January 19, 2020

Budget Issues: Sequester, Fiscal Cliff; the Farm Bill; Biofuels; and Trade

Categories: Budget /Farm Bill

Suzy Khimm reported on Friday at the Wonk Blog (Washington Post) that, “The White House has released its plan explaining how the sequester’s mandatory spending cuts to defense and domestic spending will be implemented in 2013.”

The update explained that the sequester is “a package of automatic spending cuts that’s part of the Budget Control Act (BCA), which was passed in August 2011. The cuts, which are projected to total $1.2 trillion, are scheduled to begin in 2013 and end in 2021, evenly divided over the nine-year period. The cuts are also evenly split between defense spending — with spending on wars exempt — and discretionary domestic spending, which exempts most spending on entitlements like Social Security and Medicaid, as the Bipartisan Policy Center explains. The total cuts for 2013 will be $109 billion, according to the new White House report.

“Under the BCA, the cuts were triggered to take effect beginning Jan. 1 if the supercommittee didn’t to agree to a $1.2 trillion deficit-reduction package by Nov. 23, 2011. The group failed to reach a deal, so the sequester was triggered.”

Ms. Khimm pointed out that the sequester can be avoided, “but only if Congress passes another budget deal that would achieve at least $1.2 trillion in deficit reduction. Both Democrats and Republicans have offered proposals to do so, but there still isn’t much progress on a deal. The political obstacles are the same as during the supercommittee negotiations: Republicans don’t want to raise taxes to generate revenue, while Democrats are reluctant to make dramatic changes to entitlement programs to achieve savings.”

Friday’s update added that, “No one on Capitol Hill thinks any deal will happen before Election Day. After Nov. 6, Congress will have just a few weeks to come up with an alternative to the sequester. The challenge is complicated by the fact that the Bush tax cuts, the payroll tax, unemployment benefits and a host of other tax breaks are all scheduled to expire Dec. 31. The cumulative impact of all of these scheduled cuts and changes is what’s popularly known as the fiscal cliff.  There’s already talk of passing a short-term stopgap budget plan during the lame-duck session to buy legislators more time to come up with a grand bargain.”

Damian Paletta reported in Saturday’s Wall Street Journal that, “The White House and members of Congress say they want to avoid the cuts, but so far they have made little progress toward an agreement on how to replace them with other deficit-reduction measures.”

Speaking yesterday on CNN’s “State of the Union,” House Minority Leader Nancy Pelosi indicated that, in a conversation with President Obama, he had noted, and she agreed, that there was a need to come to an agreement and find common ground to avoid the “fiscal cliff.” (audio– MP3- 1:00)).

Jonathan Weisman reported in Saturday’s New York Times that, “For now, the two parties remain at odds, with each seeking to blame the other for the automatic cuts about to come.”

Carlo Muñoz reported on Friday at The Hill’s Defense Blog that, “‘This report makes it even clearer that we need to replace sequestration in a balanced way that … includes both responsible spending cuts and new revenue from the wealthiest Americans,’ [Sen. Patty Murray (D-Wash)] said in a statement issued Friday.”

The Weekly GOP Address, which was delivered by Rep. Allen West (Fla.), indicated that, “The Republican-led House has proposed responsible replacements to the sequester’s historically crippling across-the-board cuts to our nation’s military. The recent vicious attacks on embassies in the Middle East underscore the need to preserve our military strength. The president and Senate Democrats must put aside partisan politics to work with us to preserve our military and replace the sequester.”

And Mike Lillis reported yesterday at The Hill Online that, “Even as President Obama draws fire from Republicans over looming sequester cuts, the White House has so far refrained from endorsing the Democrats’ plan to avoid them.

“Although Obama has proposed a 10-year budget plan to stave off the automatic cuts to defense and domestic spending scheduled to hit in 2013, the administration has not formally championed the one-year fix pushed by House Democrats this week as an alternative to the Republicans’ proposals.”

The update noted that, “Rep. Chris Van Hollen, the sponsor of the Democrats’ alternative, said Friday that his bill incorporates many of the same ideas contained in Obama’s longer-term proposal.

“Those include provisions to end oil and gas subsidies, eliminate direct payments to farmers and adopt the so-called Buffett Rule, which is designed to ensure that wealthy Americans don’t pay a lower tax rate than those who earn much less.”

Appearing yesterday on C-SPAN’s “Newsmakers” program, House Appropriations Committee Chairman Harold Rogers (R., Ky.) indicated that after the “heat of the election” has passed in November, the “pressure will be intense” to deal with the sequestration matter (audio– MP3- 1:00).

In other budget related matters, recall that last week, the House passed a continuing resolution to fund the federal government until March 27, 2013; and David Rogers reported on Thursday at Politico that, “And in their haste, Republicans added no new provisions for American farmers, already stressed by this summer’s drought and Boehner’s refusal to call up a five-year farm bill.”

