitch McConnell. ‘I still hold out some hope that we will be able to get a farm bill. I think we’re pretty close.’

“House Agriculture Committee Chairman Collin Peterson said the Senate was expected to vote later on Wednesday for a short-term extension. The House would vote later, possibly on Thursday.

“A Senate aide said a two-week extension was the goal.”

With respect to the executive branch, the Reuters article indicated that, “A one-week extension of agricultural programs expires on Friday. White House spokeswoman Dana Perino said Congress has three days left to resolve the farm bill.

“‘The president wants them to, if they can’t resolve it, then to go ahead and push for a year-long extension, at least a year long,’ said Perino.

“The White House has not ruled out a short-term extension and it would be preferable to operating under 1949 law, a House Agriculture Committee staffer said.”

Philip Brasher, writing yesterday at the Des Moines Register’s Cash Crops Blog, stated that, “President Bush called on Congress yesterday to extend farm programs for at least a year or more. But lawmakers are intent on going forward. The latest extension expires Friday.

“A spokeswoman for the Senate committee says lawmakers have been meeting in private today to try to resolve their differences. That’s probably a sign that serious progress is being made.”

DTN writer Chris Clayton reported yesterday (link requires subscription) that, “At least one U.S. senator and possibly others will want farm bill negotiators to justify repeated delays as Congress prepares to vote on what would be the fifth short-term extension of the 2002 bill.”

Mr. Clayton noted that, “[Sen. Larry Craig, R-Idaho] and possibly other senators could require Senate farm bill negotiators to go to the floor Thursday to explain just what problems are holding up the bill and why negotiations are not moving more quickly.”

The DTN article stated that, “Key Democratic negotiators from the House and Senate met repeatedly Wednesday, including a session with Senate Finance Committee Chairman Max Baucus, D-Mont., and House Ways and Means Committee Chairman Charles Rangel, D-N.Y. Leaving meetings in which no agreements are finalized, the negotiators now have perfected the comment, ‘We are making progress.’

“‘The main point is we’re making an awful lot of progress and we’re going to get this wrapped up this week,’ Baucus said.

“Rangel, however, left the same late afternoon meeting telling reporters, ‘Close doesn’t mean a … thing. It’s like being half-pregnant.’”

Mr. Clayton also indicated that, “Senate Budget Chairman Kent Conrad, D-N.D., said the repeated talks are helpful in finding more offset options for the bill. More talks are needed, but lawmakers also need the Congressional Budget Office to calculate costs or cost savings on some potential changes in the bill. Still, additional savings, as much as $730 million, may have to come from commodity provisions of the farm bill, Conrad said.

“For the moment, however, the question becomes whether the White House will continue saber rattling or sign another extension. White House spokeswoman Dana Perino told Reuters news service Wednesday that Congress has three days to get a new law done or they should do the one-year extension.”

Iowa Senator Chuck Grassley, the Ranking Member on the Senate Finance Committee held a press briefing with reporters yesterday, to listen to an exchange he had regarding the Farm Bill and a possible long-term extension, just click here (MP3-3:58).

Taxes-Funding

Jessica Holzer reported yesterday at The Hill Online that, “Money managers, including hedge funds looking to scoop up battered stocks on the cheap, have told their Washington-based consultants to keep close tabs on the farm bill.

“High-flying Wall Street financiers hardly seem the sort to follow the mind-numbing farm bill negotiations, which have been swinging from mini-breakthroughs to near-collapse for months.

“But the talks have grabbed their attention, according to sources in the political intelligence business, because the legislation could prove a boon to ethanol producers, timber companies and farm equipment manufacturers.”

Ms. Holzer noted that, “Wall Street investors are intensely interested in the energy provisions tucked into the $2.4 billion tax package the Senate attached to its legislation. The tax package has proved controversial in the House, and investors and their consultants are busy trying to handicap its chances of surviving.

“Philip L. Fraas, a Washington lawyer who tracks the saga of the legislation on his farmbill2007 blog, says he regularly gets inquiries from people in the financial industry regarding the fate of the energy provisions, which are intended to spur alternative fuels.”

The Hill article indicated that, “The tax package contains a two-year extension of the 54-cent per gallon tariff on foreign-produced ethanol that has been crucial for U.S. producers. Without congressional action, the tariff will be lifted at the end of the year… [A]nother provision in the Senate bill would reduce the current ethanol blenders’ tax credit by five cents to 46 cents per gallon to pay for a boost in incentives for second-generation or cellulosic ethanol. Along with the tariff and the phase-out of the fuel additive MTBE, the blenders’ tax credit helped to spur the ethanol boom.”

