Written by Nate Birt and Boyce Thompson
Early in the morning Jan. 1, Congress passed fiscal cliff legislation that would avert a tax increase on individuals making less than $400,000 and couples earning less than $450,000. This also extends the current farm bill through September.
The legislation doesn’t address an increase in payroll taxes. To encourage spending during the recession, Congress temporarily lowered payroll taxes in 2011 from 6.2% to 4.2%. That expired Jan. 1, and payroll taxes have reverted back to 6.2%. A household earning $30,000 will have $50 less to spend per month.
Fiscal cliff bill brings tax code changes and extends farm policy
Individuals making $250,000 and married couples earning $300,000 or more also face a tax increase. In a nod to President Barack Obama, who had pledged during his campaign to raise taxes on households earning $250,000 or more, the legislation caps tax exemptions for individuals earning $250,000 or more. Tax advisers are anxiously awaiting the specific details of that provision.
The Obama Administration, which had proposed reducing the ceiling for those wanting to escape estate taxes from $5 million to $3.5 million, gave in on that issue. The bill leaves the threshold at $5 million. But it raises taxes on those estates from 35% to 40%. Also, in a significant concession, the legislation indexes the estate tax threshold to inflation rates.
The legislation would raise tax rates on capital gains and dividends for high-income earners as well. Rates for individuals making $400,000 or more and families earning $450,000 or more would increase from 15% to 20%. That’s in addition to the 3.8% increase that is already slated to go into effect from the health bill. The increase in capital gains and dividend income rates is far less than the 39.6% that was first proposed by the Obama administration.
In a prelude to a possible fight in the House, Rep. Chris Van Hollen, (D-Md.), the ranking Democrat on the House Budget Committee, said indexing would raise the threshold to $7.5 million for individuals and $15 million for households by 2020. He called the bill a "sweetheart giveaway to the wealthiest 7,200 estates in the country," according to the Washington Post.
The bill also delays automatic sequestration for two months. Without such a provision, automatic cuts to federal agency budgets—in the 8% to 10% range—would have taken effect Jan. 3. In order to pay for the two-month reprieve, the plan devotes $12 billion in new tax revenue and $12 billion in spending cuts, split equally between defense and domestic programs.
The bill also does the following:
- raises income tax rates from the current 35% to 39.6% for individuals making more than $400,000 and couples making more than $450,000.
- caps itemized deductions for individuals making $250,000 and married couples earning $300,000.
- extends tax breaks for those paying college tuition.
- continues unemployment insurance for a year for 2 million people.
- permanently adjusts the alternative minimum tax to inflation.
- renews tax credits for those paying child care, tuition and research and development.
- reimburses doctors who accept Medicare patients.
- extends current farm policies through September.
- increases from 15% to 20% tax rates on capital gains and dividend income for individuals making more than $400,000 and families earning $450,000 or more.
EPA Faces New Leadership
Environmental Protection Agency (EPA) administrator Lisa Jackson stepped down from her post early this year, creating questions about what policy changes might be ahead for farmers.
"In my recent speeches, when I said that she would likely leave, farmers clapped," says Jim Wiesemeyer, vice president of Informa Economics. "So that shows you the attitude that they had about her, right or wrong."
Farmers usually want to hear a more moderate tone from an EPA administrator, so it will be a good omen if President Barack Obama’s nominee talks publicly about the costs and benefits of regulation.
"Sometimes these regulations are more costly than they’re worth," Wiesemeyer says.
Administrators are frequently chosen from the environmentally sensitive New England area, but it’s unclear at this point whether that will happen again.
"Whomever he selects will have to be confirmed, and that will draw out a number of needed questions by both Democratic and Republican farm-state lawmakers," Wiesemeyer says.
Obama took an aggressive approach to environmental policy issues for the first two years of his first-term of presidency and later put it on hold in the run-up to the election, Wiesemeyer says.
Secretary of Agriculture Tom Vilsack has tried to explain the Obama administration’s policy in less emotional terms, Wiesemeyer says, though he cautions that some farm-state lawmakers have overreacted in the past about what new regulations EPA might or might not impose.
Out of all farmers, those in the livestock sector are particularly nervous about the future of environmental policy as it relates to concentrated animal feeding operations and other regulations, he says.
SNAP Cuts Might Impact Farm Jobs
If the U.S. House and Senate split the difference on proposed cuts to the Supplemental Nutrition Assistance Program (SNAP), as many as 3,000 jobs could be lost in agriculture each year.
USDA estimates every $1 billion in SNAP spending ($78 billion was spent in 2012) creates or maintains 3,000 farm jobs. That $1 billion figure is roughly the amount that would be cut annually from the program if the House and Senate meets in the middle with their respective farm bills. The House version of cuts $16.5 billion over 10 years; the Senate’s cuts $4.5 billion.
Rep. Frank Lucas (R-Okla.), chair of the House Agriculture Committee, said at the 2012 Farm Journal Forum that SNAP cuts need to be part of a farm bill. He argues that reforms can be made without taking "one calorie off of one deserving person’s plate."
USDA Secretary Tom Vilsack, at the same conference, urged farmers to support SNAP, which provides a counter-cyclical benefit to agriculture during recessions, stabilizing food demand throughout the food chain, creating jobs along the way.