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Direct payments thrown into deficit battle

Senate Agriculture Committee Chairwoman Debbie Stabenow announced on Thursday that agriculture plays a key role in a plan by Senate Democrats to prevent across-the-board spending cuts scheduled to start March 1.

Instead of the automatic $85 billion in spending cuts, known in Washington as sequestration, the Democrats propose a three-part way to save the same amount of money through:

  • eliminating some tax loopholes
  • reducing defense spending--but by about half as much as the automatic cuts would
  • eliminating direct payments in the commodity title of the farm law.

Direct payments were given another year of life when Congress extended the 2008 farm law over the New Year as part of the fiscal cliff deal that raised income taxes for high income earners--and put off any spending cuts until March 1.

But Stabenow, a Michigan Democrat,  pointed out when the Senate passed a farm bill last year "we agreed on a bipartisan basis that direct payments did not make any sense."

The Democrats' proposal cuts $31 billion from farm spending over the next nine years but uses $3.5 billion to pay for programs for beginning farmers, energy and other small programs that expired with the end of the 2008 law, as well as drought and disaster assistance for livestock and specialty crop growers. It would save $27.5 billion in federal spending.

That, Stabenow said, would help restore all domestic spending for the rest of this year, not just the USDA budget. The White House has said that across-the-board cuts would force weaker border patrols, less of a defense presence in the Persian Gulf, and furloughs of meat and poultry inspectors, which would cause packing plants to close temporarily, at a cost of $10 billion to the economy.

With the help of cutting direct payments, "there would be no other domestic spending cuts," Stabenow said.

Responding to a question from Agriculture.com, Stabenow sought to clear up any confusion about what this would mean for farmers who can start signing up for direct payments next week, on February 19. "I'm assuming that contracts are honored" by USDA, she said.

Later she said the plan to eliminate direct payments would start “probably more likely in 2014” than this year. That’s how the Congressional Budget Office counts it, too, according to one knowledgeable source who explained that "CBO does not assume any savings from the 2013 Direct Payment, which is paid in the 2014 fiscal year."

Stabenow said she had informed the leaders of the House Agriculture Committee about the plan. But the bipartisan consensus in drafting a farm bill last year seemed to be missing Thursday.

House Agriculture Committee Chairman Frank Lucas (R-OK), called the plan "the Senate Democrats' attack on rural America."

The proposed cuts to the traditional farm safety net are $31 billion, which is a 53 percent reduction, his office said.

"Farmers and ranchers want to be a part of the solution to the fiscal crisis we face in this country," Lucas said in a statement. "And, the House Agriculture Committee demonstrated that commitment to being a part of the solution when we passed a comprehensive, balanced farm bill that cut more than $35 billion from all of agricultural spending, including the farm safety net, conservation programs, and reforming the SNAP [formerly called food stamps] program."

"We made those reforms in the context of a comprehensive, five-year farm bill that ensured we still met the food and fiber needs of all Americans.  The Senate’s approach of taking away our investment in rural America without addressing the hole it will create is not balanced and not acceptable," Lucas said.

Ag groups had a mixed response.

"Late Thursday, word surfaced that a proposal in the Senate to avert the cuts would eliminate direct payments to farmers beginning in 2014, which would dramatically reduce the baseline funding available to write a new farm bill," said a report by Melissa George Kessler of the National Wheat Growers Association.

A more positive reaction came from the National Sustainable Agriculture Coalition, which supports many of the programs that were cut when the 2008 farm bill was extended in January.

“We applaud Senator [Harry] Reid for proposing to fix the fiscally irresponsible and unfair farm bill extension that was slapped together behind closed doors at the end of 2012,” said Ferd Hoefner, NSAC Policy Director, in a statement released shortly after Stabenow's announcement.

The Senate Majority leader's proposal restores the farm bill programs that were left out of the farm bill extension, said the NSAC statement. "Those programs – for renewable energy, rural small businesses, value-added agriculture, new and beginning farmers, conservation, specialty crops, organic farming, minority farmers, and local food producers – were all thrown under the bus in the fiscal cliff deal in order to preserve every last dollar of unneeded, untargeted, and antiquated direct subsidies.  The Reid proposal would right that wrong.  It would also provide immediate funding for livestock disaster assistance, another item left out of the fiscal cliff deal."

NSAC said the proposal cuts defense spending by $27.5 billion as well as agriculture spending.

"It would also raise an additional $55 billion by closing two tax dodges and placing a minimum tax on millionaires to counteract the effect of tax loopholes," the group said.  "The automatic budget cuts known as sequestration would be delayed until January 2014, in hopes that in the meantime a larger long-term deficit reduction deal could be reached by Congress and the White House."

Without new action by Congress, sequestration goes into effect on March 1, cutting farm commodity and conservation programs by some $7 billion and reducing every USDA discretionary program by five percent, according to NSAC.

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