The “Washington Insider” section of DTN reported on Friday (link requires subscription) that, “Thursday, the house cleared a six-month continuing resolution aimed at keeping spending priorities and government programs in a holding pattern until a new Congress — and perhaps until a new president — take office.

“The language of the CR does not include any extension of the 2008 farm bill, although it does provide continued funding for some of the highly controversial nutrition and conservation programs for the duration of the CR.

“After the leadership decided not to attach a farm bill extension to the CR, House Ag Chairman Frank Lucas R-Okla., told the press he expects Congress will vote on a one-year extension by the end of the month. He thinks the House leadership will address the issue on the heels of the CR vote, and by late Thursday, it appeared that a discharge petition was likely to succeed in bringing the committee bill to the House floor.”

Pete Kasperowicz reported on Friday at The Hill’s Floor Action Blog that, “The House and Senate are both in for half the week, to mark the Jewish new year, and will start work in earnest on Wednesday, which is expected to include passage of a short-term farm bill, and Senate passage of the six-month spending bill.”

Ed O’Keefe reported on Friday at the 2chambers Blog (Washington Post) that, “The U.S. House of Representatives plans to wrap up work next week and not return until after Election Day, Republican leaders announced Friday.”

The update added that, “House lawmakers return to Washington Wednesday afternoon, after the Rosh Hashanah holiday and will leave again Friday — meaning they will have met just eight days in September.

This abbreviated schedule leaves precious little time to resolve several outstanding issues, including passage of a farm bill or drought relief package…”


Farm Bill Issues

Dan Piller reported on Friday at The Des Moines Register Online that, “U.S. Secretary of Agriculture Tom Vilsack said Friday that protecting the defense budget from cuts would further endanger agricultural programs.”

The Register article noted that, “[Sec. Vilsack] warned that if the Defense Department budget is taken off the table for cuts, agriculture would be more vulnerable if Congress doesn’t pass a new farm bill by the expiration of the current bill on Sept. 30.

“‘The bill passed by the U.S. Senate in July has $23 billion in cuts, but some proposals would cut as much as $50 billion from agricultural programs and another $139 billion from nutrition programs,’ Vilsack said. ‘That would be a major blow to the rural economy.’”

Chris Clayton reported on Friday at DTN (link requires subscription) that, “Steeper all-around cuts would be in play after the election, Vilsack said, because lawmakers would be trying to find offsets to extend tax cuts or avoid cuts at the Department of Defense that are scheduled to occur through the budget sequestration process.”

O. Kay Henderson reported on Friday at Radio Iowa Online that, “U.S. Ag Secretary Tom Vilsack says a temporary extension of the current Farm Bill could be devastating to the nation’s dairy farmers… “‘We have in place right now a process in which when prices are such that payments go out to producers,’ Vilsack says.

These payments, because of the way in which the 2008 bill was structured, have substantially decreased in value this month. An extension will essentially bring that program back at September levels, not August levels.’”

Additional perspective from Sec. Vilsack on the Farm Bill is available here, “A Food, Farm and Jobs Bill As Soon As Possible.”

A related news release on Friday from Rep. Peter Welch (D., Vt.) stated that, “With hopes rapidly fading for a new Farm Bill before the current one expires at the end of September, dairy policy leaders in the U.S. Senate and U.S. House — led by Senator Patrick Leahy (D-Vt.) and [Rep. Welch] and joined by Senator Bernie Sanders (I-Vt.) — are pushing for a temporary fix for the dairy safety net until the new dairy program that is included in both the Senate and House versions of the Farm Bill becomes law and can be put in place by the U.S. Department of Agriculture (USDA).”

An update last week at the Fresno Bee Online reported that, “Record high feed costs have forced dozens of California dairies out of business or into bankruptcy.”

And the Western United Dairymen Weekly Update from Friday indicated that, “CDFA [Calif. Dept. of Food & Ag.] Secretary Karen Ross this week wrote to members of the California Congressional delegation urging they take action to ensure that ‘appropriate disaster assistance is available for our farmers’ in light of the record breaking drought that is impacting Midwest corn and grain producers and leading to increased feed costs for California farmers.”

Daniel Newhauser reported on Friday at Roll Call Online that, “House Republican leaders are whipping a three-month extension of the stalled House farm bill, a measure that would drop the bill into the middle of what will already be a contentious lame-duck session.

“House Agriculture Chairman Frank Lucas (R-Okla.) said today he is seeking support from his colleagues for the short-term measure and pushing for a House vote next week.

“‘I think anyone who looks at the circumstances is going to acknowledge that you can’t do a complete farm bill by next Friday, therefore we’re going to do a farm bill in [the] lame duck,’ he said.”

The article noted that, “With the elections approaching, he [Lucas] said politics prevent passage of a full bill. Still, leadership has yet to decide whether to bring the measure up next week, and Lucas said that neither Speaker John Boehner (R-Ohio) nor Majority Leader Eric Cantor (R-Va.) have committed to a vote on any farm bill.

