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Proposals are more for negotiating rather than getting approved by Congress | Proposes cuts for crop insurance
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President Obama's $3.77 trillion Fiscal Year 2014 budget to be released later today proposes to raise $580 billion in new revenues, partially by limiting tax deductions to 28 percent for top earners and by codifying the Buffett rule to ensure millionaires pay at least a 30 percent tax rate. The budget has savings from mandatory programs, such as reductions to farm subsidies and reforms to federal retirement benefits. Link to White House budget overview.
For agriculture, Obama proposes to make another cut in crop insurance funding. He also recommends eliminating the catfish inspection program that USDA has not yet implemented. The 2014 Budget includes several legislative proposals to reduce the premium subsidies farmers receive on their crop insurance policies:
- Reduce the subsidy for producer premiums by 3 percentage points for policies where the Government subsidizes more than 50 percent of the premium (previous proposals reduced these by only 2 percentage points). The reduced premium levels will still provide a reasonable level of subsidy to the farmer, but not be overly generous, and the safety net will remain intact. This is expected to save $4.2 billion over 10 years.
- Reduce premium subsidy by 2 percentage points for revenue coverage that provides protection for upward price movements at harvest time. This proposal de-emphasizes the insuring price protection on the futures markets in favor of insuring expected returns for the actual crop at the time of planting. This is expected to save $3.2 billion over 10 years.
As widely expected, the Obama administration is proposing a major overhaul for the food aid program, under which the USDA now buys supplies from American farmers and ships them abroad in US-flagged ships. The proposal would reduce the USDA portion to just 55 percent of the $1.4 billion in annual aid, while handing the rest to the State Department so it can buy food even from local sources in recipient countries. That would take hundreds of millions of dollars in food shipments away from the U.S. merchant marine, and is opposed by farmers and the shipping industry group USA Maritime. Bipartisan congressional opposition is increasing, with House members having signed a letter to Obama last Friday against cuts or changes in the program.
|USDA FY 2014 Budget Proposal Highlights
Direct payments: The direct payment program provides producers fixed annual income payments for covered commodities based upon historical planted acres and yields. Payments are made regardless of whether the farmer is currently producing those crops. Direct payments do not vary based upon actual production or prices. As a result, landowners receive direct payments during times of record profitability, yet the direct payments may not provide an adequate safety-net during difficult times. This proposal will save about $30 billion over 10 years compared to the 2014 Budget baseline.
Conservation Reserve Program (CRP): CRP enrollment totaled 29.5 million acres at the end of 2012 with approximately 82 percent of the acreage having been enrolled under scheduled general signups. A general signup in 2012 approved 3.9 million acres for enrollment. The American Taxpayer Relief Act extended the authority to operate CRP through 2013. A general sign-up for 2013 has been announced and we project that about 2.8 million acres will enter the program with projected enrollment of about 27.3 million acres at the end of 2013. The 2014 Budget baseline assumes that a general sign-up will be held each year into the foreseeable future. Accordingly, 2014 enrollment is expected to rise slightly, ending at about 27.6 million acres. The baseline projects that enrollment will continue to rise slowly and that by the end of the 10-year baseline period total enrollment will range between 30 and 32 million acres.
Proposal to trim CRP acres: Revenue growth has also contributed to rising land values and rental rates across the U.S. making CRP increasing costly. The Budget proposes to set the maximum enrollment in the Conservation Reserve Program at 25 million acres by 2018, down from 32 million acres. The program will continue to target acres that deliver high net conservation benefits to ensure the program has maximum positive impact. This proposal will save about $2.2 billion over 10 years when compared to the baseline.
Conservation Stewardship Program (CSP): In 2014, CSP is funded at $989 million. At the proposed funding level, NRCS expects to enroll 12.8 million new acres during 2014. CSP program authority has been extended through September 30, 2014 with the passage of the 2012 Appropriations Act. In FY 2014, the Budget proposes to reduce the annual enrollment cap for the Conservation Stewardship Program to 10,348,000 acres (an annual reduction of 2,421,000 acres from the current baseline) and saves a total of $440 million over ten years.
