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Corn+Soybean Digest

How Fast The World Can Change

This year we will see both state and federal governments flip from having huge surpluses to having deficits.

Bear with me for this one issue while I go off on a non-agricultural tangent. Growing up on a farm in Indiana, now some 30 years ago, I can still remember my father and neighbors talking about how the “rich” avoid paying taxes. With the tax laws of that time, that was, to a large extent, true. But changes in tax laws in recent years, such as reducing accelerated depreciation schedules and eliminating investment tax credit, no longer allow the wealthy to avoid paying taxes. In fact, as the table shows, the opposite is the situation today.

When looking at the table, two interesting facets of the recent presidential campaign quickly come to mind. Gore was attacking Bush for wanting to give tax cuts to the wealthy, and both were debating on what they were going to do with the huge government surpluses.

To begin with, if any tax cuts are given, they'll obviously have to be to the wealthy, because that is where the taxes are now being paid. It's frightening to recognize that 2% of the population accounted for 40% of the federal income tax revenue in 1998!

The other issue in the campaign that will prove a waste of time for either party to debate is what to do with the huge surpluses. If 2% of the population accounts for 40% of the income, let's be real in our analysis of where most of those profits were coming from. In the last three years (until 2000), a large share of those profits were coming from the stock market, stock options, and the high-tech and information industries.

One doesn't have to be a connoisseur of business news to know that most of those industries fell apart last year. So both federal and state income coffers are going to be a lot lighter on April 16 this year than they were last year.

If you look at the table a bit closer, you'll note that the top 15% in 1998 paid 75% of the federal income tax. Then look at the bottom of the chart. Individuals with taxable incomes of $30,000 or less — 48% of the population — accounted for only 2% of the federal income tax! Think this is a little top heavy?

By now you should be getting the drift of where I'm headed with this. With an income structure so top heavy, this apple cart can tip over in a matter of months — and I think it already has. When so much of our income taxes, both state and federal, are coming from a relatively few individuals, and the source of those profits dissipates, the income tax revenue disappears along with it. You can now see how our federal economy, as well as many state economies, can go from a period of large surpluses to large deficits almost overnight!

While I'm well aware that many of you are more than a little concerned, and should be, about input prices going up as a result of higher natural gas prices, have you ever stopped to think what this has done to state economies? Consider states like Minnesota, Wisconsin and Michigan, where the climate is extremely cold. They have huge university systems as well as enormous amounts of office space that are almost all heated with natural gas. Triple the gas bill and all of a sudden three years worth of budgets get piled into one. I think state governments in the colder states will have a nightmare on their hands come this spring, when the coffers are less full and the bills are much larger than expected.

Parting Thoughts: I know this doesn't have much to do with farming, but it does have a lot to do with the everyday lives of all of us. Farming is changing fast, and so is the world around us. It's my view that the general economy has some tough times ahead. Some of these “young whippersnappers,” as Dad used to call them, have never seen a bear market in their lives. They may have a new experience ahead of them.

Richard A. Brock is president of Brock Associates, a farm market advisory firm, and publisher of The Brock Report. For a trial subscription and information on Brock services, call 800-558-3431 or visit

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