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Grassley sees mixed results

Senator Chuck Grassley (R-IA), a member of the Senate Agriculture Committee who has long championed reforms in how commodity payments are made, said Wednesday that he has mixed feelings about the nine-month extension of the 2008 Farm Bill that was included in the Senate's fiscal cliff bill that was approved by the House late on New Year's Day.

"For those of us in the Senate, what happened yesterday with a nine-month extension is bittersweet," Grassley said.

Now that the bill continues existing programs, including direct payments, "farmers have some certainty for the 2013 crop year," Grassley said.

The extension is good through the end of the federal fiscal year next September, but Grassley said he expects ag committees in Congress to move quickly on a 2013 farm bill, starting February 26 in the House.

But precisely because the bill did not eliminate the direct payment program's $5 billion a year cost, it gives up savings of about $2.3 billion annually ($23 billion over 10 years) in the Senate's 2012 farm bill and the more than $33 billion that was in a bill advanced by the House agriculture committee but never voted on.

The extension does not have the energy programs, beginning farmer programs and others that weren't funded beyond 2012. Nor does it have the tougher cap on farm program payments that Grassley convinced Senate Agriculture Committee Chairwoman Debbie Stabenow (D-MI) to a include in the farm bill that the Senate passed in a bipartisan vote last spring.

That Senate farm bill would have limited commodity program payments to $50,000 per person and required that recipients be actively engaged in farming. Under the rules of the 2008 farm law, nonfarmers who have an investment in a farm have been able to qualify for payments simply by participating in phone calls about farm management decisions. The 2012 Senate farm bill would also have prevented payments from going to anyone (a farmer or nonfarmer) with more than $750,000 in adjusted gross income.

One possible benefit for farm groups that want to salvage some spending for commodity programs in the next farm bill is that continuing the old farm bill with its direct payments will not change the so-called baseline, the projected spending that the ag committees have to work with when they write new programs.

Grassley said that in a meeting of Democratic and Republican senators two days ago, "I picked up that the way this is being handled, it preserves the baseline for us."

In the farm bills that were left on the table this week, both the House and Senate ag committees killed the direct payment program. Those payments have brought farm programs bad publicity  and the program has been criticized for paying farmers when they don't need it. But instead of using funds from direct payments to save $50 billion over 10 years, the ag committees created new programs,  a revenue program and a supplement to crop insurance in the senate version, and a target-price program with higher prices, especially for rice, peanuts and wheat, in the House version.

The Environmental Working Group, aligned with small government groups that want to keep taxes low, has criticized the ag committees for not saving more.

When questioned further, Grassley said that as Congress moves to the next stage of fighting over spending cuts, that the ag committees may face pressure to cut more from farm programs. All non-military programs are likely to face budget cutting pressure from members of Congress who oppose deep cuts to spending on defense that were part of the so-called sequestration agreed to by Congress in 2011. Those are the cuts that were scheduled to start at the beginning of this year, and which have been postponed by two months in the New Years Day fiscal cliff agreement.

Grassley said he voted against the fiscal cliff agreement for three reasons: raising any taxes will hurt the private sector in a time of high unemployment, the estate tax rate was increased from the current 35% to 40%, and, most importantly, he said, "there wasn't any spending reduction in the bill."

For farmers, the tax changes are a mixed bag. They do maintain the current estate tax exemption of $5 million per spouse, which under current law, could go as high as $7.5 million by the end of the decade, depending on inflation. Grassley said he's not certain that the exemption will hit that amount.

Capital gains taxes will rise from 15% to 20%, but Grassley said that would be only on high income taxpayers, reporting income of $400,000 per year per person or $450,000 for married taxpayers.

A package of tax credits that was approved by the Senate Finance Committee last summer was also added to the fiscal cliff bill, said Grassley, who is a former chairman of the committee.

The Finance Committee bill included credits for biodiesel, wind energy and cellulosic ethanol, he said. 

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