Farm bill debate to resume in '13; tax laws finalized

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Editor's Note: The following article was written by Christine Souza, Assistant Editor for the California Farm Bureau Federation's publication, AgAlert.

The new 113th Congress will be asked to complete work on a five-year farm bill, which the outgoing Congress left undone as it completed work on a "fiscal cliff" and farm bill extension package that passed on Jan. 1.

California Farm Bureau Federation policy specialists describe the package as a mixed bag for farmers and ranchers, citing treatment of the estate tax as a positive, but failure to pass a five-year farm bill as a negative.

Because Congress extended the 2008 Farm Bill through September, CFBF Federal Policy Division Manager Rayne Pegg said farm organizations now have the next several months to educate new members of Congress about programs critical to the success of the state's farmers and ranchers.

"We're starting with some new members who are going to have to get up to speed on the farm bill and its impact on California. We hope the progress that was made in the House and the Senate during 2012 is not lost in this new Congress," Pegg said. "Farm Bureau will be meeting with the committees to discuss the importance of these programs for California farmers and ranchers."

Because an agreement on a new, five-year farm bill could not be reached, the package approved by Congress, known as the American Taxpayer Relief Act of 2012, was negotiated between Senate Minority Leader Mitch McConnell, R-Ky., and Vice President Joe Biden.

That meant that much bipartisan work on a new, multi-year bill by the chairs of the House and Senate agriculture committees was not utilized, Pegg said, adding it's uncertain whether any of the negotiated changes will end up in a bill worked out by the new Congress.

The final package extended most provisions of the 2008 Farm Bill, including the Milk Income Loss Contract program through Sept. 30 and the Dairy Product Price Support Program through Dec. 31.

But Michael Marsh, CEO of Western United Dairymen, said simply extending existing dairy programs will not help California dairy farmers. He noted that the MILC, which compensates producers when milk prices fall below a certain level, and the DPPSP, which maintains a minimum farm price for milk through government purchases of cheddar cheese, nonfat dry milk and butter, deal only with low milk prices and do not provide adequate protection for dairy farmers when they are faced with high feed costs.

What dairy farmers want, he said, is a program in the farm bill that would protect their margins. One proposal, the Dairy Security Act, offers a voluntary margin insurance program, although Marsh said the current proposal favors Midwestern dairies. The failure by Congress to pass a five-year farm bill, he said, may provide more opportunity for California dairy producers to have their voices heard.

"We've already been preparing to make another push to see if we could get a margin insurance program that gives Californians some better protection on the Dairy Security Act. So we are going to keep pushing ahead," he said.

The Specialty Crop Block Grant, plant pest and disease research, and market access programs have been extended with mandatory funding in 2013, whereas funding for other programs important to specialty crop research will be left to approprirations committees to determine.

The fiscal-cliff package also authorized $80 million for livestock indemnity payments; $400 million for the livestock forage disaster program; $50 million for emergency assistance for livestock, honeybees, and farm-raised fish; and $20 million for trees assistance, which have only been authorized and not funded, Pegg said.

CFBF federal policy analyst Josh Rolph said the bill makes a number of changes to tax laws that will apply to farmers and ranchers, including a permanent exemption for the estate tax.

"I want to applaud our membership for making their voice heard in Washington. The new change in the context of the last two years is better than it could have been for the family farm," Rolph said. "We got the higher exemption indexed to inflation, along with much-needed planning certainty that hasn't existed for years."

But, Rolph added, "We won't rest until we have a workable estate tax solution for family farmers and ranchers."

The estate tax exemption now stands at $5 million per person, indexed for inflation—currently $5.12 million—with any unused amount allowed to transfer to a spouse. The maximum rate will increase to 40 percent, up from 35 percent. The estate and gift tax exemptions were unified. Stepped-up basis is already permanent law, Rolph said.

Tim Chiala of George Chiala Farms, a vegetable grower and processor in Santa Clara County, said repeal of the estate tax remains the ultimate goal.

"Our parents and grandparents worked hard to build a farm operation that not only could be passed on to the next generation, but could provide and intrigue the younger generation to go into agriculture," Chiala said. "These family farms and ranches have been paying taxes from the second they went into operation and will continue to pay as long as they can afford to operate. Elimination of the estate tax is what we need, but an extension of the exemption is better than nothing."

The bill also finalized these permanent tax rules:

  • Capital gains tax: The top rate will be 15 percent for taxpayers earning less than $400,000 for an individual or $450,000 for a couple. At the higher income levels, the top rate rises to 20 percent.
  • Income tax rate brackets will be 10 percent, 25 percent, 28 percent and 35 percent for taxpayers making less than $400,000 for an individual or $450,000 for a couple. There are no caps on personal exemptions or itemized deductions. The marriage penalty is eliminated for many taxpayers.
  • Alternative minimum tax: The bill increases the AMT exemption for 2012 to $50,600 for individuals and $78,750 for married filing jointly, and indexes it for inflation.
  • Payroll tax: Each employee pays 6.2 percent in payroll tax and the employer pays a matching 6.2 percent. Those who are self-employed pay 12.4 percent.

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