As the U.S. Congress nears the close of its lame-duck session still headed towards the so-called “fiscal cliff,” several matters extremely important to agriculture are hanging in the balance. What occurs (or not) by December 31 will determine whether the New Year begins brighter for growers and also will determine much of the agenda for the 113th Congress beginning in January.
Upsetting the financial apple cart
There will be severe financial consequences for growers and all of agriculture if several issues related to the “fiscal cliff” are not resolved by before the end of 2012. Many small and average size farms will be subject to federal estate taxes if the existing exemption drops from the current level of $5 million to $1 million. At the same time, the maximum tax rate will increase from 35% to 55%. The spousal transfer for the exemption will also disappear.
Since 2000, farm equity has more than doubled, primarily due to the increased value of farm real estate. As a result, if the estate tax reverts to pre-2001 law, the U.S. Department of Agriculture estimates that as many as one of every ten farm estates would owe estate tax in 2013. Total payment amounts this year could increase to about $3.1 billion—nearly ten times the estimated amount owed by farm estates in 2011.
But the higher federal tax burden won’t end there. The capital gains tax will increase from the current level of 15% to 20%. Growers know how the capital gains tax affects one’s agricultural business, but it is less known or understood by policymakers and the nonfarm public. It can be as lethal to the survival of a farm as the estate tax because capital gains taxes apply when land and buildings from a farm are transferred to a new owner, which is often a son or daughter. Because about 40 percent of farmland is owned by those 65 or older, capital gains taxes can be a huge obstacle for the entry of younger or first-time producers.
As the nation awaits the outcome of the “fiscal cliff” impasse, most people worry about how it will affect their own tax bills. Too few worry about how it will affect the future of their food supply.
The long overdue Farm Bill
The next Farm Bill did not suddenly sneak up on Washington, although with its long delay there are plenty of reasons to say “boo.” The current Farm Bill, known as the Food, Conservation, and Energy Act of 2008, replaced the last Farm Bill which expired in September 2007. So, there’s recent history for a Farm Bill being late, but never before had Congress enacted a Farm Bill with an expiration date (September 30) in a presidential election year.
Before passage of a new Farm Bill was disrupted by the politics of an election year and an overflowing agenda of other urgent matters, the U.S. Senate passed its version last June. Called the Agriculture Reform, Food and Jobs Act of 2012, it had strong provisions for fruit and vegetable production, including special crop block grants, research, pest and disease mitigation, and nutrition programs. One amendment approved by the Senate would explore the viability of crop insurance to cover farm losses resulting from food safety recalls. The House of Representatives was unable to agree on its own version, the Federal Agriculture Reform and Risk Management Act of 2012.
A continuing resolution passed by Congress extended funding for some programs through March. But more than 30 programs important to growers have been affected by the last Farm Bill’s expiration, including the Market Access Program, the Special Crop Block Program, the Specialty Crop Research Initiative, and disaster assistance.
Forceful messages of urgency were sent to Congress by growers, Farm Bureau, and other organizations as Washington wrestled with its agenda. Lawmakers were reminded that agriculture is impaired by not knowing policies and programs that drive planning and decisions on farms, both short-term and long-term.
If the Obama administration and Congress fail to deal with the consequences of these impasses, Washington’s 2013 priority agenda for agriculture will be obvious. But typically, it is several months before a newly organized Congress is able to pass significant legislation.
Brighter prospects for farm labor program?
Growers don’t need to be reminded of the long and frustrating wait for Washington to enact a practical and viable guest-worker program for agriculture. Several factors, some resulting from the general election, may combine to finally produce a solution during 2013.
The American Farm Bureau Federation and several other organizations have recently agreed upon elements that could become the centerpiece of discussions and decisions on Capitol Hill. Their recommended framework for a new guest-worker program includes the following (broadly described):
Agricultural employers would register with the USDA and be permitted (but not required) to offer a contract to employees. Contract-based employees would have a visa term of up to 12 months. Workers could choose or decline a contract. Those opting not to have a contract would be “at-will” employees, and their visas would be fully portable among USDA-registered employers. Visa eligibility would be conditional upon an initial job offer (whether under contract or at-will) with a registered employer. Employers would not be required to provide housing or transportation, and recruitment requirements on employers would be reduced. There would be no minimums on employer hiring. Existing undocumented workers would be eligible with no limit on the number of visas. Disputes between employers and employees would be resolved through mandatory arbitration; no private right of action would be allowed. The existing H-2A program would not be changed and would remain as an option.
Knowing the past obstacles to achieving a viable guest-worker program, one would not predict that relief is just around the corner. But the stars are aligning for real progress during 2013.
Gary Swan is director of Pennsylvania Farm Bureau’s Governmental Affairs and Communications Division and can be contacted at email@example.com. He will retire from that position at the end of January.