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Farm Bill Frustration: The AGI Debate

By Jim Chen at al.

Much of the justification that farmers use for the farm bill is the need for a "safety net" when times are bad. Given farmers' dependence on the weather, their inability to affect the larger commodity markets, and the importance of maintaining food security, this is an understandable objective.

Even the strongest farmer advocate, however, should shudder at the debate going on regarding farm program payments in the current farm bill negotiations. This is a complicated issue, but consideration of one component - the adjusted gross income debate - is particularly embarrassing for those of us who consider ourselves to be advocates for farmers.

Currently, people who report over $2.5 million adjusted gross income (AGI) cannot receive farm program payments unless 75% of their income is from farming. In other words, if 75% of your income is from farming, you can receive payments regardless of your AGI.

The Bush administration has advocated forcefully for an adjusted gross income (AGI) cap on farm program payments. The administration's initial farm bill proposal sought to "[d]ecrease the Adjusted Gross Income (AGI) eligibility cap for all farm commodity program payments from the current $2.5 million to $200,000 annually."

The administration has more recently agreed to boost this cap to an AGI of $500,000.

The Bush administration defended its initial position with the following statistics on American's AGI.

• Internal Revenue Service (IRS) data for 2004 indicate that 97.7 percent of all American tax filers had an AGI under $200,000 and only one half of one percent of all Americans had an AGI over $500,000.

The percentage of farmers that have such an AGI above $200,000 is much higher, a fact that itself may startle common perceptions. The administration reported:

• Looking at farmers specifically, 2003 IRS data indicate that approximately two million tax filers submitted a Schedule F ? reporting a profit or loss from farming. Of these, only 71,800 ? 3.6 percent ? reported AGI of $200,000 or more.

Note that when a farmer completes his or her schedule F, all farm expenses are deducted directly from the income that is then transferred for inclusion in the farmer's AGI total. Anyone who has ever run a farm and completed a Schedule F knows how many expenses can be used in this manner.

So, even after reducing farm profits by farm expenses, in 2003, 3.6% of farmers had an AGI of over $200,000.

Some in the farm community, and many members of the Senate and House Agriculture Committees have found the administration's AGI cap to be unacceptable.

• The House accepted the idea of firm AGI cap - regardless of the percent of income from farming - but set that cap at $1 million. If less than 67% of income was from farming, then a $500,000 AGI cap could be imposed.

• The current Senate farm bill retains the current AGI ($2.5 million) for 2008, then reduces it to $1 million in 2009-10 and $750,000 in 2011. However, none of these caps would apply if more that 67% of the farmer's income is from farming.

• Senator Amy Klobuchar sought to impose a firm cap of $750,000; with a cap of $250,000 if less than 67% income was from farming. Her amendment was defeated.
  

Note that while some of the payments that a farmer receives may be tied to conservation practices, fixed direct payments are completely disassociated or de-coupled from production. The American taxpayer gets nothing in exchange for this payment, except, of course that "safety net."

If a farmer has adjusted gross income, in other words, profts (from farming or from other income sources) of over $500,000, and considering that they have available a heavily subsidized crop insurance program, shouldn't they be able to set aside some of these profits for a bad year?

People outside the farming community and people within the farming community are asking these questions. Unfortunately, probably not enough to support any movement for change.

Full post as published by Agricultural Law on March 09, 2008 (boomark / email).