Ms. Holzer also stated that, “Investors are also watching a provision in the tax package, named the Tree Act, that would aid the timber industry, which is currently suffering from the housing downturn. The one-year incentive would cut taxes on traditional timber companies like Weyerhaeuser as well as clear up rules surrounding timber real estate investment trusts.

“‘I get a lot of people asking about legislation who appear to be monitoring it rather than lobbying it,’ a Senate tax staffer said about the Tree Act.

“Finally, money managers are eyeing a provision to accelerate the write-down of farm equipment purchases that could be a boon to machinery manufacturers like Deere & Company and Caterpillar.”

With respect to the timber issue, Dan Morgan reported yesterday at The Washington Post’s Investigations Blog that, “The $290 billion farm bill has been stuck in Congress for months as lawmakers wrestle over tax and policy questions. If the differences can’t be resolved, billions in farm subsidies as well as increases for nutrition, conservation and energy programs will die.

“Now, it turns out, one of the biggest sticking points is a proposed $435 million one-year tax break that would benefit multinational timber companies and smaller operators in states represented by some key lawmakers, reports Dan Morgan.

“The tax break has long been near the top of the legislative wish list of the American Forest and Paper Association (AFPA). It would cut the taxes on gains from timber sales from 35 percent to 14.4 percent.”

Mr. Morgan stated that, “The top Senate advocate for the measure, Blanche Lincoln (D-Ark.), has close political ties to her state’s timber industry, and since 1998 has received campaign contributions of at least $38,000 from timber company officials, along with $25,000 from the political action committee of Weyerhauser, Inc., the giant multinational.

“Among her long-time political supporters is Aubra H. Anthony Jr., president and chief executive of Anthony Forest Products, Inc., of El Dorado, Ark. In 2005, Anthony chaired the AFPA board. His cousin, former Rep. Beryl Anthony (D-Ark.), has served as chairman of the family timber company’s board.”

Yesterday’s Post update added that, “House members attempting to negotiate a farm bill deal with the Senate have strenuously objected to the provision. Without specifically mentioning timber, Rep. Bob Goodlatte (R-Va.), ranking Republican on the Agriculture Committee, charged last week that such one-year-only tax breaks would likely lead to annual extensions that could billions of dollars.

“In a strong plea to retain the provision, Lincoln–a member of the Agriculture Committee panel that oversees forestry–told House-Senate farm bill negotiators last week that some 3,000 jobs had been lost recently in her state’s timber industry. The Senate approved the provision last year as part of its version of the farm bill. It was also attached to a House-passed energy bill but was later dropped.”

And Mr. Morgan also reported that, “Separately from the timber measure, a $257 million provision backed by Sen. Max Baucus (D-Mont.) would have U.S. taxpayers pay interest on ‘forestry conservation bonds’ used by states to acquire conservation lands. A December article by Bloomberg News suggested that a prime beneficiary could be Baucus’s state of Montana, which could use bonds to buy land from Plum Creek Timber Co., largest private landowner in the state. House Republicans have called the measure a special-interest earmark. Baucus has said that his goal is to protect precious natural resources from commercial development.

“Senate negotiators have refused to yield to House demands to trim their $2.4 billion tax package. But Sen. Kent Conrad (D-N.D.) said yesterday that negotiators were ‘on the brink of a breakthrough’ to finish the farm bill.”

Wall Street Journal writer Greg Hitt also explored tax issues associated with Farm Bill funding in today’s paper.

Mr. Hitt indicated that, “A push is under way on Capitol Hill to add timber-industry tax breaks to the farm bill, which includes calls to spend billions on such items as wheat subsidies and school lunches.

“Montana Democrat Max Baucus, the chairman of the Senate Finance Committee, is among the senators backing a tax measure that is a top legislative priority for Weyerhaeuser Co. and the forest-products industry.”

Today’s Wall Street Journal article noted that, “The timber provision is part of a broader $2.4 billion package of tax cuts Senate leaders want included in the final version of the farm bill. The farm bill could be one of the biggest accomplishments of the 110th Congress, an election-year demonstration by lawmakers of their ability to meet the needs of rural and urban America. But as lawmakers and lobbyists look to tack on provisions, they risk having the measure buckle under its own weight, amid Capitol Hill bickering.

“House Speaker Nancy Pelosi (D., Calif.) has lashed out at one provision in the Senate package: a proposal providing faster depreciation write-offs for race-horse investments. The proposal is coveted by the National Thoroughbred Racing Association and the American Horse Council, and backed by a bipartisan group of senators, including Senate Minority Leader Mitch McConnell (R., Ky.).”