“As Lucas whipped the measure at a House vote today, however, Agriculture ranking member Collin Peterson (D-Minn.) let off a tirade near the House floor, saying that he is strongly opposed to any short-term extension of the farm bill.”

Mr. Newhauser added that, “Peterson noted that although the farm bill expires Sept. 30, the negative effects, a sharp spike in dairy prices, for instance, would not take effect until January. An extension would make it more difficult to pass a five-year farm bill, he said.

“‘This is strictly political cover is all this is, to make it look like they’re doing something,’ he said. ‘What upsets me is he’s whipping something that is really irrelevant. And they never whipped the farm bill.’”

Erik Wasson reported on Friday at The Hill’s On the Money Blog that, “House Republican leaders may be falling short Friday in their effort to whip up support for a three-month farm bill.

“If GOP leaders win support for the stopgap bill, it would come up for a vote next week before the current 2008 farm bill expires on Sept. 30.

“Rep. Collin Peterson (D-Minn.), the ranking Democrat on the House Agriculture Committee, predicted the effort would fail.”

The Hill article noted that, “‘They can try to move it but I don’t think they will. They don’t have the votes,’ Peterson said.

“Pressed if the votes would be there for the short-term bill, Agriculture Chairman Frank Lucas (R-Okla.) said he has not seen the whip count.”

In addition, Friday’s article added that, “Lucas said that the short-term bill, which would extend the 2008 legislation by three months, would include disaster aid to help livestock producers whose programs expired in 2011 and who have been hurt by the record drought.

Peterson said he and other rural Democrats will oppose the three month bill. He said the short-term bill is not necessary since most farm safety net payments will not be needed until the spring. While there will lapse in support for dairy farmers, he said the payment lost will be very small.

Peterson said Senate Agriculture Committee Chairwoman Debbie Stabenow (D-Mich.) will also oppose the three month bill.”

A news release Friday from Rep. Ron Kind (D., Wis.) indicated that, “As Congress wraps up one of the last weeks of business before Election Day, [Rep. Kind] called on his Republican colleagues to stop playing games and bring a Farm Bill to the House floor.”



Steven Mufson reported on Friday at The Washington Post Online that, “Oil prices hit their highest levels in more than four months on Friday, bolstered by the Federal Reserve’s steps to strengthen the U.S. economy and by anxiety about the specter of confrontation over Iran’s nuclear program.”

In a related item, University of Illinois Agricultural Economist Scott Irwin indicated on Friday at the farmdoc daily Blog (“What Price of Crude Oil Makes Ethanol Production Profitable?”) that, “There has been a great deal of interest this summer in the ethanol market, RFS mandates, and corn use for ethanol production. This reflects the impact of the historic drought of 2012 in the Midwest and concerns about how reduced corn supplies will be allocated across consumption categories. The focus of this post moves from the short-term to the long-term. In particular, we are interested in analyzing the basic economic question of how high do crude oil prices have to be in order for ethanol production in the U.S. to be profitable. Sometimes this simple but important issue is lost in the blizzard of daily market data and analysis. The answer also helps provide a frame of reference for thinking about the longer-term outlook for the market demand for ethanol.”

After a cogent analysis, Friday’s update, which included this graphical depiction, noted that, “The level of energy prices plays a central role in determining the long-run profitability of ethanol production in the U.S. This analysis shows that crude oil prices above $60 per barrel will provide support for corn prices at or above $4 per bushel. If crude oil prices are higher, as many analysts expect, this is likely to further pressure corn prices upward. This has important implications for other users of corn, such as the livestock industry, that now compete with the transportation fuel use of corn. It also points towards the importance of continued public and private investment in technologies to increase the efficiency of corn production.”

Meanwhile, a news release Friday from Rep. Steve King (R, Iowa) stated that, “[Rep. King] released the following statement regarding the EPA’s announcement today that it will approve an expansion of the 2013 Bio-diesel Renewable Fuel Standard requirement to 1.28 Billion gallons. The current RFS regulation for Bio-diesel was set at 1 Billion gallons for 2013 with the flexibility that higher allowances would be granted if the industry could present a case for a need for such an increase.

“‘My congratulations to the Bio-diesel Industry for their tremendous work to get the Bio-diesel RFS expanded from the current 1 Billion gallons in 2013 to 1.28 Billion gallons,’ said King. ‘The industry has shown we have sufficient feedstocks available to meet the RFS and that we have the capacity to produce even more than 1.28 Billion gallons. This change will add to our growing ability to produce homegrown, clean burning, renewable fuels.’”



Vicki Needham reported yesterday at The Hill’s On the Money Blog that, “Business groups are gearing up a last-ditch lobbying effort to win approval of Russian trade legislation before Congress leaves town to campaign before the November elections.”

Keith Good

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