Grasslands Reserve Program (GRP): The 2014 Budget baseline assumes no funding for GRP, which is subject to reauthorization due to expiration of the 2008 Farm Bill.
Disaster aid: The 2014 budget proposes to extend the mandatory authorization for LIP, LFP, ELAP, and TAP, to be funded out of the CCC. The strong need for livestock disaster assistance has been illustrated by the 2012 drought, where crop producers were assisted by insurance, while livestock producers did not have a similar safety net.
Crop Insurance: As of March 25, 2013, based on actual indemnities for crop year 2012 the loss ratio is about 1.44. At this time, the pace of loss claims for the 2012 crop year is beginning to slow; accordingly, current estimates are that the crop year 2012 loss ratio will reach about 1.5.
Decrease the crop insurance premium subsidy paid on behalf of producers by 3 percentage points. The proposal would reduce the premium subsidy levels by 3 percentage points for those policies that are currently subsidized by more than 50 percent. This proposal is expected to save about $4.2 billion over 10 years.
Decrease the crop insurance premium subsidy paid on behalf of producers by 2 percentage points on policies where the producer elects policies that provide protection against price increase. This reduction is in addition to the 3 percentage point reduction on policies currently subsidized by more than 50 percent. These policies provide upward price protection which provides a higher indemnity if the commodity prices are higher at harvest time than when the policy was purchased. This proposal is expected to save about $3.2 billion over 10 years.
Food aid: The 2014 Budget includes a shift of funding previously requested in P.L. 480 Title II to three USAID assistance accounts: International Disaster Assistance (IDA) for emergency food response; Development Assistance (DA) for the Community Development and Resilience Funds (CDRF) to address chronic food insecurity in areas of recurrent crises; and a new Emergency Food Assistance Contingency Fund. The CDRF will be composed of $330 million, replacing Title II nonemergency resources, including $80 million in DA from the Bureau for Food Security resources and $250 million in additional DA, to be implemented by partners that receive Title II funding. These jointly-funded CDRF programs will be managed by USAID’s Office of Food for Peace (FFP) and are a critical component of food security, strengthening the ability to address chronic poverty, build resilience, and help prevent food crises. The goal is to make food aid more timely and cost-effective and to improve program efficiencies and performance by shifting resources to programs that will allow the use of the right tool at the right time for responding to emergencies and chronic food insecurity.
Provided that the proposed food aid reforms are enacted and all the funding previously requested in P.L. 480 Title II is appropriated as described above, at least fifty-five percent of the requested (and appropriated) IDA funding of $1,416 million for emergency food assistance programs administered by FFP will be used for the purchase and transport of agricultural commodities produced in the United States. The reform will facilitate robust emergency and development programming. (The Budget also shifts $25 million of the efficiency savings to the Department of Transportation’s Maritime Administration for additional targeted operating subsidies for militarily-useful vessels and incentives to facilitate the retention of mariners.)
USAID Administrator Rajiv Shah said the changes would allow food assistance to reach some 4 million more people annually with the same resources. "We’ve learned that the current approach to food aid can become an impediment to its mission," Shah told a forum in Washington. "Let me be clear: we are not ending food aid. In fact—we’re doing the opposite. The President’s proposal commits to a more rapid, cost-effective, and life-saving food aid program that pairs the continued purchase of American food aid with a diverse set of tools, including local procurement and food vouchers," Shah said.