Mr. Hitt also explained that, “With Ms. Pelosi drawing a hard line, the House initially resisted the Senate insistence on tax cuts. House Democratic leaders have relented, signaling a willingness to accept as much as $1 billion in tax relief. That has triggered closed-door negotiations, with Senate tax writers — led by Mr. Baucus — pushing for as many of their incentives as possible.

“The Senate’s tax package provides many conservation, energy and investment incentives, and reflects the maneuvering of special interests and some home-state concerns of individual senators.”

Meanwhile, DTN Political Correspondent Jerry Hagstrom reported yesterday (link requires subscription) that, “In recent days, more money for nutrition and the Senate tax package has become linked.

“Late last week, as part of an offer to convince the House to accept a tax package that would raise $2.4 billion in farm-related tax reform and spend an equal amount in new farm tax breaks, the Senate informally offered to increase the amount for food stamps and other nutrition programs by $500 million, bringing the total from $9.5 billion to $10 billion. House conferees rejected the informal Senate proposal, but with the approval of Pelosi made an offer to the Senate to include $1 billion in tax breaks and $500 million for nutrition.

“Since the House declined to accept its tax package, the Senate withdrew its increase in nutrition. But Pelosi’s willingness to consider a tax package and the Senate’s willingness to increase nutrition spending have exposed the possibility of where compromise may lie. The $10 billion is also exactly the same amount of money that the Senate Finance Committee and the House Ways and Means Committee are supposed to provide. Rangel has said that he wants the money he provides to be used for nutrition.”

David Rogers, writing this morning at Politico.com, reported that, “After months of wrangling, House and Senate tax writers appear confident of reaching a deal soon that will clear the way for passage of a long-delayed farm bill.

“Speaker Nancy Pelosi (D-Calif.) has softened her opposition to Senate-backed tax cuts, and there appears to be tentative acceptance of a revenue-neutral package of at least $1.4 billion over 10 years.”

Mr. Rogers stated that, “The tax issue has been the last and most difficult problem for negotiators to resolve in moving ahead with the $300 billion-plus farm package, and the persistent delays have been a major embarrassment for the Democratic leadership.

“The White House is expected to oppose the measure, and in recent days, House Republicans complain of being excluded. But the tax cuts are important to Senate Republicans. And going into the November elections, Democrats are betting that the final deal will have sufficient bipartisan support to overwhelm any threatened veto by President Bush.

“The Senate’s initial farm bill was laced with billions of dollars of tax cuts to help buy Republican support on the floor in December, and Baucus has argued that no farm bill will survive unless some of these cuts are preserved. Pelosi had objected strongly, but she has since communicated through Senate Majority Leader Harry Reid (D-Nev.) that she will accept some revenue-neutral package in the range discussed.

“As part of the trade-offs, increased money will be provided for nutrition programs, and many of the tax breaks have broad bipartisan support. One that seems almost sure to be included would assist farmers on Social Security who have put land into the conservation reserve programs. Payments from the program would be counted more as investment income so as not to reduce Social Security and disability benefits.”

With this background in mind, David M. Herszenhorn reported in today’s New York Times that, “Americans are in sticker-shock over grocery prices, while people in developing countries are rioting over food shortages. And across the heartland, American farmers are enjoying record incomes, but losing sleep over rising expenses and turbulence in the commodity futures markets.

“Here on Capitol Hill, though, it is pretty much farm politics as usual.

“As Congress works toward final passage of the farm bill, it is poised to continue most of the existing farmer subsidy programs, including about $5.2 billion a year in so-called ‘direct payments’ that will be disbursed even as net farm income is projected to hit a historic high in 2008.”

And The Washington Post editorial board indicated in today’s paper that, “Neither the Senate nor the House put any meaningful means test on direct payments to farmers, so these wasteful handouts are slated to run at least $5 billion per year. House Speaker Nancy Pelosi has resisted the Senate’s spending and tax excesses, telling her colleagues from that body that she won’t countenance cuts in food stamps to pay for them. On this, she is in rare agreement with President Bush, who charged on Tuesday that the conferees are contemplating no less than $16 billion in spending increases ‘masked in part by budgetary gimmicks and funded in part by additional tax revenues.’

“The president correctly announced that, ‘[w]ith record farm income, now is not the time for Congress to ask other sectors of the economy to pay higher taxes in order to increase the size of government.’ Given their inability so far to find a mutually acceptable way to pay for the Senate’s extra goodies, the president told the conferees to send him a one-year extension of existing law — and let a new Congress and administration revisit the matter in 2009. We hope that the president’s admonition is enough to bring the conference to a reasonable conclusion; a new farm bill is the only way to get much-needed increases in nutrition and conservation, but if the effort fails, no bill might be better than a truly awful one.”

For more on Farm Bill editorials from around the country, click here.

Keith Good