Supplemental Nutrition Assistance Program (SNAP): For 2014, the Budget anticipates participation falling to an average level of 44.7 million participants per month from 47.1 million in 2013. While the program increased sharply in the economic downturn, the rate at which participation has increased has been declining since around January 2010. Continued gradual improvement in the economy is expected to lead to participation declines in 2014. The Recovery Act increased the maximum allotment by 13.6 percent, effective April 2009, a level to remain constant until the statutory SNAP thrifty food plan increased benefits above that amount. The expiration of this special increase was later changed to October 31, 2013. Beginning November 1, 2013, the Department anticipates that a four-person household will see their monthly SNAP benefit decline by $37 and remain relatively constant through the end of FY 2014. The Budget re-proposes to extend the Recovery Act SNAP benefits through March 31, 2014, providing help to participating households for several additional months.
While the trafficking rate has declined from 4 percent to 1 percent and the payment error rate has dropped from over 8 percent to approximately 3.8 percent, we aim to do better. Meanwhile, Rep. Collin Peterson (D-Minn.), ranking member on the House Ag Committee, said, "There is less fraud in food stamps than in any government program. There is five times as much fraud in crop insurance than in food stamps."
National Ag Statistics Service -- Current Industrial Reports. The 2014 Budget includes a request for approximately $1.3 million in new funding to maintain production of four, priority Current Industrial Reports (CIR) out of approximately forty-seven reports that were formerly produced by the U.S. Census Bureau. These reports are the only source of critical information to support estimation requirements for USDA agencies, including NASS and the Census of Agriculture, Economic Research Service, World Agricultural Outlook Board, and the Office of the Chief Economist. The reports are also used by private industry to monitor the effect of international trade on domestic production, evaluate the relationship between company and industry performances, analyze markets and current business conditions, and plan future operations.
No horse meat inspection. The proposed budget specifies that funds will not be made available to pay for the salaries or expenses of personnel who inspect horses, a move that ultimately would prevent horses from being slaughtered in the US for human consumption. Without inspections, facilities could not legally operate. The ban on horse inspections started with a provision in the 2007 budget. The last two slaughtering facilities in the country closed that year, and the number of horses shipped to Mexico and Canada for slaughter began to escalate. The provision was left out of the budget bill signed by President Obama in 2011.
Fees to offset spending. The president’s 2014 budget includes several fees, including a $1-a-head fee for cattle that graze in national forests. That fee would be on top of the standard grazing fees ranchers pay. The Forest Service would use the additional money to process pending renewal applications for grazing permits and related activities. An additional $500 fee would be charged to companies that apply for certification of biobased products made from renewable domestic agricultural or forest materials. USDA also is seeking authority to impose civil penalties for companies that misuse the label. Meatpackers with product recalls or who are linked to outbreaks of food illness would be subject to a fee to help FSIS cover costs for the retesting and resampling work it does. The fee would generate about $4 million. Farmers and ranchers who have been receiving free general conservation planning services from the Natural Resources Conservation Service would be asked to pay a fee, although the amount was not specified.
The president's budget was outlined by senior administration officials in a conference call with reporters April 9. It will be formally released to the public online at 11:15 a.m. EST.
Obama’s budget would not balance, though it would reduce the deficit as a percentage of gross domestic product to 1.7 percent by 2023. The deficit was 7 percent of GDP in 2012 and is projected to be 5.3 percent at the end of 2013 by the Congressional Budget Office (CBO). The House Republican budget would balance in eight years by cutting spending much more aggressively that Obama or Senate Democrats. The House GOP budget also proposes lowers tax rates.
White House officials demanded that Republicans give on taxes and warned that the administration isn’t going to move much more than it already has. "We don’t view this budget as a starting point in the negotiation," said the senior administration official, saying the president already has come more than halfway to the GOP’s position on deficit reduction. "This is our sticking point ... Are Republicans going to be willing to come to us? ... If they refuse to include revenues in any deal then there will be no deal. It’s that simple."
The president's budget includes a 28 percent limit on all tax expenditures, which would generally apply to wealthier households earning more than $250,000 a year, an official said. It also includes a "legislated version" of the Buffett rule, similar to legislation proposed by Sen. Sheldon Whitehouse (D-R.I.), that excludes charitable contributions but nothing else, he said. The proposal would ensure households earning more than $1 million annually pay at least a 30 percent tax rate, the official said. These two provisions raise $580 billion, he said.
The president's budget includes several tax initiatives, many of which have appeared in the president's budgets before, the official said. These include tax credits for child care and tax cuts to encourage investments in infrastructure – to be paid for by additional tax savings, through provisions such as limiting the size of individual retirement accounts to $3 million and closing the carried-interest loophole, the official said.
As part of the stimulus, the budget proposes permanent research and development tax breaks and renewable energy tax credits. It proposes a 10 percent tax credit to help small business hiring and makes permanent the American Opportunity Tax Credit that benefits college students and expands the Earned Income Tax Credit and Child Tax Credit.
Regarding corporate taxes, the budget would close all the same "unfair tax loopholes" that were in last year's budget, such as shifting profits to the Cayman Islands, and tax benefits for oil and gas companies and for corporate jets, the official said.
The president's budget includes $1.8 trillion in deficit reduction, for $4.3 trillion total. "Importantly, this balanced deficit reduction replaces the sequester," the official said. Spending is at the level of the cap in the Budget Control Act, or $1,058 billion in 2014, consistent with the sequester being turned off, he said.
If adopted, the budget would reduce the deficit to 2.8 percent of gross domestic product by 2016, and to 1.7 percent by 2023. In 2014, the deficit would be reduced to $744 billion, or 4.4 percent of GDP, he said.
However, the baseline the administration uses to calculate that figure assumes the sequester was never started. If the sequester is included in the baseline, the Obama budget would only reduce the deficit by about $600 billion.
Regarding infrastructure, the budget calls for $50 billion in up-front investments that the president proposed in his State of the Union address, the official said. The budget also makes a sustained commitment to infrastructure through a six-year reauthorization of transportation programs, he said. These programs are fully paid for with offsets, such as using overseas contingency funds and a tobacco tax, the official said. In addition, a range of mandatory initiatives are paid for by additional mandatory savings, he said.
The budget proposes $230 billion in savings from using a chained measure of inflation for cost-of-living adjustments, with protections for the most vulnerable. There will be protections for supplemental security income (SSI), low-income veterans, and older Social Security beneficiaries, who would get a bump in their benefits, an official said. "While this is not the president’s ideal deficit reduction plan, and there are particular proposals in this plan like the CPI change that were key Republican requests and not the president’s preferred approach, this is a compromise proposal built on common ground and the president felt it was important to make it clear that the offer still stands," the senior administration official said.
The White House plan calls for $400 billion in savings from health care programs, about $270 billion of which would come from Medicare, an official said.
The budget also has $200 billion in savings from other mandatory programs, such as reductions to farm subsidies and reforms to federal retirement benefits.
The budget proposes $200 billion in additional discretionary savings, with equal amounts from defense and nondefense programs, and another $210 billion in savings from reduced interest payments on the debt.
Meanwhile, Obama will deliver a statement on his budget at 11 a.m. EST in the Rose Garden, followed by a 12:30 p.m. EST news conference including OMB Acting Director Jeffrey Zients and other members of the economic team. Obama is meeting this evening with a dozen Senate Republicans. A focus of the meeting is expected to be a possible deficit-reduction deal that might be coupled with a hike to the debt ceiling this summer. "The president is looking for a caucus of common sense," the official said. "There are people on the Republican side in the Senate at least that give you hope that there is a path to a deal. "Are Republicans going to be willing to come to us?" the official said. "If they refuse to include any revenues in a deal, then there will be no deal."
Comments: Because the Senate and House have already adopted Fiscal 2014 budget resolutions (S Con Res 8, H Con Res 25), today’s release of Obama’s budget proposal won’t have much effect on work already under way to set spending priorities for the fiscal year starting Oct. 1. The proposals could have an impact on negotiations ahead on again increasing the debt limit. The debt limit showdown two summers ago produced the Budget Control Act (PL 112-25), spending caps, the Super Committee and the very controversial sequester.
NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.